Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to _______
Commission File Number 1-11484
HUNGARIAN TELEPHONE AND CABLE CORP.
(Exact Name of Registrant as specified in its charter)
Delaware 13-3652685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 First Stamford Place, Stamford, CT 06902
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 348-9069
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock, par value $.001 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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 requirement 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. [ ]
As of April 11, 2000, 12,009,479 shares of the Registrant's Common
Stock were outstanding, of which 12,007,179 were held by non-affiliates of the
Registrant. The aggregate market value of the Registrant's Common Stock held by
non-affiliates, computed by reference to the closing price of the Common Stock
on the American Stock Exchange as of April 10, 2000, was $92,305,189. The
exclusion of shares owned by any person from such amount shall not be deemed an
admission by the Registrant that such person is an affiliate of the Registrant.
Documents Incorporated by Reference
Part III - Portions of the Registrant's proxy statement for the Annual
Meeting of Stockholders for the fiscal year ended December 31, 1999.
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein which express "belief,"
"anticipation," "expectation," or "intention" or any other projection, insofar
as they may apply prospectively and are not historical facts, are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because such
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART I
In this Part I of Form 10-K, all references to "$" or "U.S. dollars"
are to United States dollars all references to EUR are to euros and all
references to "HUF" or "forints" are to Hungarian forints. Certain amounts
stated in euros and forints herein also have been stated in U.S. dollars solely
for the informational purposes of the reader, and should not be construed as a
representation that such forint amounts actually represent such U.S. dollar
amounts or could be, or could have been, converted into U.S. dollars at the rate
indicated or at any other rate. Unless otherwise stated or the context otherwise
requires, such amounts have been stated at December 31, 1999 exchange rates. The
forint/U.S. dollar middle exchange rate as of December 31, 1999 was
approximately 252.52 forints per U.S. dollar.
Item 1. Business
Company Overview
Hungarian Telephone and Cable Corp. ("HTCC" or the "Registrant" and,
together with its consolidated subsidiaries, the "Company") provides basic
telephone services in five defined regions within the Republic of Hungary (each,
an "Operating Area" and together, the "Operating Areas") pursuant to 25-year
telecommunications concessions granted by the Hungarian government. HTCC,
through its four majority-owned operating subsidiaries (each, an Operating
Company and together, the "Operating Companies"), owns and operates virtually
all existing public telephone exchanges and local loop telecommunications
network facilities in its Operating Areas and is the exclusive provider through
November 1, 2002 of non-cellular local voice telephone services in such areas.
The Company acquired its concession rights from the Hungarian Ministry
of Transportation, Telecommunications and Water Management (the "Ministry") for
$11.5 million (at historical exchange rates) and purchased the existing
telecommunications infrastructure in the Operating Areas, including
approximately 61,400 access lines, from Magyar Tavkozlesi Rt. ("Matav"), the
formerly State-controlled monopoly telephone company, for $23.2 million (at
historical exchange rates). Kelet-Nograd Com Rt. ("KNC") and Raba Com. Rt.
("Raba-Com"), two of the Operating Companies, acquired the existing
telecommunications assets in their respective Operating Areas in the first
quarter of 1995, while Papa es Tersege Telefon Koncesszios Rt. ("Papatel") and
Hungarotel Tavkozlesi Rt. ("Hungarotel"), the other two Operating Companies,
acquired the existing telecommunications assets in their respective Operating
Areas on January 1, 1996. Since the acquisition of such existing networks, the
Operating Companies have incurred capital expenditures through December 31, 1999
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of $181 million (at historical exchange rates) to expand and upgrade their
network facilities which has resulted in the completion of a modern
communications network in each of the Operating Areas, which networks include
new digital switches and increased network capacity, utilizing the latest in
communications transmission technology. As of December 31, 1999, the Company's
telecommunications networks had approximately 200,500 access lines in service
(including pay phones). The completion of the Company's network construction
program has resulted in the addition of approximately 139,100 new access lines
in service (including pay phones) to the 61,400 access lines acquired from Matav
and the replacement of all of the 10,810 manual exchange lines acquired from
Matav.
The Company completed its network modernization and construction
program in each of its Operating Areas primarily through turnkey construction
contracts with Siemens Telefongyar Kft., Ericsson Technika and Fazis
Telecommunication System Design and Construction Corporation. The Company's
networks now have the capacity, with some additional capital expenditures, to
provide basic telephone services to virtually all of the estimated 276,500 homes
and 36,200 business and other institutional subscribers (including government
institutions) within its Operating Areas. The build-out was primarily financed
through a $170 million credit facility with Postabank es Takarekpenztar (the
"Original Postabank Credit Facility"), a Hungarian commercial bank
("Postabank"), which was subsequently refinanced and a $47.5 million contractor
financing facility. See "- Revision of Capital Structure," "- Recent
Developments," Item 3 "Legal Proceedings," Item 7 Management Discussion and
Analysis of Financial Conditions and Results of Operations - Introduction" and
Notes 1(a) and 10(d) of Notes to Consolidated Financial Statements.
The following table sets forth certain information as of December 31,
1999 with respect to each of the Operating Companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Raba-Com KNC Papatel Hungarotel Total
Population 65,300 146,400 64,000 398,500 674,200
Residences 26,300 59,600 24,000 166,600 276,500
Businesses and other(1) 4,300 6,300 3,300 22,300 36,200
Access lines in operation:
Residential 19,800 40,400 17,400 97,300 174,900
Business and other(2) 2,500 5,900 2,200 15,000 25,600
-------- -------- -------- --------- --------
Total 22,300 46,300 19,600 112,300 200,500
Pay phones 165 477 195 1,079 1,916
Population Penetration rate(3) 34.2 31.6 30.6 28.2 29.7
Residential Penetration rate (4) 75.3 67.8 72.5 58.4 63.3
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</TABLE>
(1) Represents Company estimates of business and other institutional subscribers
or potential subscribers (including government institutions).
(2) Represents Company estimates of subscribers which are businesses and other
institutional subscribers (including government institutions), leased lines
and pay phones. Includes ISDN equivalent lines.
(3) Population Penetration rate is defined as the number of access lines per 100
inhabitants. (4) Residential Penetration rate is defined as the number of
residential access lines per 100 residences.
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The following table sets forth the number of access lines served by each
of the Operating Companies at takeover from Matav and at the end of 1995, 1996,
1997, 1998 and 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Takeover 1995 1996 1997 1998 1999
-------- ---- ---- ---- ---- ----
Raba-Com 2,500(1) 5,100 14,000 20,600 21,400 22,300
KNC 13,000(1) 14,200 20,500 35,500 40,000 46,300
Papatel 3,800(2) 3,800 11,100 17,000 18,300 19,600
Hungarotel 42,100(2) 42,100 47,800 102,000 105,300 112,300
---------- ---------- --------- --------- --------- --------
Total 61,400 65,200 93,400 175,100 185,000 200,500
</TABLE>
(1) 1st Quarter 1995
(2) Year-End 1995
The Republic of Hungary
Hungary is located in Central Europe bordering on Austria, Slovenia,
Croatia, Yugoslavia, Romania, Ukraine and Slovakia. Six West European capitals
are within a one-hour flight. Its total area is approximately 93,030 square
kilometers. It has 10.1 million inhabitants, approximately 2 million of whom
reside in Hungary's capital, Budapest.
For nearly 40 years, Hungary was under central state control with a
one-party government and a centrally planned economy. Democracy was restored and
the foundations of a market economy were built between 1988 and 1990. Free
elections were held in 1990. Today, Hungary has a parliamentary democracy with a
single-chamber National Assembly. As a result of a large scale privatization
effort, private enterprise has become the basis of the Hungarian economy.
Today, Hungary is considered the most developed country in Central
Europe. Since 1989, foreign direct investment has been approximately $20
billion. Foreign direct investment was approximately $2 billion in 1999 and is
expected to stay at that level in 2000. On a per capita basis, Hungary has been
the largest Central European recipient of foreign direct investment since the
transition to a market economy. In comparison to Poland and the Czech Republic,
Hungary received (on a per capita basis) nearly 3 times the level of foreign
direct investment of Poland and twice that of the Czech Republic.
Since 1995, the Hungarian government has embarked on an economic
stabilization effort aimed at putting the economy on a sustainable path of
low-inflationary growth. Hungary has experienced the following annual GDP growth
rates since the initiation of that effort: 1.7% in 1995; 1.3% in 1996; 3.5% in
1997; 5% in 1998, and 4.9% in 1999. The unemployment rate has gradually
decreased from 11.1% in 1995 to 7.0% in 1999. The Hungarian inflation rate has
been steadily decreasing as well as evidenced by the following declining annual
inflation rates: 28.2% in 1995; 23.6% in 1996; 18.2% in 1997; 14.5% in 1998; and
10.0% in 1999.
In March 1998, Hungary's application for membership in the European
Union ("EU") was accepted. Hungary is now in the process of negotiating the
terms of its official accession into the EU. Hungary is not expected to become a
member of the EU until 2003 at the earliest. In March 1999, Hungary joined the
North Atlantic Treaty Organization. Hungary is also a member of the World Trade
Organization.
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Overview of Hungarian Telecommunications Industry
Early State of Hungarian Telecommunications Industry
In 1989, the state-owned Post, Telegraph and Telephone ("PTT") was
divided into three separate companies: the Hungarian Broadcasting Company
("Antenna Hungaria"), the Hungarian Post Office ("Magyar Posta") and Matav. The
Hungarian PTT was historically the exclusive provider of telecommunications
services in Hungary. The Hungarian telecommunications market was significantly
underdeveloped without the necessary investment in the telecommunications
infrastructure necessary to achieve a comparable level of teledensity to that of
Western Europe. As of December 31, 1995, Hungary had a basic telephone
penetration rate of approximately 21 telephone access lines per 100 inhabitants
compared to a European Union average of approximately 48 access lines per 100
inhabitants and a United States average of approximately 60 access lines per 100
inhabitants. Of such access lines in Hungary, approximately 40% were located in
Budapest (in which approximately 20% of Hungary's population resides). In the
Company's Operating Areas, access line penetration was approximately nine access
lines per 100 inhabitants as of December 31, 1995. By comparison, basic
telephone penetration rates in other Eastern European countries such as the
Czech Republic, Poland, Slovakia and Bulgaria, as of December 31, 1995, were 23,
15, 21 and 28 access lines per 100 inhabitants, respectively.
Privatization of Matav and Local Telephone Service
Beginning in 1992, the Hungarian government began the process of
privatizing Hungary's telecommunications industry by selling an initial 30%
stake in Matav (raised to 67% in 1995) to a consortium called MagyarCom, a
company wholly owned by Deutsche Telekom AG, the German public telephone
operator ("Deutsche Telekom"), and Ameritech, the United States based
telecommunications company. In 1997 Matav completed its initial public offering
pursuant to which MagyarCom's stake in Matav was reduced to approximately 60%
and the Hungarian State's stake was reduced to approximately 6%. The Hungarian
State also retained certain shareholder rights by retaining one "Golden Share."
In 1999 the Hungarian State sold its remaining 6% ownership interest in Matav
but retained its "Golden Share." As of December 31, 1999, MagyarCom owned 59.5%
of Matav while 40.5% was publicly traded.
In 1992 the Ministry divided the country into 54 primary
telecommunications service areas in order to take some of such primary
telecommunications service areas out of Matav's national network with respect to
the provision of local basic telephone service while allowing Matav to continue
its monopoly in the provision of domestic and international long distance
services. In 1993, the Ministry solicited bids for concessions to build, own and
operate telecommunications networks in the 25 service areas which had been
chosen to exit the Matav system. As of December 31, 1999, 23 of the 25
concessions for which the Ministry solicited bids had been awarded. Holders of
those concessions today (each a Local Telephone Operator, "LTO", and together
the "LTOs") include: the Company (presently 5 areas); United Telecom Investment
Rt. ("UTI"), a consortium formed by Alcatel Austria AG and US Telecom East, Inc.
(4 areas); Vivendi-Telecom Hungary ("Vivendi") owned by affiliates of Vivendi SA
of France and General Electric Capital Corp. (5 areas); an affiliate of United
Pan-Europe Communications NV ("UPC") (1 area); a consortium comprised of Bezeq,
the Israeli PTO, and Matav (3 areas); and Matav (5 areas). Matav also retained
the rights to service 2 areas for which there were no successful bidders. Each
of the LTOs (including Matav) received 25 year licenses to provide local basic
telephone service with exclusivity rights in their respective concessions
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through 2002 (2001 in the case of Matav except for 5 areas in which Matav has
exclusivity rights through 2002). In addition to the fees paid to the government
which aggregated approximately $80.0 million (at historical exchange rates),
each of the non-Matav LTOs negotiated a separate asset purchase agreement with
Matav for each concession area's existing basic telephone plant and equipment,
which led to the transfer of approximately 260,000 access lines from a total of
1.2 million access lines in the Matav system. Matav's concession areas presently
cover approximately 75% of Hungary's population and approximately 70% of its
geographic area.
Cellular Service
In addition to the liberalization of basic telephone services, the
Ministry also initially selected two consortia to provide nationwide cellular
telephone services. A consortium comprised of Matav and MediaOne Group Inc.,
formerly part of U.S. West, was granted two licenses to provide both analog
(NMT-450) ("Westel 450") and digital (GSM-900) ("Westel 900") services while
Pannon GSM Tavkozlesi ("Pannon") was granted a license to provide only digital
cellular services. Pannon's shareholders include Telenor Invest A/S, Norway
(25.8%); Tele Danmark A/S (6.6%); Sonera Holding NV (23%), Media Tel Holding Rt.
(15.2%); and KPN NV, the Dutch phone company ("KPN") (29.4%). In 1999, MediaOne
announced that it was going to sell its holdings in Westel 450 and Westel 900 to
Deutsche Telekom. Matav has announced that it intends to exercise an option it
has to purchase the interests in Westel 450 and Westel 900 that Deutsche Telekom
is acquiring from MediaOne.
In June 1999, a consortium comprised of Vodaphone Air Touch Plc.
(50.1%), RWE Telliance (19.9%), Antenna Hungaria (20%) and Magyar Posta (10%)
(together, "Vodaphone") was the winning bidder for a digital 1800-megahertz (or
DCS frequency) mobile phone license. It began operations in late 1999.
Domestic and International Long Distance Services
At the end of 2001, Matav's right to provide exclusive domestic and
international long distance voice transmission is due to expire. In 1998, to
further stimulate future competition in this market, the Ministry awarded
Pan-Tel Rt., a newly formed Hungarian company ("Pan-Tel"), the licenses to
provide such services as data transmission, voice mail and other services which
are not subject to exclusive concessions. Pan-Tel started building its
telecommunications network in 1998 which network is nearly complete. The current
shareholders of Pan-Tel include MAV Rt. (the Hungarian railway company) (25.1%),
PT Investment Holding Company (25.9%) and KPN (49%).
The Hungarian Telecommunications Industry Today
The Ministry recently announced that it will revise its laws in 2000
regarding the regulation of the telecommunication market in accordance with
European Union standards. The regulation of telephony, cable television and the
Internet would be affected. However, the Company does not expect that the
exclusivity period of its concession rights will be affected.
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<PAGE>
Since the privatization of the Hungarian telecommunications market, the
LTOs and Matav have spent approximately $822 million as of September 30, 1998
(at September 30, 1998 exchange rates) to build modern state-of-the-art
telecommunications networks throughout Hungary. As a result of such
construction, Matav had approximately 2.9 million access lines connected to its
telecommunications networks and the other LTOs (including the Company) had over
800,000 access lines connected to their telecommunications networks as of
December 31, 1999.
In the mobile telecommunications marketplace, Westel 450 and Westel 900
had 98,000 and 842,000 subscribers, respectively, as of December 31, 1999.
Pannon had approximately 669,000 subscribers as of December 31, 1999.
Due to the completion of the Company's network modernization and
construction program, access line penetration in the Company's Operating Areas
has increased to 30 access lines per 100 inhabitants as of December 31, 1999.
Given that the Company's, Matav's, and the other LTOs' investments in the
Hungarian telecommunications market over the last several years produced a
significant increase in the overall penetration rate in Hungary to approximately
34% as of December 31, 1999 and the expansion of the mobile telecommunications
market, the Company expects to benefit from a continued increase in the use of
its telecommunications services by its customer base as the overall Hungarian
telecommunications market continues to expand. See also "- Competition."
HTCC and its Operating Companies
In 1994, the Ministry awarded KNC and Raba-Com concession rights to
construct local telephone exchanges and provide non-cellular local voice
telephone services for a period of 25 years, with exclusivity for the first
eight years. The Company subsequently acquired two other Operating Companies,
Hungarotel and Papatel, that had been awarded substantially identical concession
rights by the Ministry. Matav continues to be the sole provider of domestic and
international long distance non-cellular voice telephone services through 2001.
HTCC conducts its operations through the Operating Companies. Set forth
below is an organizational chart of the Company and its principal stockholders
as of April 11, 2000. Share ownership percentages of HTCC are based on shares of
HTCC's common stock (the "Common Stock") owned as of April 11, 2000, without
giving effect to outstanding options or warrants. Additionally, ownership
percentages for the Operating Companies do not give effect to future Hungarian
equity ownership requirements. See "-Regulation - Hungarian Equity Ownership
Requirements."
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<PAGE>
[CHART]
HTCC was organized under the laws of the State of Delaware on March 23,
1992. The Common Stock is traded on the American Stock Exchange under the symbol
"HTC." The Company's United States office is located at 100 First Stamford
Place, Stamford, Connecticut 06902; telephone (203) 348-9069. As of May 1, 2000,
the U.S. offices will be at Suite 32, Tokeneke Center, 30 Center Street, Darien,
CT 06820. The Company's principal office in Hungary is located at Terez krt. 46,
H-1066, Budapest; telephone (361) 474-7700.
Certain Stockholders
The Company has benefited from the extensive telecommunications
experience and capabilities of certain of its stockholders. Set forth below is a
brief description of such stockholders.
Citizens Utilities Company
Citizens Utilities Company (together with its subsidiaries, "Citizens")
is a New York Stock Exchange listed company which provides telecommunications
services and public services including gas distribution, electric distribution,
water distribution and wastewater treatment services to approximately 1.9
million customers. Citizens also owns 82% of Electric Lightwave, Inc. (NASDAQ:
ELIX), a facilities-based, integrated communications provider that offers a
broad range of services to telecommunications-intensive businesses throughout
the United States. During 1999, Citizens announced that it had entered into
various agreements to purchase approximately 900,000 telephone access lines from
GTE Corp. and US West Communications, Inc. In addition, Citizens announced that
it was divesting its public services businesses and that it had entered into
agreements to sell its electric and water and wastewater operations. Citizens
plans to use the proceeds from the divestitures to fund the acquisitions. At
December 31, 1999, Citizens had $5.8 billion of total assets and $2.1 billion in
shareholders' equity. For the year ended December 31, 1999, Citizens had $1.1
billion of revenues from continuing operations and $144.5 million of net income.
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<PAGE>
In May 1995, Citizens purchased 300,000 shares of Common Stock from
a former executive officer of the Company and has since acquired an
additional 1,902,908 shares of Common Stock and 30,000 shares of the Company's
Series A Preferred Stock convertible into 300,000 shares of Common Stock,
pursuant to certain agreements entered into with HTCC (as amended and restated
in certain cases to date, the "Citizens Agreements"). Citizens also purchased
103,000 shares of Common Stock on the open market bringing its ownership of the
outstanding Common Stock as of April 11, 2000, to 19.2%. In addition, as a
result of the Citizens Agreements, Citizens has received certain options to
purchase 4.5 million shares of Common Stock. These options expire on September
12, 2000, with per share exercise prices ranging from $12.75 to $18.00. The
Citizens Agreements provide Citizens with certain preemptive rights to purchase,
upon the issuance of Common Stock in certain circumstances to third parties,
shares of Common Stock in order to maintain its percentage ownership interest on
a fully diluted basis. Assuming the exercise of all of its outstanding rights
and options to purchase Common Stock as of April 11, 2000, Citizens would own
35.1% of the outstanding Common Stock on a fully-diluted basis. For a more
detailed description of some of the Citizens Agreements, see Notes 11 and 15 of
Notes to Consolidated Financial Statements, Item 13 "Certain Relationships and
Related Party Transactions," Item 12 "Security Ownership of Certain Beneficial
Owners and Management," "- Revision of Capital Structure" and "- Recent
Developments."
Tele Danmark A/S
Tele Danmark A/S (together with its affiliates, "Tele Danmark") is the
preeminent provider of telecommunications services in Denmark. Tele Danmark
provides a full range of telecommunications services in Denmark, including
landline and cellular telephone services, data communications, Internet, leased
lines, directory and operator services and cable television. Domestic operations
include 3,628,000 telephone subscriber lines, 1,311,000 cellular users, 825,000
cable television customers and 393,000 Internet dial-up customers.
At December 31, 1999, Tele Danmark had total assets of Danish Kroner
54,625 billion (approximately $7.0 billion at current exchange rates) and
shareholders' equity of Danish Kroner 21,456 (approximately $2.7 billion at
current exchange rates). During 1999, Tele Danmark had net income of Danish
Kroner 3,513 billion (approximately $452 million at current exchange rates) on
net revenues of Danish Kroner 38,206 billion (approximately $4.9 billion at
current exchange rates.)
Tele Danmark's activities abroad have been an important growth areas
over the last several years. Tele Danmark operates in 12 European countries.
International operations accounted for more than 42% of Tele Danmark's net
revenues in 1999. Tele Danmark has investments in the Nordic region, continental
Western Europe as well as Central and Eastern Europe--among them Belgagom
(Belgium), Ben (the Netherlands), Sunrise (Switzerland), Talkline (Germany),
Polkomtel (Poland), Contactel (the Czech Republic) and UMC (Ukraine). In
Hungary, Tele Danmark also holds a 6.6% stake in Pannon, one of the three
digital cellular phone providers in Hungary.
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As a result of certain agreements between the Company and Tele Danmark
(the "Tele Danmark Agreements"), the Company has issued 2,565,587 shares of
Common Stock to Tele Danmark. As of April 11, 2000, Tele Danmark owned 21.3% of
the Company's outstanding Common Stock. The Tele Danmark Agreements provide Tele
Danmark with certain preemptive rights to purchase, upon the issuance of Common
Stock in certain circumstances to third parties, shares of Common Stock in order
to maintain its percentage ownership interest of the outstanding Common Stock.
For a more detailed description of some of the Tele Danmark Agreements, see
Notes 8 and 11 of Notes to Consolidated Financial Statements, Item 13 "Certain
Relationships and Related Party Transactions," Item 12 "Security Ownership of
Certain Beneficial Owners and Management," "- Revision of Capital Structure,"
and "- Recent Developments."
Tele Danmark's stock trades on the Copenhagen Stock Exchange and the
New York Stock Exchange. SBC Communications of San Antonio, Texas owns 42% of
the shares, with the remaining shares held by individual and institutional
shareowners all over the world.
Postabank Rt.
Postabank was established in 1988 and provides a wide range of
commercial and retail banking services to its private and corporate customers in
Hungary. The bank has achieved significant growth since its inception. As of
December 31, 1999, its total assets were HUF 330 billion ($1.3 billion). Today
it is the fifth largest Hungarian financial institution in terms of total assets
and second in retail deposits with a 10% market share (6% market share in
corporate loans).
In October 1996, the Company entered into a $170 million 10-Year
Multi-Currency Credit Facility with Postabank (the "Original Postabank Credit
Facility"). In May 1999, as part of a revision of its capital structure, the
Company issued 2,428,572 shares of Common Stock, warrants to purchase 2,500,000
shares of Common Stock and notes in the aggregate amount of $25 million to
Postabank. The Company also entered into a $138 million Dual-Currency Bridge
Loan Agreement with Postabank (the "Postabank Bridge Loan Agreement"). As a
result of such issuances and other agreements, the Company paid off the balance
on the Original Postabank Credit Facility and terminated such agreement. The
Company expects to pay off the outstanding balance on the Postabank Bridge Loan
Agreement with the proceeds of a syndicated loan agreement.
As of April 11, 2000, Postabank owned 20.2% of the outstanding Common
Stock and 24.3% of the outstanding Common Stock on a fully diluted basis. For a
more detailed description of some of the Postabank Agreements, see Notes 4, 5, 6
and 19 of Notes to Consolidated Financial Statements, Item 13 "Certain
Relationships and Related Party Transactions," Item 12 "Security Ownership of
Certain Beneficial Owners and Management," "- Revision of Capital Structure" and
"- Recent Developments."
The Danish Investment Fund for Central and Eastern Europe
The Investment Fund for Central and Eastern Europe (the "Danish Fund")
is a Danish government initiated and financed investment fund founded in 1989 by
the Ministry of Foreign Affairs. The purpose is to promote Danish direct
investments in Central and Eastern Europe and to enhance the possibilities for
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closer cooperation between Danish and Central and Eastern European companies.
The Danish Fund engages in projects via equity capital and/or loans in joint
ventures with a participation of one or more Danish companies. The Danish Fund
has experience in Hungary (currently four projects) and in particular the
Hungarian telecommunications sector, as it has been involved in Pannon from 1994
to 1996 and in two of the Operating Companies from 1994 to 1997. As of April 11,
2000, the Danish Fund owned 10.7% of the outstanding Common Stock. See Note 8 of
Notes to Consolidated Financial Statements.
International Finance Corporation
The International Finance Corporation (the "IFC") is the private-sector
financing organization of the World Bank, a global cooperative which provides
financial and other aid to developing countries. The IFC owns 20.0% of the
capital stock of Papatel.
Revision of Capital Structure
In May 1999, the Company entered into various agreements as part of a
revision of its capital structure with the following parties: Postabank; Tele
Danmark; the Danish Fund; and CU CapitalCorp and Citizens International
Management Services Company, each of which is a wholly-owned subsidiary of
Citizens Utilities Company. As a result of such agreements, the Company
extinguished all of its obligations (i) to Postabank under the Original
Postabank Credit Facility in the amount of approximately $193 million and the
amounts borrowed to settle a portion due under a contractor financing facility
in the amount of approximately $16 million; (ii) to one of its contractors under
a contractor financing facility in the amount of approximately $35 million; and
(iii) to Citizens under a $8.4 million promissory note which was payable in 2004
and an obligation to pay Citizens $21 million in 28 quarterly installments of
$750,000 each from 2004 through and including 2010. The Company borrowed $138
million from Postabank under a one-year Dual-Currency Bridge Loan Agreement in
Hungarian forints and euros and $25 million pursuant to certain unsecured notes
which mature in 2007. Some of the various agreements which were entered into as
of May 10, 1999 are described herein. (The descriptions and summaries herein do
not purport to be complete, and are subject to, and qualified in their entirety
by, reference to each such agreement, copies of which are filed as exhibits
hereto. See Item 14 below).
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The Company and Postabank entered into a Dual-Currency Bridge Loan
Agreement (the "Postabank Bridge Loan Agreement") pursuant to which HTCC's
subsidiaries borrowed the equivalent of $111 million in Hungarian forints (at
historical exchange rates) and $27 million in euros (at historical exchange
rates) which funds were applied to the repayment of the Original Postabank
Credit Facility. The loan is repayable by May 2000. HTCC and one of its
subsidiaries, HTCC Consulting Rt. were guarantors for the HTCC subsidiaries
under the Postabank Bridge Loan Agreement. The Company pledged all of its
intangible and tangible assets, including HTCC's ownership interests in its
subsidiaries, and its real property to secure all of the obligations under the
Postabank Bridge Loan Agreement. The Company and Postabank entered into a series
of agreements to secure such obligations under the Postabank Bridge Loan
Agreement. On April 11, 2000, the Company entered into a EUR 130 million senior
security syndicated bank credit facility which funds will be used to pay off the
Postabank Bridge Loan Agreement. See " - Recent Developments."
The Company and Postabank also entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") pursuant to which Postabank
purchased 2,428,572 shares of Common Stock for an aggregate purchase price of
$34 million. The Securities Purchase Agreement provides for one person
designated by Postabank to be nominated for election to the Company's Board of
Directors. Postabank cannot transfer its shares until the earlier of (x) the
repayment in full of all the obligations under the Postabank Bridge Loan
Agreement or (y) May 10, 2000, and then Postabank can only transfer such shares
incrementally through 2003 subject to the Company's right of first refusal. The
Company's right of first refusal expires in January 2003 and is assignable by
the Company to any beneficial holder of more than 10% of the Company's
outstanding Common Stock. The Company applied the proceeds from the stock
issuance to the repayment of the Original Postabank Credit Facility. Pursuant to
the Securities Purchase Agreement, the Company issued notes to Postabank in an
aggregate amount of $25 million (the "Notes") with detachable warrants (the
"Warrants"). The Notes accrue interest, which is payable semi-annually, at
3-1/2% plus the LIBOR rate for the applicable six month interest period. The
Notes which mature in 2007 are transferable subject to applicable security laws.
The Warrants which were issued pursuant to a series of Warrant Agreements
between the Company and Postabank enable Postabank to purchase 2,500,000 shares
of the Company's common stock at an exercise price of $10 per share. The
exercise period commences on January 1, 2004 and terminates on March 31, 2007.
The Company has the right to terminate the Warrants in full or proportionately
prior to January 1, 2004 provided that the Company repays a proportionate amount
of the Notes and up to 7-1/2% of the aggregate principal amount of the Notes
repaid concurrently with the termination of the Warrants.
The Company and Tele Danmark entered into a Stock Purchase Agreement
(the "TD Stock Purchase Agreement") pursuant to which the Company issued
1,571,429 shares of Common Stock in exchange for $11 million. The Company
applied the proceeds from the TD Stock Purchase Agreement to the repayment of
the Original Postabank Credit Facility. Tele Danmark agreed not to transfer the
shares to any party prior to May 11, 2000 without the prior written consent of
the Company.
The Company and the Danish Fund entered into a Stock Purchase Agreement
(the "Danish Fund Stock Purchase Agreement") pursuant to which the Company
issued 1,285,714 shares of Common Stock in exchange for $9 million. The Company
applied the proceeds from the Danish Fund Stock Purchase Agreement to the
repayment of the Original Postabank Credit Facility. The Danish Fund agreed not
to transfer the shares to any party except for Tele Danmark prior to May 11,
2000 without the prior written consent of the Company.
The Company and Citizens entered into a Stock Purchase Agreement (the
"Citizens Stock Purchase Agreement') pursuant to which the Company issued to
Citizens 1,300,000 shares of Common Stock and 30,000 shares of the Company's
Series A Preferred Stock, par value $0.001 (the "Preferred Shares"). In
consideration for such shares, Citizens (i) transferred to the Company for
cancellation a $8.4 million promissory note issued by the Company to Citizens
which was to mature in 2004, and (ii) agreed to renounce and forego any rights
whatsoever to any payment of the $21 million which was payable by the Company to
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Citizens in quarterly installments of $750,000 from 2004 through and including
2010. Citizens, as the holder of the Preferred Shares, is entitled to receive
cumulative cash dividends at an annual rate of 5%, compounded annually on the
liquidation value of $70 per share. The Company may redeem the Preferred Shares
at any time. Citizens can convert each of the Preferred Shares into shares of
the Company's common stock on a one for ten basis. The Citizens Stock Purchase
Agreement requires Citizens not to transfer any shares of HTCC common stock
which it may hold prior to May 15, 2000 without the prior written consent of the
Company and Postabank. Citizens also waived any and all preemptive and anti-
dilution rights in connection with the transactions described above.
Recent Developments
The April 2000 Syndicated Credit Facility
On April 11, 2000, the Company entered into a EUR 130 million Senior
Secured Debt Facility Agreement (the "Debt Agreement") with a European banking
syndicate which was arranged by Citibank N.A. ("Citibank") and Westdeutsche
Landesbank Girozentrale ("WestLB"). The Company intends to draw down the entire
EUR 130 million ($124 million at current exchange rates), which funds will be
used in their entirety, along with another $6 million of other Company funds, to
pay off the entire outstanding balance (EUR 128 million, approximately $122
million at current exchange rates) of the Postabank Bridge Loan Agreement which
will result in the termination of the Postabank Bridge Loan Agreement which
matures on May 12, 2000, as well as fees associated with the Debt Agreement. The
borrowers under the Debt Agreement are the Operating Companies who were the
borrowers under the Postabank Bridge Loan Agreement. The Debt Agreement and some
of the related agreements are described below. (The descriptions and summaries
herein do not purport to be complete, and are subject to, and qualified in their
entirety by, reference to each such agreement, copies of some of which are filed
as exhibits hereto. See Item 14 below).
The Debt Agreement has two facilities. Facility A is a floating rate
term loan in the amount of EUR 125 million (the "Term Facility") which principal
is repayable semi-annually on each June 30 and December 31 beginning on June 30,
2001 and ending on December 31, 2007. The amounts of the principal repayments on
the Term Facility are to be an escalating percentage of the amounts drawn down
(EUR 125 million). Any amounts borrowed under the Term Facility have to be drawn
down within thirty days of the execution of the Debt Agreement in either euros
or Hungarian forints. The Company intends to borrow the full EUR 125 million, or
its equivalent in euros and Hungarian forints. Any amounts borrowed in Hungarian
forints are repayable in Hungarian forints. The Term Facility loans denominated
in euros accrue interest at the rate of the Applicable Margin (defined below)
plus the EURIBOR rate for the applicable interest period. The EURIBOR rate is
the percentage rate per annum determined by the Banking Federation of the
European Union for the applicable interest period. The portion of the Term
Facility loan denominated in Hungarian forints accrues interest at the rate of
the Applicable Margin (defined below) plus the BUBOR rate for the applicable
interest period. The BUBOR rate is the percentage rate per annum determined
according to the rules established by the Hungarian Forex Association and
published by the National Bank of Hungary for the applicable interest period.
The applicable interest period for the portion of the Term Facility loans
denominated in euros is, at the Company's option, one, three or six months. The
Company intends to choose six months. The applicable interest period for the
portion of the Term Facility loans denominated in Hungarian forints is, at the
Company's option, in one or three months. The Company intends to choose three
months. Interest is payable at the end of each interest period. The Applicable
Margin is initially 1.75%. The Applicable Margin may be adjusted downward
incrementally to a minimum of 1.15% subject to the financial performance of the
Company as measured by the ratio of the Company's senior debt to its earnings
before interest, taxes, depreciation and amortization.
Facility B is a floating rate revolving loan in the amount of EUR 5
million (the "Revolving Facility") which can only be drawn down in euros. The
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Revolving Facility will be reduced to EUR 2.5 million on December 31, 2005. The
Revolving Facility is available until December 31, 2007. The Company intends to
borrow the full amount of the Revolving Facility to pay off the balance of the
Postabank Bridge Loan Agreement and fees associated with the transaction. The
principal amount borrowed under the Revolving Facility is due at the end of each
interest period at which point the Company can, subject to certain conditions,
roll over the amount of principal borrowed. The applicable interest period for
the Revolving Facility is, at the Company's option, one, three, or six months.
The Company intends to choose six months. Interest is payable at the end of each
interest period calculated similar to a Term Facility loan denominated in euros.
As part of the Debt Agreement, the Company is required to hedge at
least 50% of the euro borrowings until a minimum of 50% of Facility A has been
cancelled, prepaid or repaid. Dependent on its cash flow, commencing in 2001,
the Company will be required to prepay the equivalent of $25 million on Facility
A until such time as $25 million has been prepaid. The amount of the prepayment
in any year shall be at least 50% of the Company's excess cash flow, if any, for
the previous financial year as defined in the Debt Agreement. The prepayment
amount is due within 15 days of the publication of each annual Form 10-K filing.
The Company is obligated to pay a commitment fee equal to the lower of
.75% or 50% of the Applicable Margin on any available unused commitment. Since
the Company intends to borrow the full amount of the Debt Agreement soon, there
is no commitment fee payable at the present time. The Company will pay an
arrangement fee in the amount of EUR 2,665,000 (approximately $2.5 million at
current exchange rates) and an agency fee in the amount of $60,000. HTCC and one
of its subsidiaries, HTCC Consulting Rt., are guarantors for the HTCC
subsidiaries under the Debt Agreement. The Company pledged all of its intangible
and tangible assets, including HTCC's ownership interests in its subsidiaries,
and its real property to secure all of the obligations under the Debt Agreement.
The Company and Citibank Rt.(as security agent) entered into a series of
agreements to secure all of the Company's obligations under the Debt Agreement.
The Debt Agreement contains the customary representation and warranties. The
Company is subject to some restrictive covenants including restrictions
regarding the ability of the Company to pay dividends, borrow funds, merge with
another company and dispose of its assets. The Debt Agreement contains the
customary events of default, which would trigger early repayment of the balance
on the Debt Agreement including those related to a change of control. If prior
to the later of December 31, 2001 or the Trigger Date (as defined below), Tele
Danmark sells any of the shares of Common Stock that it currently owns or Tele
Danmark and the Danish Fund no longer own, in the aggregate, at least 30.1% of
the outstanding Common Stock, the Company would be in default under the Debt
Agreement. Tele Danmark and the Danish Fund currently own 32.1% of the
outstanding Common Stock. The Trigger Date is defined as the date on which for
the prior two fiscal quarters the Company's debt to EBITDA ratio is less than
3.5 to 1. Following the Trigger Date, Tele Danmark can only transfer its shares
with the prior written consent of banks holding at least 66.7% of the Company's
outstanding debt under the Debt Agreement.
Strategy
The Company's primary focus is to continue to increase call revenues
and reduce operating costs while continuing to add residential and business
customers to its networks. To accomplish these goals, the Company is continuing
its efforts to expand its product and service offerings to its entire customer
base, increase its operational efficiencies and increased its marketing efforts.
The Company has implemented the following operational strategies in order to
further its business objectives.
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Revenue Growth
The Company intends to continue to increase its call revenues by
increasing the usage of its product and service offerings by both its
residential and business customers. Since the availability of modern
telecommunications services is a relatively new phenomena in Hungary, the key
factor in increasing the usage is educating both customer segments on the
availability and benefits of the Company's products and services. For the
residential customers, the Company is focusing its efforts on educating the
residential customer on the availability of such products and services as voice
mail, caller ID and call waiting, which are all new to the Company's residential
customer base. The Company is also highlighting the benefits of the Internet and
encouraging its use by offering special discounted rates for Internet usage. One
of the tools that the Company is deploying to increase customer awareness of
these services is video and personal demonstrations in the customer service
centers which are located in each of the Operating Areas. The Company is also
focusing its marketing and educating efforts at its business customers, which
represent 44% of the Company's total call revenues. The Company has placed
emphasis on increasing the installation and usage levels of the Company's
business customers by focusing on the marketing and sales of deregulated
services including managed lease lines, PBX sales and services, ISDN, Internet
and Digifon Services (e.g. call forwarding, call waiting, call barring). The
Company has assigned an account manager to each business customer who is
responsible for meeting with each business customer to find out such customer's
telecommunications needs. The account manager can then demonstrate each of the
Company's products and services and, working together with that customer,
develop a telecommunications strategy using the Company's products and services
which can best enhance that customer's business.
The Company plans to continue its revenue growth by increasing the
penetration levels in the residential sector. To that end, the Company is
continuing its mass marketing efforts to the residences who have not yet had
service. The Company is also marketing the benefits of additional lines to its
existing residential and business customer.
New Products and Services
The Company continues to offer the latest telecommunications products and
services as they become available in the telecommunications marketplace. The
Company plans to introduce Internet Protocol- based voice services to its
customers in 2000. This will enable the Company to offer long distance and
international calling services at discounted rates without violating Matav's
domestic long distance and international calling monopoly.
Marketing
As the exclusive provider of basic telephone services in the Operating
Areas, the Company's primary marketing objective is to increase the usage of its
telephone services by its existing residential and business customers. In
addition, the Company intends to attract new subscribers by targeting the needs
of various market segments, while maintaining superior customer service and
reliability based on current "state of the art" telecommunications technology.
The Company's targeted market segments are: (i) residential customers; (ii)
small businesses and professionals; (iii) medium and large businesses; and (iv)
government institutions.
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For its residential customers and potential customers, the Company's
marketing efforts include advertising on radio and television, door-to-door
marketing surveys, newspaper advertising, participation in local trade shows,
direct mail, community meetings and billboard advertising. The Company is also
offering discounts for Internet users. To increase the residential penetration
rate, the Company has implemented short marketing campaigns targeting those
residences without phone service. To induce the potential customers the Company
has offered special limited time only special rates on the connection fee. Since
many Hungarians still prefer face-to-face personal marketing, the Company has
leveraged the benefits of having a customer service center in each Operating
Area to give personal demonstrations.
For its larger business customers, the Company has trained account
managers to service these customers and potential customers by educating them on
the availability of "turn-key" business communications solutions and several
"value added services" including the premium rate services, voice mail and all
of the Digifon services (e.g. call forwarding, call waiting, call barring). The
Company believes that this effort will result in a greater understanding by its
business customers and potential business customers of the potential revenue
gains that can be achieved with advanced telecommunications technology.
Customer Service
The Company believes that providing a high level of customer service is
important to achieving its objective of attracting additional customers and
increasing the usage of existing services by its current customer base. Prior to
completion of the construction program, some customers waited for over 20 years
for telephone service. Today, most residences and businesses can be connected to
one of the Company's networks within 7 days. The Company also operates full time
operator service centers in each of the Operating Areas which are staffed by
operators capable of providing, among other things, call completion assistance,
directory assistance and trouble reporting on a 24 hour basis. In addition, the
Company operates customer service centers in each of the Operating Areas which
offer facsimile, Internet, photocopying and telephone bill payment services.
These offices also sell communications equipment, process telephone service
applications and handle billing inquiries. The Company reorganized its customer
service centers by implementing the necessary changes to make such centers more
"customer friendly." The Company is providing more choices for its customers and
more product information instruction. For its business customers, the Company
has account representatives for each customer.
Most of the Company's subscriber base consists of residential
customers. As of December 31, 1999, 87% of subscribers were residential
customers and 13% were business and other institutional subscribers (including
government institutions).
Operational Efficiency
The Company is increasing its productivity and operational efficiency
by achieving certain economies of scale with respect to network management,
administration, customer service, billing, accounts receivable, payroll
processing, purchasing and network maintenance. For example, the Company has
implemented its own centralized operating and accounting system in all of its
Operating Areas. A significant increase in operational efficiency has resulted
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from the implementation of this system specifically in the areas of customer
billing and financial accountability. In addition, some of the Company's
Operating Areas are contiguous, which facilitates the realization of certain
economies of scale. For example, by using fiber optic technology between
contiguous Operating Areas, the Company realizes certain operational
efficiencies by centralizing certain functions. As of December 31, 1999, the
Operating Companies had a total of 296 access lines per employee.
Mergers and Strategic Alliances
As the Hungarian telecommunications market continues to develop and
become more liberalized as the monopolies of Matav and the LTOs expire and the
newer entrants expand their presence in Hungary, the Company will continue to
review its options with respect to any merger or strategic alliance
possibilities that will enhance shareholder value.
Operations
Services
The Company provides non-cellular local voice telephone service in the
Operating Areas which allows subscribers to have facsimile, and modem
transmission capabilities and makes available to its subscribers, through
interconnection with Matav, domestic and international long distance services.
In addition to these standard services, the Company currently offers its
subscribers data transmission and other value-added services, including
Internet, voice mail, ISDN, caller ID, call waiting, call forwarding, three-way
calling, toll free calling services and audio text services.
The Company's revenues are derived from the provision of local and
domestic and international long distance telephone services which consist of (i)
charges for measured telephone service, which vary depending on the day, the
time of day, distance and duration of the call, (ii) connection and subscription
fees, and (iii) other operating revenues consisting principally of charges and
fees from leased lines, public phones, detailed billing and other customer
services, including revenues from the sale and lease of telephone equipment.
Measured Service. Charges for local and domestic and international long
distance measured service vary with the number of pulses generated by a call.
The number of pulses generated for a particular call depends upon the day, the
time of day, the distance covered and the duration of the call. Currently, the
Company charges HUF 12.0 ($.048) per pulse for all local calls. The Ministry has
traditionally adjusted such fees annually based on the Hungarian Consumer Price
Index. However, the Ministry did not change the fees per pulse in 2000 as
compared to 1999 because of the Ministry's efforts to rebalance the fees for
telecommunications services. To that end, the Ministry did not change the length
between pulses for local calls but increased the length between pulses for
domestic long distance and international calls. The net result is that the fees
for local calls will not change from 1999 to 2000 while the fees for domestic
long distance and international calls in 2000 will decrease 40% from the rates
in 1999. For all local calls within an Operating Area, the Company retains all
of the revenues associated with the call. For domestic long distance calls
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outside of an Operating Area (including those between Operating Areas, including
adjacent Operating Areas) and all international calls, the Company has a revenue
sharing arrangement with Matav the terms of which are governed by a decree of
the Ministry. Pursuant to this revenue sharing arrangement, the Company charges
for and collects from its customers the fees for domestic long distance and
international calls. The Company then pays these fees to Matav but retains an
interconnection fee. For domestic long distance and international calls to the
Company's customers, the Company receives an interconnection fee. Mobile
telephone calls to customers in the Operating Areas and calls from customers in
the Operating Areas to mobile phones are included in long-distance service
revenues shared with Matav. Since 1998 the Ministry has taken gradual steps to
regulate the interconnection fees in accordance with internationally accepted
benchmarks with the goal of creating a cost-based interconnection fee regime.
The Company believes that this revised regulatory policy has resulted in an
overall increase in the Company's revenue per call in 1999 for domestic long
distance and international calls over the amount received in 1998 and that the
Company will realize additional benefits in the future. See "- Regulation - Rate
Setting and Revenue Sharing."
Subscription and Connection Fees. The Company collects a monthly
subscription fee from its customers. Such fees vary depending on such factors as
whether the services are provided to a residential or business or other customer
(including government institutions), and whether the customer is linked to a
digital or analog exchange. The Company charges a monthly subscription fee to
digital customers of HUF 1,532 ($6.07) for residential customers and HUF 2,672
($10.58) for business and other institutional subscribers (including government
institutions). These rates increased 32% from 1999. The company also offers some
of its low usage customers a reduced subscription fee with a limited amount of
local calls at the regular local calling rate but a higher local calling rate
for usage over such limit. See "- Regulation - Rate Setting and Revenue
Sharing."
Connection fees are earned when a customer is added to the network. The
Company may collect the full connection fee provided that the customer is
connected within 30 days; otherwise, the Company may only collect a portion of
the connection fee and must connect the subscriber within one year. Upon
connection, the Company may collect the remaining portion of the fee. The
connection fee is not recognized as income until the customer receives a
telephone and the connection is made. Currently, connection fees are HUF 30,000
($118.80) for residential customers and HUF 90,000 ($356.41) for business and
other institutional subscribers (including government institutions), which are
the maximum allowable fees, pursuant to a decree of the Ministry. Customers
requesting additional access lines are charged an additional connection fee per
line.
Other Operating Revenue. The Company supplies private line service
(point-to-point and point-to-multi-point) primarily to businesses. As of
December 31, 1999, approximately 3,323 leased lines were in service. In
addition, as of December 31, 1999, the Company had 1,916 public pay phones in
the Operating Areas in accordance with the terms of the Concession Contracts.
The Company generates additional revenues from the provision of value-added
services, including ISDN, voice mail, call waiting, call forwarding, and
three-way calling, as well as through the sale and leasing of telephone
equipment.
Pricing
Maximum pricing levels are set by the Ministry and historically rate
increases have tracked inflation, as measured by either the Hungarian Producer
Price Index ("PPI") or the Hungarian Consumer Price Index ("CPI"). In 1997, the
Ministry set forth a new regulatory framework for regulating annual increases in
the fees for (a) local calls, (b) domestic long distance and international calls
and (c) subscription fees. In addition to separate price caps for such
categories of services, the Ministry enacted a rebalancing formula, which
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provides for greater increases in charges for subscription fees and local calls
than in domestic long distance and international calls. See also "- Regulation -
Rate Setting and Revenue Sharing." The Company's customers are on a one-month
billing cycle. For domestic long distance and international calls, the Company
is required to charge the same tariffs as Matav. For local calls, the Company
may choose to increase its rates up to the permitted amount or charge a lower
rate. Measured service rate increases are effected by the Ministry by either
increasing charges per pulse or reducing the time interval between pulses,
depending on the time of day and other factors. In addition, the Company charges
additional fees for services such as data transmission, voice mail, call waiting
and call transfer in all of its Operating Areas. The fees charged for these
services are not subject to regulation by the Ministry.
The Company has been allowing its subscribers to pay connection fees on
various installment basis plans and encourages customers to lease their
telephones. The Company believes that to date the various installment plans have
resulted in an increase in the number of subscribers in the Operating Areas.
The Company currently purchases telephone sets in bulk from a variety
of manufactures. Customers can choose to buy the phone or lease the phone and
pay a monthly fee of HUF 180 ($0.71). Although there is no Ministry or other
governmental regulation relating to lease rates, the Company adjusts such rates
annually according to the Hungarian PPI. Approximately 49% of the Company's
subscribers as of December 31, 1999 leased their phones from the Company.
Network Design, Construction and Performance
The Company has constructed a versatile modern communications network
which substantially replaced the antiquated system purchased from Matav. This
new system provides many of the technologically advanced services currently
available in the United States and Western Europe. The Company's networks
maintain the North American standard, or "P01", grade of service. The P01
standard means that one call out of 100 will be blocked in the busiest hour of
the busiest season. The Company believes that its ability to meet the
telecommunications requirements of its customers through a combination of
conventional fiber optic and wireless local loop technology affords it
significant flexibility with respect to network development and network capital
expenditures. The Company has replaced all manually operated local battery and
common battery cord type switchboards purchased from Matav while retaining
certain analog switching systems. The Company upgraded such analog switching
systems allowing such systems to mimic many of the features available in modern
digital switching systems with a minimal investment.
Conventional Network Design
In developing its networks, the Company has implemented service quality
and redundancy objectives on par with Western European and North American
digital network standards. Certain of the networks constructed are based on
digital hosts and remotes with fiber optic rings and copper feeder and
distribution. Such a distribution system is the conventional system used in the
United States and Western Europe. Telecommunications services are transmitted to
the home through twisted pair copper wire telephone cable.
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The Company's conventional networks have been designed to employ an
open architecture, generally using Synchronous Digital Hierarchy ("SDH")
technology for system resilience. The Company's networks are designed to provide
voice and high speed data services. The Company believes that the flexible
design of the conventional networks it has constructed allows it to readily
implement new technologies and provide enhanced or new services. The Company's
switches in its conventional networks allow it to connect to networks operated
by other LTOs or by Matav in order to route voice and data transmissions between
subscribers.
Wireless Network Design
In certain portions of the Operating Areas, the Company is deploying
wireless network technology based upon the Digital Enhanced Cordless
Telecommunications ("DECT") system which interfaces radio technology to
fiber-optic, digital microwave or fixed copper networks. The use of DECT
technology generally reduces the time and expense of installation and securing
rights of way. In a conventional network build, significant investment must be
made in order to offer service to a large proportion of potential customers
whether or not they become actual customers. By contrast, the use of the DECT
system in a network build-out provides for capital investment proportional to
the number of customers actually connected because the radio links and other
required equipment are installed only for those households choosing to take the
service and are installed only at the time service is requested.
In many areas in which the Company is utilizing a wireless network
design, the Company is deploying a fiber optic cable to the node in the same
fashion as in a conventional network build-out. At each newly constructed node,
the Company has constructed a radio base station ("RBS"), rather than switching
to twisted pair copper wire distribution to the home. Each RBS has the capacity
to provide service to between 200 and 600 customers. As additional customers are
brought onto the network, the Company will install a transceiver unit at the
subscriber's premises. Such transceiver's operating software is digitally
encrypted so that it will operate only with its supporting RBS. A conventional
telephone jack is then installed in the subscriber's household near an
electrical outlet which is used to power the transceiver unit. The subscriber
then uses a conventional phone to make outgoing and receive incoming calls.
The DECT-based wireless local loop system provides the same grade of
service as a conventional telephone network. In addition, a DECT-based network
is able to provide many of the same services as a conventional copper network
including voice mail, call forwarding and call barring.
Network Administration
The Company actively monitors the switching centers and all critical
network operational parameters in each Operating Area. As digital features are
introduced into their respective networks, the network technicians have the
ability to monitor the networks and evaluate and respond accordingly. The
Company will also be able to analyze the performance data generated by these
systems in order to make the operating adjustments or capital expenditures
necessary to enhance individual network operations.
The Operating Companies
The following is a brief description of each of the Operating
Companies:
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Hungarotel
The Company holds a 99.0% interest in Hungarotel while a private
Hungarian investor owns the remaining 1.0%. The Hungarotel Operating Area
encompasses the southern portion of Bekes County, which borders Romania. The
Hungarotel Operating Area is comprised of 75 municipalities and has a population
of approximately 398,500 with an estimated 166,600 residences and 22,300
business and other potential subscribers (including government institutions).
Bekes is the most intensively cultivated agrarian region in Hungary and produces
a substantial portion of Hungary's total wheat production. Industry, generally
related to food processing, glass and textile production, is also a strong
employer in the region. Foreign investors in the Operating Area include Owens
Illinois of the United States and a number of European manufacturers. The region
is also a center for natural gas exploration and production. As of December 31,
1999, Hungarotel had 112,300 access lines connected to its network. The
Hungarotel network utilizes a combination of a conventional build, fiber optic
and wireless local loop technology.
KNC
The Company holds a 94.8% interest in KNC. The KNC Operating Area
municipalities own 5.0% and Antenna Hungaria owns the remaining 0.2%. The KNC
Operating Area is comprised of 74 municipalities in the eastern portion of
Nograd County, which borders Slovakia. The KNC Operating Area has a population
of approximately 146,400, with an estimated 59,600 residences and 6,300 business
and other potential subscribers (including government institutions). The
principal economic activities in the KNC Operating Area include light
manufacturing, tourism, some coal mining and agriculture. Foreign investors in
the region include the Irish dairy producer, Avonmore, and the Japanese company,
Paramount Glass. The Operating Area's proximity to Budapest, 1-1/2 hours by car,
and its many cultural attractions makes it a desirable weekend and tourist
destination. As of December 31, 1999, KNC had 46,300 access lines connected to
its network. The KNC network utilizes a combination of a conventional build,
fiber optic and wireless local loop technology.
Papatel
The Company holds a 79.2% interest in Papatel. The IFC owns a 20.0%
interest and Papa, the principal city in the Papatel Operating Area, owns the
remainder. The Operating Area is composed of 51 municipalities located in the
northern portion of Veszprem County and is contiguous with the Raba-Com
Operating Area. The population of the Papatel Operating Area is approximately
64,000 with an estimated 24,000 residences and 3,300 business and other
potential subscribers (including government institutions). The region is
relatively underdeveloped economically with the principal economic activities
centering around light industry, appliance manufacturing, agriculture and forest
products. Significant foreign investors in the Operating Area include ATAG, the
Dutch appliance maker, and Electricite de France. As of December 31, 1999,
Papatel had 19,600 access lines connected to its network. The Papatel network
utilizes a combination of a conventional build, fiber optic and wireless local
loop technology.
Raba-Com
The Company holds a 90.7% interest in Raba-Com. Municipalities in the
Raba-Com Operating Area own the remaining 9.3%. The Raba-Com Operating Area is
comprised of 63 municipalities in Vas County, which borders Austria and
-21-
<PAGE>
Slovenia. The Raba-Com Operating Area has a population of approximately 65,300,
with an estimated 26,300 residences and 4,300 business and other institutional
subscribers (including government institutions). The principal economic
activities in the Raba-Com Operating Area include heavy manufacturing,
agriculture and tourism. Significant employers include: Linde (the Hungarian
central natural gas distributor); Phillips (a Dutch-owned electronics
manufacturer); EcoPlast (a plastics producer); and Saga (a British-owned poultry
processor). As of December 31, 1999, Raba-Com had 22,300 access lines connected
to its network. The Raba-Com network utilizes a combination of a conventional
build and fiber optic infrastructure.
Regulation
In November 1992, the Hungarian Parliament enacted the Hungarian
Telecommunications Act of 1992 (the "Telecom Act") which took effect in 1993.
The Hungarian Telecom Act provided for, among other things, the establishment of
the conditions under which individuals and companies (including Matav, foreign
persons and foreign owned companies) could bid for concessions to build, own and
operate local telecommunications networks in designated service areas. The
Hungarian Telecom Act also gave the Ministry the authority to regulate the
industry, including the setting of local, domestic long distance and
international rates, the sharing of revenues between the LTOs and Matav, the
accrediting of equipment vendors and the setting of standards in respect of
network development and services offered. In order to meet these obligations,
the Hungarian Telecom Act created a professional supervisory body, the
Telecommunications Chief Inspectorate (the "Inspectorate") which is supervised
by the Ministry. Its tasks include supervising the progress of the LTOs with
respect to build-out scheduling, equipment purchases and the quality of network
construction.
Concession Contracts
Pursuant to the Hungarian Telecom Act and in accordance with the
Concession Act of 1991, in connection with the award of a concession, each of
the LTOs entered into a Concession Contract with the Ministry governing the
rights and obligations of the LTO with respect to each concession. Topics
addressed by individual concession contracts include the royalties to be paid to
the Ministry, guidelines concerning LTO capital structure, build-out milestones,
employment guidelines and the level of required contributions to meet social and
educational requirements. For example, the Concession Contracts stipulate that
an LTO may not change its capital structure by more than 10% without the express
written consent of the Ministry and that former Matav employees generally must
be retained for the first five to eight years of operation. The Company may,
however, enter into termination agreements with its employees.
Corporate Governance. The amended Concession Contracts for Hungarotel
and Papatel provide that two out of every five members of their Boards of
Directors and one-half of the members of their Supervisory Boards be Hungarian
citizens.
Exclusivity. The Concession Contracts provide that each Operating
Company has the exclusive right to provide non-cellular local voice telephone
services for eight years. Commencing in 2002, the Ministry will have the right
to grant additional concessions for non-cellular local voice telephone services.
-22-
<PAGE>
Milestones/Network Construction. Each of the Concession Contracts
prescribe certain build-out obligations ("milestones") that require each
Operating Company to install a specified number of access lines within
prescribed time periods. Each of the Operating Companies met their build-out
requirements in 1999.
See "- Fines."
Royalties. Each of the LTOs is required by the terms of its individual
concession contract to pay annual royalties to the Ministry equal to a
percentage of net revenue from basic telephone services. Net revenue for this
purpose are generally defined as gross revenue from basic telephone services
less interconnect fees paid to Matav. The royalty percentage may also differ by
region. For example, the Operating Companies must pay royalties in the following
percentage amounts: KNC 0.1%; Raba-Com 1.5%; Hungarotel (Bekescsaba) 2.3%;
Hungarotel (Oroshaza) 0.3%; and Papatel 2.3%. These amounts are paid annually,
in arrears.
Social and Educational Contributions. In addition to the royalties
described above, Concession Contracts may also call for social and educational
contributions based on revenues of the Operating Company, excluding VAT. The
Concession Contracts for KNC and Raba-Com require them to contribute 1.5% and
1.0% of such revenues, respectively, to support social and educational projects
in their Operating Areas. The Concession Contracts for Hungarotel require it to
pay an amount equal to 10 times the local occupational excise tax. The
applicability and enforceability of such obligation is presently uncertain.
However, the Ministry stated in a letter to Hungarotel that it will not enforce
this particular provision of Hungarotel's Concession Contract.
Renewal. Each Concession Contract provides for a 25-year term with the
right to submit a proposal, within 18 months prior to the expiration of the
Concession Contract to apply for an additional 12-1/2 years which the Ministry
may grant if it approves the Operating Company's proposal, subject to
consultation with local authorities and professional and consumer protection
bodies. Such extension would involve the payment of an additional concession fee
to be set by the Ministry prior to the submission of the proposal. In the event
the proposal is rejected or is not timely filed, the concession would be
auctioned by the Ministry, although the existing Operating Company would have
priority in the event the Operating Company's proposal provides for the same
terms and conditions as that of another bidder.
Fines. The failure to meet required construction milestones may
result in the levying of fines by the Ministry. Such fines are computed based
on a contractual formula and may be substantial. Each of the Operating
Companies met their build-out requirements in 1999.
Termination upon Lack of Performance. If an LTO is unable to comply
with its Concession Contracts, the Ministry has the right to abrogate the
Concession Contract. In such an instance, the Ministry has authority to
determine alternative provisions for such service, which may include the sale of
the LTO's telecommunications assets to another provider. In such case, the LTO
would be obligated to sell its assets under the terms of a contract to the
provider to whom the concession is transferred. The Company believes that it has
demonstrated substantial performance to date under its Concession Contracts and
that its relations with the Ministry are good and, therefore, the chance of any
termination of any Concession Contract is remote.
-23-
<PAGE>
Dispute Resolution. Any disputes arising with respect to the
interpretation of a Concession Contract will be adjudicated by a Hungarian
court.
Hungarian Equity Ownership Requirements.
The Ministry has stipulated in the Concession Contracts for Hungarotel
and Papatel, as amended in June 1996, that each of the Operating Companies must
meet certain Hungarian ownership requirements so that by the end of the seventh
year of their Concession Contracts Hungarian ownership must consist of 25% plus
one share of the relevant Operating Company. For the first three months after
assuming operations of an Operating Area from Matav, no Hungarian ownership was
required. For the seven-year period following the date or amendment of a
Concession Contract, as the case may be, Hungarian ownership must be at least
10%, except that during such period, such ownership may be reduced to as low as
1% for a period of up to two years. During such seven-year period, while the
Hungarian ownership block is required to be at least 10%, such Hungarian owners
of a 10% equity holding in an Operating Company must have voting power of at
least 25% plus one share, thus providing Hungarian owners the right to block
certain transactions which, under Hungarian corporate law, require a
supermajority (75%) of stockholders voting on the matter, such as mergers and
consolidations, increases in share capital and winding-up.
For these purposes, Hungarian ownership of shares means shares owned by
Hungarian citizens. Shares owned by a corporation are considered Hungarian owned
only in proportion to the Hungarian ownership of such corporation. The LTOs can
also fulfill the 25% plus one share Hungarian ownership requirement by listing
such shares on the Budapest Stock Exchange.
The equity ownership requirements and exceptions described above are
contained in the June 1996 amended Concession Contracts for Hungarotel and
Papatel. The equity ownership requirements expressly set forth in KNC's and
Raba-Com's Concession Contracts call for a stricter 25% plus one share Hungarian
ownership requirement. However, the Ministry has stated, pursuant to a letter
dated September 18, 1996, that it intends that all of the Operating Companies be
treated equally with respect to such ownership requirements.
If the Hungarian ownership does not meet the required levels, the LTO
is required to give notice to the Ministry, which may then require the LTO to
rectify the situation within three months, or a shorter period if the Ministry
considers that there has been a delay in the required notification. With respect
to the Company, Postabank, a Hungarian commercial bank, owns approximately 20.2%
of HTCC which is the majority owner of all of the Operating Companies.
Therefore, the Ministry deems the Company in compliance with the current 10%
ownership requirement, however, the Company is currently not in compliance with
the 25% ownership requirement. The Ministry is, however, currently reviewing the
Hungarian equity ownership requirements and has indicated that it is not going
to enforce at this time the 10% Hungarian equity ownership requirement. In the
event that the Ministry adopts new Hungarian equity ownership requirements, the
Company will formulate plans to meet any such Hungarian equity ownership
requirements. Failure to do so, or failure to comply with the greater than 25%
Hungarian ownership requirement at the end of the seven-year period might be
considered a serious breach of a Concession Contract, giving the Ministry the
right, among other things, to terminate the Concession Contract. There can be no
assurance that the Company will be able to increase the Hungarian ownership in
the Operating Companies in a manner sufficient to comply with such requirements
in the future.
-24-
<PAGE>
The Hungarian ownership requirements would effectively give minority
Hungarian stockholders in the Operating Companies the ability to block certain
corporate transactions requiring the approval of 75% of stockholders voting on
the matter, including mergers and consolidations, increases in share capital and
winding-up. In addition, unless the Hungarian ownership requirements are
formally changed, compliance would result in a reduction in the Company's
ownership in the Operating Companies, and, consequently, the Company's share of
income, if any, or loss of the Operating Companies will be reduced
proportionately.
Rate-Setting and Revenue Sharing
Pursuant to the Hungarian Act LXXXVII of 1990 on Pricing (the "Pricing
Act") and the Telecom Act, the Ministry, issues, in agreement with the Hungarian
Ministry of Finance, decrees regulating the tariffs for telecommunications
services provided by the Company, Matav and the other LTOs.
In 1997 the Ministry adopted Decree No. 31/1997 of the KHVM on Fees
Related to Telecommunication Services Subject to Concession (the "1997 Tariff
Decree") which regulated the Operating Companies' subscription fees, fees for
local calls, and fees collected on behalf of Matav for long distance and
international calls. The 1997 Tariff Decree set separate price caps for each
category of service through 2000, which price caps provided for annual rate
increases based on the CPI for the prior year. The Ministry may also reduce the
CPI percentage increase by an efficiency factor to obtain the maximum allowable
price increase. The 1997 Decree also provided for a rebalancing formula which
allowed greater increases in the charges for subscription fees and local calls
than in domestic long distance or international calls. For 2000, in accordance
with the general policies set forth in the 1997 Tariff Decree, the Ministry
adopted Decree No. 1/2000 (I.18) (the "2000 Tariff Decree") which provides for:
a 32% increase in the subscription fee for the Company's residential customers;
a 60% increase in the subscription fee for the Company's business customers; no
increase in local calls within an Operating Area; and a 40% decrease in long
distance and international calls. The intended effect of the 2000 Decree was to
provide for an overall 2000 price increase of a maximum 6% based on the
anticipated inflation rate in 2000. The 1999 increase in the Hungarian CPI was
10%.
The Ministry also regulates the revenue sharing arrangements between
the LTOs (including the Operating Companies) and Matav with respect to long
distance and international calls. The revenue sharing arrangements provide for
the Operating Companies to retain an interconnection fee from the fees collected
from the Operating Companies' customers for long distance and international
calls and for Matav to pay the Operating Companies an interconnection fee for
domestic long distance or international calls terminating with one of the
Operating Company's customers. In 1998 the Ministry announced that it intended
to start regulating the interconnection fees based on internationally accepted
benchmarks with the goal of creating a cost-based interconnection fee regime
within the parameters of European Union standards. To that end, starting in
1999, the interconnection fees were revised to compensate the LTOs more
favorably for costs than in the prior years. For 2000, the Ministry adopted
Decree 8/2000 (III.29) (the "2000 Interconnection Decree") which provides for
each LTO to receive in 2000 an average interconnection fee of HUF 13.22/minute
for the initiation of a domestic long distance or international call and an
average fee of HUF 8.02/minute for the termination of a domestic long distance
or international call. For future years, the LTOs other than Matav as part of a
formal association (the "LTO Association") recently provided the Ministry with a
paper outlining its position with respect to the implementation of a longer term
cost-based interconnection fee regime, which is already a requirement for EU
members. See " - Competition."
-25-
<PAGE>
The Ministry regulates the subscriber connection fees pursuant to
Decree 11/1995 (VII.12) KHVM, as amended, on the One-Time Access Fee Payable for
Establishment of Public Telephone Service Access Points (the "Connection Fee
Decree"). The Connection Fee Decree provides for maximum subscriber connection
fees at HUF 90,000 ($415.70) for business customers and HUF 30,000 ($138.57) for
residential customers. See "- Operations - Services - Subscription and
Connection Fees."
Hungarian Taxation
Corporate Income Tax. The operations of the Company's Hungarian
subsidiaries, including the Operating Companies, are subject to Hungarian
corporate income tax. Generally, Hungarian corporations are subject to tax at an
annual rate of 18.0%. The Operating Companies fulfilled certain criteria which
entitled them to a 100.0% reduction in income taxes for the five year period
ending December 31, 1998 and a 60.0% reduction in income taxes for the
subsequent five year period ending December 31, 2003, provided certain criteria
continue to be met. See Note 1(j) of Notes to Consolidated Financial Statements.
The Operating Companies are currently eligible for such tax treatment. However,
the corporate income tax is reviewed, and subject to change, annually. Any tax
increase or change in the tax exempt status of the Operating Companies could
have a material adverse effect on the Company.
Value Added Tax ("VAT"). The Hungarian VAT system is virtually
identical to the one used in most European countries. VAT is a consumption tax
which is fully borne by the final consumer of a product or service. The current
rates of VAT in Hungary vary between 0.0% and 25.0%, depending on the type of
product or service.
Social Insurance Contributions. The level of contributions for social
insurance in Hungary is one of the highest in Europe. In 1999 employers were
required to pay the state 33% of an employee's gross salary as a social security
contribution and 3.0% of an employee's gross salary as the employer's
contribution to the unemployment fund. In addition, the Company must pay an
additional HUF 3,600 ($14.26) per month for each employee for health insurance.
The Company's share of pension, unemployment, social security and health
insurance payments are reflected in operating and maintenance expenses.
Competition
The Concession Contracts provide for an eight-year period of
exclusivity in the provision of non-cellular local voice telephone services,
which ends in 2002, while the initial 25-year terms of the Concession Contracts
are scheduled to expire in 2019. Other telecommunications service providers
presently are permitted to apply for licenses to provide non-exclusive services
(e.g., data transmission and voice mail) throughout Hungary, including the
Operating Areas. In addition, beginning in 2002, other competitors may choose to
enter the non-cellular local voice telephone services market, but the terms and
conditions upon which such market entry will be effected are today unclear.
-26-
<PAGE>
In 1998, the Ministry awarded Pan-Tel the license to provide
non-exclusive telecommunications services such as data transmission and voice
mail. The current shareholders of Pan-Tel include MAV Rt. (the Hungarian railway
company, "MAV"), PT Investment Holding Company and KPN NV (the Dutch telephone
company). In 1998 Pan-Tel started building its nationwide fiber optic backbone
network along the rights-of-way of MAV which is expected to be completed by the
end of 2000. Pan-Tel is currently providing business communications services
such as digital data, fax and video transmission using Internet Protocol ("IP")
data transmission technology, primarily to large customers. Pan-Tel focused on
the large, multinational companies and government organizations as its initial
target market. In 1999, the Hungarian government granted Pan-Tel two separate
licenses to provide IP-based voice services to residential and business
customers. The Hungarian government determined that such service did not violate
Matav's monopolistic voice concession since voice-over IP is considered "data
transfer". Matav has recently initiated its own voice-over IP service. Pan-Tel
also owns a majority stake in one of Hungary's largest Internet Service
Providers.
The Company faces competition from the four Hungarian cellular
providers: Westel 450; Westel 900; Pannon; and the newest entrant Vodaphone.
Presently, the airtime and monthly fees charged by the cellular operators are
generally more than the fees for comparable services charged by the Company.
Another entrant into the marketplace, Novacom Telecommunications Kft.
("Novacom") owned by affiliates of RWE Telliance AG, a German telecommunications
company, EnBW AG, a German electricity provider and Elmu Rt., the Hungarian
electricity distributor ("Elmu"), is expanding the fiber optic infrastructure of
Elmu in order to compete in the telecommunications market. Novacom offers its
customers corporate network services, managed leased lines, ISDN, frame relay,
X25, ATM IP-based data transmission, closed user group voice and PBX services.
Novacom also recently initiated voice-over IP service.
Other Hungarian telecommunications providers include the following
entities: GTS Hungary Kft. ("GTS") which provides data transmission services
through a nationwide microwave network and a satellite based network (GTS also
owns one of the leading Hungarian ISPs); Antenna Hungaria, the national
broadcaster which is still state-owned, has a national microwave network and
recently announced plans to establish a joint venture with Hungarian Electricity
Works Rt. ("MVM") to operate MVM's existing telecom network; and Global One
Telecommunications Kft., which provides IP-based data transmission services.
There are also several other VSAT (very small aperture terminal) providers in
Hungary.
The Hungarian cable television market is highly fragmented with over
150 cable television providers. The Hungarian cable television industry is
undergoing consolidation. United Pan-Europe Communications NV ("UPC") is the
largest cable television operator in Hungary. UPC owners include UnitedGlobalCom
Inc., the global television operator of Denver, Colorado (51%), and Microsoft
Corp. (8%) of Redmond, Washington.
The Ministry recently announced that it will revise its laws in 2000
regarding the regulation of the telecommunication market in accordance with
European Union standards. The regulation of telephony, cable television and the
Internet would be affected. The Company does not expect that the exclusivity
period of its concession rights, which expire in 2002, will be affected.
-27-
<PAGE>
Hungary's application for membership in the European Union (the "EU")
was accepted. Hungary is now in the process of negotiating the terms of its
accession into the EU. The EU has adopted numerous directives providing for an
open telecommunications market among its member nations. Hungary is not expected
to become a member of the European Union until 2003 at the earliest by which
time the exclusivity rights of the LTOs and Matav will have expired.
Employees
The Company had a total of approximately 665 employees, including 10
expatriates, as of March 1999. The Company considers its relations with its
employees to be satisfactory.
Item 2. Properties
The Company leases its office space in Budapest at a current monthly
rental of DM 30,749 (approximately $15,000 at current exchange rates). The
Company is in the process of selling its old office headquarters in Budapest.
The Company leases 1,157 square feet of office space at 100 First Stamford
Place, Stamford, CT at a monthly rental of $2,508. The Company is moving its
U.S. office to Suite 32, Tokeneke Center, 30 Center Street, Darien, CT 06820
effective May 1, 2000 at a monthly rental of $1,500. The Company believes that
its leased and owned office space is adequate for its present needs but is
currently reviewing its alternatives as to its future needs.
In addition, each Operating Company owns or leases the following office
or customer service space in its respective Operating Area: KNC owns or leases
57,000 square feet of total space; Raba-Com owns or leases 15,000 square feet of
total space; Hungarotel owns or leases 119,594 square feet of total space; and
Papatel owns or leases 18,000 square feet of total space.
Item 3. Legal Proceedings
Hungarotel is a defendant in a lawsuit filed by Dialcont Kft.
("Dialcont") on March 28, 1996 in Hungary alleging a breach of contract for
services allegedly provided by Dialcont during 1994 and 1995. The Company
believes that Dialcont's claims are without merit and is vigorously defending
itself against such claims. Dialcont is seeking HUF 222 million ($879,000). This
action is still pending in the Hungarian court system.
Raba-Com is a defendant in a lawsuit filed by an individual residential
customer in Hungary on December 4, 1997. The plaintiff sought a refund of a
minimal amount alleging that his home was connected to Raba-Com's network in an
untimely fashion. Raba-Com prevailed on the merits in the lower court. The
plaintiff appealed the case in the appellate court which court overturned the
lower court's decision. Raba-Com filed an appeal with the Hungarian Supreme
Court which is still pending. Should, however, Raba-Com lose its appeal at the
Supreme Court level, the Company could be subject to additional claims for
refunds. The Company believes it has meritorious defenses to this claim and any
others that may be filed regarding this matter.
HTCC Consulting Rt. ("Consulting") and Papatel are involved in
several disputes with the Hungarian taxing authorities (the "APEH") pursuant
to which the APEH alleges that Consulting owes HUF 105 million (approximately
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<PAGE>
$416,000) and Papatel owes HUF 26 million (approximately $103,000) for
various reasons. The Operating Companies believe that the APEH claims are
without merit and are vigorously defending themselves against such claims.
During 1996 and 1997, the Company entered into several construction
contracts with a Hungarian contractor which totaled $59.0 million in the
aggregate, $47.5 of which was financed by a contractor financing facility. The
contractor financed the facility through Postabank. As of December 31, 1998, the
balance owed by the Company on the contractor financing facility was
approximately $36.6 million. The Company and the contractor have a disagreement
with respect to several issues relating to the quality and quantity of the work
done by the contractor. The Company has rejected invoices of approximately HUF
700 million (approximately $2.8 million). In order to resolve these issues, the
Company purchased from Postabank the receivables owed by the contractor to
Postabank with respect to the contractor financing facility. The Company also
purchased from Postabank some of the obligations which the Company owed to the
contractor under the contractor financing facility which were assumed by
Postabank. The Company then set off its uncontested liabilities to the
contractor against the amounts owed to the Company by the contractor. The
contractor is now seeking payment under separate invoices in the amount of
approximately $24 million for work which the Company is disputing because of
quality and quantity issues. The Company still has claims against the contractor
of approximately $31 million which is more than the contractor's claim. The
Company is reviewing its options with respect to such dispute. At this time the
outcome of such dispute cannot be predicted with certainty. The Company believes
that it will prevail on the merits such that it will not be responsible for the
full amount of the contractor's claims. There can, however, be no assurances as
to the final outcome or course of action of such dispute.
The Company and its subsidiaries are involved in various other legal
actions arising in the ordinary course of business. The Company is contesting
these legal actions in addition to the suits noted above; however, the outcome
of individual matters is not predictable with assurance. Although the ultimate
resolution of these actions (including the actions discussed above) is not
presently determinable, the Company believes that any liability resulting from
the current pending legal actions involving the Company, in excess of amounts
provided therefor, will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1999.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock trades on the American Stock Exchange (the
"Amex") under the symbol "HTC." Trading of the Common Stock on the Amex
commenced on December 20, 1995. From December 8, 1994 through December 19, 1995,
the Common Stock was quoted on the Nasdaq National Market and from December 28,
1992 through December 7, 1994 the Common Stock was quoted on the Nasdaq
Small-Cap Market. In 1998, NASD, parent of The Nasdaq Stock Market, merged with
the American Stock Exchange. Subsequent to the merger, The Nasdaq-Amex Market
Group was created as a holding company under which both The Nasdaq Stock Market
and the American Stock Exchange function as independent subsidiaries, with
separate listed companies.
The following table sets forth the high and low sale prices for the
Common Stock as reported by the Amex for each quarter in 1998 and 1999.
High Low
Quarter Ended:
- -------------
1998
March 31, 1998 . . . . . . . . . . . $11-1/8 $ 7-1/2
June 30, 1998. . . . . . . . . . . . 8-3/4 4-7/8
September 30, 1998 . . . . . . . . . 6-1/8 2-1/8
December 31, 1998. . . . . . . . . . 6-5/8 3
1999
March 31, 1999 . . . . . . . . . . . $ 5-1/4 $ 3-1/4
June 30, 1999. . . . . . . . . . . . 7 3-3/4
September 30, 1999 . . . . . . . . . 6-1/2 4-9/16
December 31, 1999. . . . . . . . . . 7-1/4 4-13/16
On April 11, 2000, the closing sale price for the Common Stock on the
Amex was $7-1/2.
Stockholders
As of April 11, 2000, the Company had 12,009,479 shares of Common Stock
outstanding held by 114 holders of record. The Company believes that it has
approximately 1,500 beneficial owners who hold their shares in street names.
The Company will furnish, without charge, on the written request of any
stockholder, a copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, including financial statements filed therewith.
Stockholders wishing a copy may send their request to the Company at 100 First
Stamford Place, Suite 204, Stamford, CT 06902 until April 30, 2000 and to Suite
32, Tokeneke Center, 30 Center Street, Darien, CT 06820 thereafter.
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<PAGE>
Dividend Policy
It is the present policy of the Company to retain earnings, if any, to
finance the development and growth of its businesses. Accordingly, the Board of
Directors does not anticipate that cash dividends will be paid until earnings of
the Company warrant such dividends, and there can be no assurance that the
Company can achieve such earnings.
At present, HTCC's only source of revenues is payments, including
repayment of any intercompany loans, payments under its management service
agreements and dividends, if any, from the Operating Companies. The Operating
Companies' ability to pay dividends or make other capital distributions to the
Company is governed by Hungarian law. Currently, the Operating Companies have
negative net equity and are not permitted to pay dividends.
Item 6. Selected Financial Data
HUNGARIAN TELEPHONE AND CABLE CORP.
AND SUBSIDIARIES
Selected Financial and Operating Data
(Dollars in Thousands, Except Per Share
Amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <
1999 1998 1997 1996 1995
---------- --------- --------- --------- --------
For the Year
Operating revenues $ 45,438 $ 38,707 $ 37,891 $ 20,910 $ 4,070
Operating income (loss) $ 16,189 $ (6,059) $ (1,263) $(20,553) $(17,829)
Net loss before extraordinary items, net $(17,773) $(50,612) $(36,236) $(54,769) $(20,024)
Net income (loss) $ 3,172 $(50,612) $(36,236) $(54,769) $(20,024)
Net income (loss) per common share $ 0.33 $ (9.53) $ (7.97) $ (13.14) $ (6.30)
At Year-End
Total assets $154,683 $177,067 $186,485 $156,615 $110,387
Long-term debt, excluding
current installments $122,917 $202,881 $194,537 $148,472 $ 23,467
Total stockholders' (deficiency)
equity $ (6,946) $(89,037) $(41,837) $(23,790) $ 15,739
</TABLE>
The extraordinary item in 1999 arose on the extinguishment of
liabilities to Citizens and amounts due under a contractor financing facility
offset in part by the write off of the remaining unamortized deferred costs
pertaining to a credit facility with Postabank, which was also extinguished
during the year.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
HTCC is engaged primarily in the provision of telecommunications
services through its majority-owned operating subsidiaries, KNC, Raba-Com,
Papatel and Hungarotel. The Company earns substantially all of its
telecommunications revenue from measured service fees, monthly line rental fees,
connection fees, public pay telephone services and ancillary services (including
charges for additional services purchased at the customer's discretion).
During 1996 and 1997 the Company embarked on a significant network
development program which met its substantial demand backlog, increased the
number of basic telephone access lines in service and modernized existing
facilities. The development and installation of the network in each of the
Company's Operating Areas required significant capital expenditures.
Now that the Company's network is substantially built-out, the ability
of the Company to generate sufficient revenues to satisfy cash requirements and
become profitable will depend upon a number of factors, including the Company's
ability to attract additional customers, revenues per customer and on-going
construction costs. These factors are expected to be primarily influenced by the
success of the Company's operating and marketing strategies as well as market
acceptance of telecommunications services in the Company's Operating Areas. In
addition, the Company's profitability may be affected by changes in the
Company's regulatory environment and other factors that are beyond the Company's
control. The success of the Company's strategy is dependent upon its ability to
increase revenues through increased usage and the addition of new subscribers.
The Company funded its construction costs and working capital needs
over the past several years primarily through a $170 million Postabank Credit
Facility (the "Original Postabank Credit Facility") and a $47.5 million
contractor financing facility. The Company and the Hungarian contractor which
granted the contractor financing facility have a disagreement with respect to
several issues relating to the quality and quantity of the work done by the
contractor. In addition, on March 31, 1999, the Company did not have sufficient
funds on hand to pay the first installment due on the Original Postabank Credit
Facility. Due to this fact, as well as the disagreement the Company has with the
Hungarian contractor, on March 30, 1999, and May 12, 1999, the Company entered
into a series of transactions (see notes 4, 5, 6, 8 and 11 of Notes to
Consolidated Financial Statements) which restructured the Company's debt and
capital structure. As the final step in the Company's debt and equity
restructuring which started in 1999, on April 11, 2000, the Company entered into
a EUR 130 million Senior Secured Debt Facility with a European banking
syndicate. See "- Liquidity and Capital Resources" below.
To date, the Company's activities have involved the acquisition of the
concessions and telecommunications networks from Matav and the subsequent
design, development and construction of the modern telecommunications
infrastructure that the Company now has in service. The Company paid the
Ministry $11.5 million (at historical exchange rates) for its concessions, spent
approximately $23.2 million (at historical exchange rates) to acquire the
existing telecommunications assets in its Operating Areas from Matav, and spent
$181 million through December 31, 1999 (at historical exchange rates) on the
development and construction of its telecommunications infrastructure. Since
commencing the provision of telecommunications services in the first quarter of
1995, the Company's network construction and expansion program has added 139,100
access lines through December 31, 1999 to the 61,400 access lines acquired
directly from Matav. As a result, the Company had 200,500 access lines in
operation at year end 1999.
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Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998
Net Revenues
Year ended
(dollars in millions) 1999 1998
Measured service revenues $ 35.2 $ 32.2
Subscription revenues 10.9 10.7
Net interconnect charges (7.0) (9.8)
----- -----
Net measured service and subscription revenues 39.1 33.1
Connection fees 1.8 2.0
Other operating revenues, net 4.5 3.6
----- -----
Telephone Service Revenues, Net $45.4 $38.7
====== =====
The Company recorded a 17% increase in net telephone service revenues
to $45.4 million for the year ended December 31, 1999 from $38.7 million for the
year ended December 31, 1998.
Net measured service and subscription revenues increased 18% to $39.1
million for the year ended December 31, 1999 from $33.1 million for the year
ended December 31, 1998. Measured service revenues increased 9% to $35.2 million
in 1999 from $32.2 million in 1998 while subscription revenues increased 2% to
$10.9 million in 1999 from $10.7 million in 1998. These increases in call and
subscription fee revenues are the result of a 7% increase in average access
lines in service from approximately 178,000 lines for the year ended December
31, 1998 to approximately 190,000 lines for the year ended December 31, 1999.
The growth in access lines is not fully reflected in increased measured service
revenues as newer customers require a period of maturity before producing
revenues similar to established telephone customers.
These revenues have been offset by net interconnect charges which
totaled $7.0 million for the year ended December 31, 1999 as compared to $9.8
million for the year ended December 31, 1998. As a percentage of call and
subscription revenues, net interconnect charges have declined from 23% for the
year ended December 31, 1998 to 15% for the year ended December 31, 1999, due to
a higher proportion of local traffic as additional access lines are placed in
service plus a negotiated reduction in interconnect fees effective January 1,
1999. Based upon recent negotiations with Matav and the Hungarian Ministry of
Telecommunications, the Company expects net interconnect, as a percentage of
call and subscription revenues, to remain consistent with 1999 levels in 2000.
Connection fees for the year ended December 31, 1999 totaled $1.8
million as compared to $2.0 million for the year ended December 31, 1998.
Connection fees increased in functional currency terms by 5% due to additional
access lines being connected in 1999 as compared to 1998. However, due to the
devaluation of the Hungarian forint during the period, connection fees for the
year have remained relatively consistent in U.S dollar terms with 1998 amounts.
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Other operating revenues increased 25% to $4.5 million during the year
ended December 31, 1999 compared to $3.6 million during the year ended December
31, 1998 due to revenues generated from the provision of direct lines and other
miscellaneous telephony service revenues.
Operating and Maintenance Expenses
Operating and maintenance expenses for the year ended December 31, 1999
decreased to $17.5 million compared to $19.6 million for the year ended December
31, 1998. On a per line basis, operating and maintenance expenses decreased to
approximately $92 per average access line for the year ended December 31, 1999
from $110 for the year ended December 31, 1998 as the Company achieved
productivity improvements and increased its focus on reducing operating
expenses, particularly through reductions in the number of expatriates working
for the Company. The Company does not expect significant decreases in operating
and maintenance expenses in 2000. However, on a per line basis, operating and
maintenance costs are expected to decline as additional access lines are added
during 2000.
Depreciation and Amortization
Depreciation and amortization charges increased to $11.8 million for
the year ended December 31, 1999 from $11.6 million for the year ended December
31, 1998. Depreciation and amortization charges increased in functional currency
terms by approximately 13% due to additional capital expenditures. However, due
to the devaluation of the Hungarian forint during the period, depreciation and
amortization charges for the year ended 1999 have remained relatively consistent
in U.S. dollar terms with 1998 amounts. The Company expects depreciation and
amortization charges in 2000 to increase in functional currency terms due to
additional capital expenditures in its operating subsidiaries, however, in U.S.
dollar terms the Company expects depreciation and amortization to remain
consistent with 1999 amounts due to devaluation of the operating subsidiaries'
functional currency.
Management Fees
There was no management fee expense for the year ended December 31,
1999 as compared to $2.5 million for the year ended December 31, 1998. This
decrease is due to the termination of management services agreement between the
Company and Citizens International Management Services Company. See Note 15 of
Notes to Consolidated Financial Statements. The Company does not have any
continuing management services agreements.
Cost of Termination of Management Services Agreement
For the year ended December 31, 1998, the Company recorded a charge
totaling $11.1 million representing the present value of payments due to
Citizens International Management Services Company under a termination and
consulting agreement. See Note 15 of Notes to Consolidated Financial Statements.
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<PAGE>
Income (Loss) from Operations
Income from operations was $16.2 million for the year ended December
31, 1999 compared to a loss from operations of $6.1 million for the year ended
December 31, 1998. Adjusted for the cost of terminating the management services
agreement and management fees, income from operations for the year ended
December 31, 1998 amounted to $7.6 million. Contributing to such improvements
were higher revenues and lower operating and maintenance expenses and the
elimination of the management fees described above during the year ended
December 31, 1999 as compared to the year ended December 31, 1998, offset by
increased depreciation and amortization charges during the year.
Foreign Exchange Losses
Foreign exchange losses increased $2.6 million to $2.8 million for the
year ended December 31, 1999 from $0.2 million for the year ended December 31,
1998. Such foreign exchange losses resulted primarily from the devaluation of
the Hungarian forint against the U.S. dollar during the period. This increase in
foreign exchange losses during the period is due to the Company's restructuring
of its debt obligations in May 1999. Prior to its restructuring the Company had
debt denominated in Hungarian forints. The Company now has debt obligations
denominated in U.S. dollars and euros, as well as Hungarian forints. See
"Liquidity and Capital Resources" section below for information regarding the
Company's debt restructuring during the period. See also the "Inflation and
Foreign Currency" and "Market Risk Exposure" sections below.
Interest Expense
Interest expense decreased to $32.5 million for the year ended December
31, 1999 from $45.9 million for the year ended December 31, 1998. This decrease
was attributable to lower average debt levels during the year ended December 31,
1999 as compared to the year ended December 31, 1998. This reduction in average
debt levels outstanding during the period is due to the Company's restructuring
of its debt obligations in May 1999. The decrease also reflects lower interest
rates paid on borrowings in U.S. dollars and euros compared to Hungarian
forints.
Interest Income
Interest income increased to $1.7 million for the year ended December
31, 1999 from $0.7 million for the year ended December 31, 1998 primarily due to
higher average cash balances outstanding during the period.
Other, net
Other, expense amounted to $0.4 million for the year ended December 31,
1999 as compared to other income of $0.8 million for the year ended December 31,
1998. This decrease is due to an approximate $0.8 million gain realized related
to the termination of the former management services agreement between the
Company and Citizens International Management Services Company during 1998. The
Company does not have any continuing management services agreements. See Note 15
of Notes to Consolidated Financial Statements.
Loss Before Extraordinary Items
As a result of the factors discussed above, the Company recorded a loss
before extraordinary items of $17.8 million, or $1.85 per share, for the year
ended December 31, 1999 as compared to a loss before extraordinary items of
$50.6 million, or $9.53 per share, for the year ended December 31, 1998.
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Extraordinary Items, net
For the year ended December 31, 1999, the Company recorded an
extraordinary item of $20.9 million comprised of extraordinary income of $27.1
million which consists of a $9.0 million gain on extinguishment of the
liabilities the Company had with Citizens and a $18.1 million gain on
extinguishment of all amounts due under a contractor financing facility, offset
in part by a non-cash charge of $6.2 million related to the write-off the
remaining unamortized deferred financing costs and credits pertaining to the
Original Postabank Credit Facility.
Net Income (Loss)
As a result of the factors discussed above, the Company recorded net
income of $3.2 million, or $0.33 per share for the year ended December 31, 1999
as compared to a net loss of $50.6 million, or ($9.53) per share for the year
ended December 31, 1998.
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
Net Revenues
Year ended
(dollars in millions) 1998 1997
Measured service revenues $ 32.2 $ 26.2
Subscription revenues 10.7 7.2
Net interconnect charges (9.8) (10.2)
----- ------
Net measured service and subscription revenues 33.1 23.2
Connection fees 2.0 12.9
Other operating revenues, net 3.6 1.8
----- -----
Telephone Service Revenues, Net $ 38.7 $37.9
===== =====
The Company recorded a 2% increase in net telephone service revenues to
$38.7 million for the year ended December 31, 1998 from $37.9 million for the
year ended December 31, 1997.
Net measured service and subscription revenues increased 43% to $33.1
million for the year ended December 31, 1998 from $23.2 million for the year
ended December 31, 1997. Measured service revenues increased 23% to $32.2
million in 1998 from $26.2 million in 1997 while subscription revenues increased
49% to $10.7 million in 1998 from $7.2 million in 1997. These increases in call
and subscription fee revenues are the result of a 35% increase in average access
lines in service from approximately 132,000 lines for the year ended December
31, 1997 to approximately 178,000 lines for the year ended December 31, 1998.
The growth in access lines is not fully reflected in increased measured service
revenues as newer customers require a period of maturity before producing
revenues similar to established telephone customers.
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<PAGE>
These revenues have been offset by net interconnect charges which
totaled $9.8 million for the year ended December 31, 1998 as compared to $10.2
million for the year ended December 31, 1997. As a percentage of call and
subscription revenues, net interconnect charges have declined from 31% for the
year ended December 31, 1997 to 23% for the year ended December 31, 1998, due to
a higher proportion of local traffic as additional access lines are placed in
service plus a negotiated reduction in interconnect fees effective January 1,
1998.
Connection fees for the year ended December 31, 1998 totaled $2.0
million as compared to $12.9 million for the year ended December 31, 1997. This
decrease reflects the reduction in the number of new access lines connected from
approximately 81,700 during the year ended December 31, 1997 to approximately
9,900 lines during the year ended December 31, 1998. Connection fees were
expected to decline substantially during the year as the majority of wait-listed
customers have been provided with access lines. The Company expects connection
fees to continue to decline as no significant backlog of wait-listed customers
exists.
Other operating revenues increased 100% to $3.6 million during the year
ended December 31, 1998 compared to $1.8 million during the year ended December
31, 1997 due to revenues generated from the provision of direct lines and
revenues generated from Lucent PBX sales and related maintenance services.
Operating and Maintenance Expenses
Operating and maintenance expenses for the year ended December 31, 1998
decreased to $19.6 million compared to $25.0 million for the year ended December
31, 1997. On a per line basis, operating and maintenance expenses decreased to
approximately $110 per average access line for the year ended December 31, 1998
from $190 for the year ended December 31, 1997 as the Company achieved
productivity improvements, including discontinuing the use of labor intensive
manual switchboards through the use of modern switching technology, as well as
increased focus on reducing operating expenses.
Termination of Management Services Agreement
For the year ended December 31, 1998, the Company recorded a charge
totaling $11.1 million representing the present value of payments due to
Citizens International Management Services Company under a termination and
consulting agreement. See Note 15 of Notes to Consolidated Financial Statements.
Depreciation and Amortization
Depreciation and amortization charges increased to $11.6 million for
the year ended December 31, 1998 from $8.3 million for the year ended December
31, 1997.
Management Fees
Management fees pursuant to management service agreements decreased to
$2.5 million for the year ended December 31, 1998 from $5.8 million for the year
ended December 31, 1997. This decrease was due to the termination of management
services agreement between the Company and Citizens International Management
Services Company. See Note 15 of Notes to Consolidated Financial Statements. The
Company does not have any continuing management services agreement.
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<PAGE>
Loss from Operations
Loss from operations increased to $6.1 million for the year ended
December 31, 1998 compared to $1.3 million for the year ended December 31, 1997.
Excluding the cost of terminating the management services agreement and
management fees, income from operations for the years ended December 31, 1998
and 1997 would have been $7.6 million and $4.5 million, respectively.
Contributing to such improvements were higher revenues and lower operating and
maintenance expenses during the year ended December 31, 1998 as compared to the
year ended December 31, 1997, offset by increased depreciation and amortization
charges during the year
Foreign Exchange Loss
Foreign exchange losses decreased to $0.2 million for the year ended
December 31, 1998 from $0.5 million for the year ended December 31, 1997. Such
foreign exchange losses resulted from the devaluation of the Hungarian forint
against the U.S. dollar and the German Mark.
Interest Expense
Interest expense increased to $45.9 million for the year ended December
31, 1998 from $35.2 million for the year ended December 31, 1997. This increase
was attributable to higher average debt levels during the year ended December
31, 1998 as compared to the year ended December 31, 1997 as the Company incurred
additional indebtedness in order to continue the construction of its
telecommunications networks and repay other loan obligations. Interest
capitalized and included in the cost of construction of certain long term assets
amounted to approximately $0.3 million during 1998 and $4.5 million in 1997.
Other, net
Other, net income amounted to $0.8 million for the year ended December
31, 1998 as compared to $13,000 for the year ended December 31, 1997. This
increase during the year ended December 31, 1998 is due to an approximate $0.8
million gain realized related to the termination of the former management
services agreement between the Company and Citizens International Management
Services Company. Under such termination agreement, the Company satisfied its
obligations, under a previous management services agreement, of $9.6 million by
issuing 100,000 shares of Common Stock valued at $513,000 and a promissory note
in the amount of $8.4 million. See Note 15 of Notes to Consolidated Financial
Statements.
Net Loss
As a result of the factors discussed above, the Company recorded a net
loss of $50.6 million, or $9.53 per share, for the year ended December 31, 1998
as compared to a net loss of $36.2 million, or $7.97 per share, for the year
ended December 31, 1997.
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<PAGE>
Liquidity and Capital Resources
The Company has historically funded its capital requirements primarily
through a combination of debt, equity and vendor financing. The ongoing
development and installation of the network in each of the Company's Operating
Areas required significant capital expenditures ($181 million at historical
exchange rates through December 31, 1999). The Company's networks now have the
capacity to provide basic telephone services to virtually all of the potential
subscribers within its Operating Areas.
On October 15, 1996, the Company entered into a $170 million 10-year
Multi-Currency Credit Facility with Postabank (the "Original Postabank Credit
Facility"). Proceeds from the Original Postabank Credit Facility could be drawn
entirely in Hungarian forints and up to 20% of the principal could be drawn in
U.S. dollars through March 31, 1999. Drawdowns in Hungarian forints bore
interest at a rate of 2.5% above the average of the yield on six- and
twelve-month discounted Hungarian treasury bills while drawdowns in U.S. dollars
bore interest at 2.5% above LIBOR. Interest for the first two years was deferred
at the Company's option. Amounts outstanding in Hungarian forints, including any
deferred interest, were payable in 32 equal quarterly installments beginning on
March 31, 1999.
In October 1996, the Company borrowed the equivalent of $82.3 million
in Hungarian forints under the Original Postabank Credit Facility. Approximately
$75.2 million of this amount was used to repay Citicorp all funds advanced
pursuant to a $75.0 million secured term loan credit facility entered into in
March 1996, and $2.0 million in fees and costs representing settlement in
connection with the cancellation of the Company's proposed private placement of
debt securities. The remaining $5.1 million was used to pay management fees and
reimbursable costs owed to Citizens pursuant to the Management Services
Agreement with Citizens. An additional $5.6 million of the facility was used to
pay loan origination fees and costs to Postabank under the terms of the loan
agreement, $2 million of which were reimbursed to the Company in equal quarterly
installments over a two year period, and was being amortized over the life of
the loan facility. The remainder of the proceeds were used to complete
construction of the Company's telecommunication networks, provide additional
working capital, and refinance or repay other existing debt obligations. As of
December 31, 1998, the Company had borrowed the entire $170 million under the
Postabank Credit Facility.
On May 12, 1999, the Company entered into various agreements as part of
a revision of its capital structure with the following parties: Postabank Rt.
("Postabank"); Tele Danmark A/S ("Tele Danmark"); the Danish Investment Fund for
Central and Eastern Europe (the "Danish Fund"); CU CapitalCorp and Citizens
International Management Services Company, each of which is a wholly-owned
subsidiary of Citizens Utilities Company (Citizens Utilities Company and its
subsidiaries are hereinafter referred to as "Citizens"). As a result of such
agreements, the Company extinguished all of its obligations (i) to Postabank
under the Original Postabank Credit Facility in the amount of approximately $193
million and the amounts borrowed to settle a portion due under a contractor
financing facility in the amount of approximately $16 million; (ii) to one of
its contractors under a contractor financing facility in the amount of
approximately $35 million; and (iii) to Citizens under a $8.4 million promissory
note which was payable in 2004 and an obligation to pay Citizens $21 million in
28 quarterly installments of $750,000 each from 2004 through and including 2010.
The effect of these transactions has been a significant reduction in the
financial obligations of the Company. The Company has borrowed from Postabank
$138 million ($134 million at current exchange rates) under a one-year dual
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<PAGE>
currency bridge loan agreement in Hungarian forints and euros and $25 million
pursuant to certain unsecured notes which mature in 2007. Some of the various
agreements which were entered into as of May 12, 1999 are described herein. (The
descriptions and summaries herein do not purport to be complete, and are subject
to, and qualified in their entirety by, reference to each such agreement, copies
of which are filed as Exhibits hereto).
The Company and Postabank entered into a Dual Currency Bridge Loan
Agreement (the "Postabank Bridge Loan Agreement") pursuant to which HTCC's
subsidiaries borrowed the equivalent of $111 million in Hungarian forints and
$27 million in euros which funds were applied to the repayment of the Original
Postabank Credit Facility. The loan is repayable on May 10, 2000 and bears
interest at an initial rate of 2.25% (the "Margin") plus the Budapest Bank
Offering Rate or Euro LIBOR Rate (currently approximately 15% and 2.5%,
respectively) which Margin increases incrementally to 4.25%, in quarterly
increments of 1% over the next year. HTCC and one of its subsidiaries, HTCC
Consulting Rt. are guarantors for the HTCC subsidiaries under the Postabank
Bridge Loan Agreement. The Company has pledged all of its intangible and
tangible assets, including HTCC's ownership interests in its subsidiaries, and
its real property to secure all of the obligations under the Postabank Bridge
Loan Agreement. The Company entered into a series of agreements to secure such
obligations under the Postabank Bridge Loan Agreement.
The Company and Postabank also entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") pursuant to which Postabank
purchased 2,428,572 shares of the Company's common stock for an aggregate
purchase price of $34 million. The Securities Purchase Agreement provides for
one person designated by Postabank to be nominated for election to the Company's
Board of Directors. Postabank cannot transfer its shares until the earlier of
(x) the repayment in full of all the obligations under the Postabank Bridge Loan
Agreement or (y) May 10, 2000, and then Postabank can only transfer such shares
incrementally through 2003 subject to the Company's right of first refusal. The
Company's right of first refusal expires in January 2003 and is assignable by
the Company to any beneficial holder of more than 10% of the Company's
outstanding common stock. The Company applied the proceeds from the stock
issuance to the repayment of the Original Postabank Credit Facility. Pursuant to
the Securities Purchase Agreement, the Company issued notes to Postabank in an
aggregate amount of $25 million (the "Notes") with detachable warrants (the
"Warrants"). The Notes accrue interest, which is payable semi-annually, at the
LIBOR rate applicable for the six month interest period, plus 4%. On April 11,
2000, the Notes were amended such that the interest rate was changed to LIBOR
plus 3.5%. The Notes which mature in 2007 are transferable subject to applicable
security laws. The Warrants which were issued pursuant to a series of Warrant
Agreements between the Company and Postabank enable Postabank to purchase
2,500,000 shares of the Company's common stock at an exercise price of $10 per
share. The exercise period commences on January 1, 2004 and terminates on March
31, 2007. The Company has the right to terminate the Warrants in full or
proportionately prior to January 1, 2004 provided that the Company repays a
proportionate amount of the Notes and an amount equal to 7-1/2% of the aggregate
principal amount of the Notes repaid, concurrently with the termination of the
Warrants.
The Company and Tele Danmark entered into a Stock Purchase Agreement
(the "TD Stock Purchase Agreement") pursuant to which the Company issued
1,571,429 shares of Common Stock in exchange for $11 million. The Company
applied the proceeds from the TD Stock Purchase Agreement to the repayment of
the Original Postabank Credit Facility. Tele Danmark agreed not to transfer the
shares to any party prior to May 11, 2000 without the prior written consent of
the Company.
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<PAGE>
The Company and the Danish Fund entered into a Stock Purchase Agreement
(the "Danish Fund Stock Purchase Agreement") pursuant to which the Company
issued 1,285,714 shares of Common Stock in exchange for $9 million. The Company
applied the proceeds from the Danish Fund Stock Purchase Agreement to the
repayment of the Original Postabank Credit Facility. The Danish Fund agreed not
to transfer the shares to any party except for Tele Danmark prior to May 11,
2000 without the prior written consent of the Company.
The Company and Citizens entered into a Stock Purchase Agreement (the
"Citizens Stock Purchase Agreement') pursuant to which the Company issued to
Citizens 1,300,000 shares of Common Stock and 30,000 shares of the Company's
Series A Preferred Stock, par value $0.01 (the "Preferred Shares"). In
consideration for such shares, Citizens (i) transferred to the Company for
cancellation a $8.4 million promissory note issued by the Company to Citizens
which was to mature in 2004, (ii) agreed to forego half of the accrued interest
due on the promissory note through May 15, 1999 and (iii) agreed to renounce and
forego any rights whatsoever to any payment of the $21 million which was payable
by the Company to Citizens in quarterly installments of $750,000 from 2004
through and including 2010. Citizens, as the holder of the Preferred Shares, is
entitled to receive cumulative cash dividends at an annual rate of 5%,
compounded annually on the liquidation value of $70 per share. The Company may
redeem the Preferred Shares at any time. Citizens can convert each of the
Preferred Shares into shares of the Company's common stock on a one for ten
basis. The Citizens Stock Purchase Agreement provided that if the average
closing price of the Company's common stock for the twenty (20) trading days
ending March 31, 2000 is less than $7.00 per share, then HTCC shall issue such
number of HTCC Preferred Shares (with a value of $70 per share) equal in value
to (i) 1,600,000 times (ii) $7.00 less the average closing price of HTCC common
stock for such twenty (20) trading day period. The average closing price of the
Company's common stock for the above mentioned period was more than $7.00 per
share and as a result, no additional shares of HTCC preferred stock have been
issued to Citizens. The Citizens Stock Purchase Agreement also requires Citizens
not to transfer any shares of HTCC common stock which it may hold prior to May
15, 2000 without the prior written consent of the Company and Postabank.
Citizens also waived any and all preemptive and anti-dilution rights in
connection with the transactions described above. As a result of the Stock
Purchase Agreement with Citizens, the Company recorded extraordinary income of
$9.0 million during the second quarter of 1999 which represented the gain on the
extinguishment of the liabilities the Company had with Citizens.
During 1996 and 1997, the Company entered into several construction
contracts with a Hungarian contractor which totalled $59.0 million in the
aggregate, $47.5 million of which was financed by a contractor financing
facility. The contractor financed the financing facility through a facility
provided by Postabank. As of December 31, 1998, the balance owed under the
contractor financing facility was $36.6 million. On March 30, 1999, Postabank
assumed HUF 7 billion plus accrued interest of HUF 348 million (approximately
$30.9 million) of the Company's liability under the contractor financing
facility from the contractor, due to the contractor's financial difficulties,
and sold this debt back to the Company for HUF 3 billion (approximately $12.6
million). The purchase of the debt was financed by Postabank. On the same day,
the Company purchased HUF 4 billion (approximately $16.8 million) of loans the
contractor had with Postabank for HUF 900 million (approximately $3.8 million)
and subsequently offset the booked value of the loans purchased of HUF 900
million (approximately $3.8 million) against the outstanding amounts owed to the
contractor. The purchase of these loans was also financed by Postabank. As a
result of the above transactions, the Company recorded an extraordinary gain of
HUF 4.3 billion (approximately $18.1 million) during the second quarter of 1999
which reflects the extinguishment of all amounts due under the contractor
financing facility.
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As a result of the agreements above, the Company had 11,981,579 shares
of common stock outstanding as of December 31, 1999. The following parties hold
the following percentages of such shares: Postabank 20.3%; Tele Danmark 21.4%;
the Danish Fund 10.7%; Citizens 19.2%; and others 28.4%. On a fully-diluted
basis, the Company had 20,218,638 shares outstanding. The following parties hold
the following percentages of such shares: Postabank 24.4%; Tele Danmark 12.7%;
the Danish Fund 6.4%; Citizens 35.2%; and others 21.3%.
On April 11, 2000, the Company entered into a EUR 130 million Senior
Secured Debt Facility Agreement (the "Debt Agreement") with a European banking
syndicate. The Company intends to draw down the entire EUR 130 million ($124
million at current exchange rates), which funds will be used in their entirety,
along with another $6 million of other Company funds, to pay off the entire
outstanding balance EUR 128 million (approximately $128 million at December 31,
1999 exchange rates) of the Postabank Bridge Loan Agreement which will result in
the termination of the Postabank Bridge Loan which matures on May 12, 2000, as
well as fees associated with the Debt Agreement. The borrowers under the Debt
Agreement are the Operating Companies who were the borrowers under the Postabank
Bridge Loan Agreement.
The Debt Agreement has two facilities. Facility A is a floating rate
term loan in the amount of EUR 125 million (the "Term Facility") which principal
is repayable semi-annually on each June 30 and December 31 beginning on June 30,
2001 and ending on December 31, 2007. The amount of the principal repayments on
the Term Facility are to be an escalating percentage of the amounts drawn down
(EUR 125 million). Any amounts borrowed under the Term Facility have to be drawn
down within thirty days of the execution of the Debt Agreement in either euros
or, if funded by the banking syndicate, Hungarian forints. The Company intends
to borrow the full EUR 125 million, or its equivalent in euros and Hungarian
forints. Any amounts borrowed in Hungarian forints are repayable in Hungarian
forints. The Term Facility loans denominated in euros accrue interest at the
rate of the Applicable Margin (defined below) plus the EURIBOR rate for the
applicable interest period. The EURIBOR rate is the percentage rate per annum
determined by the Banking Federation of the European Union for the applicable
interest period. The Term Facility loans denominated in Hungarian forints accrue
interest at the rate of the Applicable Margin (defined below) plus the BUBOR
rate for the applicable interest period. The BUBOR rate is the percentage rate
per annum determined according to the rules established by the Hungarian Forex
Association and published by the National Bank of Hungary for the applicable
interest period. The applicable interest period for Term Facility Loans
denominated in euros is, at the Company's option in one, three or six months.
The Company intends to choose six months. The applicable interest period for
Term Facility Loans denominated in Hungarian forints is, at the Company's option
in one or three months. The Company intends to choose three months. Interest is
payable at the end of each interest period. The Applicable Margin is initially
1.75%. The Applicable Margin may be adjusted downward incrementally to a minimum
of 1.15% subject to the financial performance of the Company as measured by the
ratio of the Company's senior debt to its earnings before interest, taxes,
depreciation and amortization.
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<PAGE>
Facility B is a floating rate revolving loan in the amount of EUR 5
million (the "Revolving Facility") which can only be drawn down in euros. The
Revolving Facility will be reduced to EUR 2.5 million on December 31, 2005. The
Revolving Facility is available until December 31, 2007. The Company intends to
borrow the full amount of the Revolving Facility to pay off the balance of the
Postabank Bridge Loan Agreement and fees associated with the transaction. The
principal amount borrowed under the Revolving Facility is due at the end of each
interest period at which point the Company can, subject to certain conditions,
roll over the amount of principal borrowed. The applicable interest period for
the Revolving Facility is, at the Company's option, one, three, or six months.
The Company intends to choose six months. Interest is payable at the end of each
interest period calculated similar to Term Facility A loans denominated in
euros.
As a part of the Debt Agreement, the Company is required to hedge at
least 50% of the euro borrowings until a minimum of 50% of Facility A has been
cancelled, prepaid or repaid. Dependent on its cash flow, commencing in 2001,
the Company will be required to prepay the equivalent of $25 million on Facility
A until such time as $25 million has been prepaid. The amount of the prepayment
in any year shall be at least 50% of the Company's excess cash flow, if any, for
the previous financial year as defined in the Debt Agreement. The prepayment
amount is due within 15 days of the publication of each annual Form 10-K filing.
The Company is obligated to pay a commitment fee equal to the lower of
0.75% or 50% of the Applicable Margin on any available unused commitment. Since
the Company intends to borrow the full amount of the Debt Agreement soon, there
will be no commitment fee payable at the present time. The Company will pay an
arrangement fee in the amount of EUR 2,665,000 (approximately $2,500,000) and an
agency fee in the amount of $60,000. HTCC and one of its subsidiaries, HTCC
Consulting Rt., are guarantors for the HTCC operating subsidiaries under the
Debt Agreement. The Company has pledged all of its intangible and tangible
assets, including HTCC's ownership interests in its subsidiaries, and its real
property to secure all of the obligations under the Debt Agreement. The Company
and Citibank Rt.(as security agent) entered into a series of agreements to
secure all of the Company's obligations under the Debt Agreement. The Debt
Agreement contains customary representation and warranties. The Company is
subject to some restrictive covenants including restrictions regarding the
ability of the Company to pay dividends, borrow funds, merge and dispose of its
assets. The Debt Agreement contains the customary events of default, which would
trigger early repayment of the balance on the Debt Agreement including those
related to a change of control. If prior to the later of the December 31, 2001
or the Trigger Date (as defined below), Tele Danmark sells any of the shares of
Common Stock that it currently owns or Tele Danmark and the Danish Fund,
together, no longer own 30.1% of the outstanding Common Stock, then an event of
default shall have occurred. Tele Danmark and the Danish Fund currently own
32.1% of the outstanding Common Stock. The Trigger Date is defined as the date
on which for the prior two fiscal quarters the Company's debt to EBITDA ratio is
less than 3.5 to 1. Following the Trigger Date, Tele Danmark can only transfer
its shares with the prior written consent of banks holding at least 66.7% of the
Company's outstanding debt under the Debt Facility.
In 1995, the Company applied for network construction subsidies from
the Hungarian government. In December 1995, certain of the Company's
applications were approved, subject to certain conditions, which resulted in the
Company being awarded subsidies aggregating $0.9 million. The Company received
such subsidies in installments in the fourth quarter of 1996 and the first
quarter of 1997. One-half of such funds were received in the form of a grant and
one-half in the form of a non-interest bearing loan repayable over a three year
period beginning in 1997.
-43-
<PAGE>
Net cash provided by operating activities totaled $18.5 million for the
year ended December 31, 1999 compared to $11.1 million for the year ended
December 31, 1998. For the years ended December 31, 1999 and 1998, the Company
used $9.9 million and $15.6 million, respectively, in investing activities,
which was primarily used to fund the construction of the Company's
telecommunications networks. Financing activities provided net cash of $1.0
million and $9.3 million for the years ended December 31, 1999 and 1998,
respectively.
Inflation and Foreign Currency
For the year ended December 31, 1999, inflation in Hungary was
approximately 10% on an annualized basis. It is the stated policy goal of the
Hungarian government to keep inflation from exceeding approximately 7% in 2000.
Due to the strengthening of the U.S. dollar on international currency markets
during the year, the Hungarian forint/U.S. dollar exchange rate increased to
252.52 as of December 31, 1999, an effective devaluation during 1999 of 14.3%.
The Company's Hungarian operations generate revenues in Hungarian
forints and incur operating and other expenses, including capital expenditures,
predominately in Hungarian forints but also in U.S. dollars. The Company's
resulting foreign currency exposure is difficult to hedge due to the significant
costs involved and the lack of a market for such hedging. In addition, certain
of the Company's balance sheet accounts are expressed in foreign currencies
other than the Hungarian forint, the Company's Hungarian subsidiaries functional
currency. Accordingly, when such accounts are converted into Hungarian forints,
the Company is subject to foreign exchange gains and losses which are reflected
as a component of net income or loss. When the Company's subsidiaries'
forint-denominated accounts are translated into U.S. dollars for financial
reporting purposes, the Company is subject to translation adjustments, the
effect of which is reflected as a component of stockholders' deficiency.
While the Company has the ability to increase the prices it charges for
its services commensurate with increases in the Hungarian Consumer Price Index
("CPI") pursuant to its licenses from the Hungarian government, it may choose
not to implement the full amount of the increase permitted due to competitive
and other concerns. In addition, the rate of increase in the Hungarian CPI may
be less than the rate at which the Hungarian forint devalues. As a result, the
Company may be unable to generate cash flows to the degree necessary to meet its
obligation in currencies other than the Hungarian forint.
Year 2000
The Company initiated a project designed to identify and mitigate Year
2000 computer deficiencies in 1998. The Company formed a Year 2K project team
consisting of Company employees and representatives of systems vendors. The
Company also formed an oversight committee comprised of senior management to
oversee the Y2K issue.
The Company originally estimated the total costs of remediation, which
included the replacement and/or upgrade of certain equipment would be
approximately $785,000. However, due to agreements with its switch vendors
during 1999, the Company was able to obtain Y2K switching upgrades for no cost.
For the year ended December 31, 1999, the Company expensed approximately
$162,000 for remediation of the Y2K problem, which is included in the Company's
Consolidated Statement of Operations.
-44-
<PAGE>
From December 31, 1999, to March 15, 2000, the Company operated a Y2K
information center to monitor the Company's facilities and operations. No
material problems were reported in any of the Company's facilities or operations
during this period. As of the date of this filing, the Company had not
experienced any material Year 2000 problems with its IT or non-IT systems, nor
had the Company experienced any material problems with any of its key customers
or suppliers. The Company will continue to monitor its systems for possible Y2K
related problems, but based on its experience since December 31, 1999, does not
expect that any material Y2K problems will emerge.
Prospective Accounting Pronouncements
In June 1998, Statement of Financial Account Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities", was
issued. SFAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. The Statement, as amended by SFAS 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company has not
purchased derivative instruments or entered into hedging activities during the
three years ended December 31, 1999. The Company will be required to enter into
hedging transactions under the terms of the Company's EUR 130 million Senior
Secured Debt Facility, which was entered into on April 11, 2000. The Company is
currently evaluating the effect, if any, the pronouncement will have on its
consolidated financial position and results of operations.
Market Risk Exposure
The Company is exposed to various types of risk in the normal course of
its business, including the impact of foreign currency exchange rate
fluctuations and interest rate changes. Company operations, including all
revenues and approximately 75% of operational costs are Hungarian forint based
and are therefore subject to exchange rate variability between the Hungarian
forint and U.S. dollar. This variability is mitigated by several factors,
including the Hungarian National Bank policy to peg the Hungarian forint to a
currency basket and the telecommunications pricing law. The "crawling peg"
policy of the National Bank of Hungary maintained a scheduled daily devaluation
of the Hungarian forint through a currency basket consisting of 70% euros and
30% U.S. dollars for 1999. Effective January 1, 2000, the Hungarian forint is
pegged 100% to the Euro. The Hungarian forint is allowed to trade within 2.25%
of the mid-point of its trading band. For the first quarter of 2000, the
Hungarian government devaluation policy was 0.4% per month. As of April 1, 2000,
the Hungarian government announced the monthly planned devaluation rate was
decreased to 0.3% per month for the Hungarian forint, which totals approximately
3.9% for 2000. The telecommunications pricing law allows prices to increase by
the Consumer Price Index (CPI) adjusted for an efficiency factor of up to 2%.
Thus, to the extent that adjusted CPI follows devaluation, revenues are somewhat
insulated from exchange rate risk.
The debt obligations of the Company are Hungarian forint, euro and U.S.
dollar denominated. The interest rate on the Hungarian forint debt obligations
is based on the Budapest Interbank Offer Rate (BUBOR). The interest rates on the
euro and U.S. dollar denominated obligations are based on LIBOR. Over the medium
to long term, the BUBOR rate is expected to follow inflation and devaluation
-45-
<PAGE>
trends and the Company does not currently believe it has any material interest
rate risk on any of its Hungarian forint denominated debt obligations. If a 1%
change in the BUBOR interest rate were to occur, the Company's interest expense
would increase or decrease by approximately $1.0 million based upon the
Company's year-end debt level. If a 1% change in the LIBOR interest rate were to
occur, the Company's interest expense would increase or decrease by
approximately $500,000.
The Company is also exposed to exchange rate risk in so far as the
Company has debt obligations in other than the functional currency of its
majority owned Hungarian subsidiaries. Given the Company's debt obligations,
which include euro and U.S. dollar denominated debt, if a 1% change in Hungarian
forint/euro exchange rates were to occur, the Company's exchange rate risk would
increase or decrease by approximately $252,000. If a 1% change in Hungarian
forint/U.S. dollar exchange rates were to occur, the Company's exchange rate
risk would increase or decrease by approximately $250,000.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Consolidated Financial Statements of the
Company, beginning with the index thereto on page F-1.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9(a). Change in Reporting Office of Independent Auditor
In 1999 KPMG Hungaria Kft., the Hungarian member firm of KPMG
International, assumed responsibility for the issue of the independent auditors'
report on the consolidated financial statements of the Company as of and for the
three year period ended December 31, 1999. The New York, New York office of KPMG
LLP was responsible for the issue of the independent auditors' report on the
consolidated financial statements of the Company as of and for the three years
ended December 31, 1998. The report issued thereon by KPMG LLP dated March 24,
1999 contained a "going concern" explanatory paragraph concerning the Company's
ability to continue as a going concern. The independent auditors' report
contained herein does not have a "going concern" explanatory paragraph.
PART III
Item 10. Directors and Executive Officers of the Registrant
There is incorporated in this Item 10 by reference the information
appearing under the captions "Election of Directors - Nominees for Director" and
"- Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the 2000 Annual Meeting of Stockholders, a copy
of which will be filed not later than 120 days after the close of the fiscal
year.
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<PAGE>
Item 11. Executive Compensation
There is incorporated in this Item 11 by reference the information
appearing under the caption "Election of Directors" in the Company's definitive
proxy statement for the 2000 Annual Meeting of Stockholders, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
There is incorporated in this Item 12 by reference the information
appearing under the captions "Introduction - Stock Ownership of Certain
Beneficial Owners," "- Stock Ownership of Management" and "- Potential Change in
Control" in the Company's definitive proxy statement for the 2000 Annual Meeting
of Stockholders, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 13. Certain Relationships And Related Transactions
There is incorporated in this Item 13 by reference the information
appearing under the caption "Election of Directors - Certain Relationships and
Related Party Transactions" and "- Indebtedness of Management" in the Company's
definitive proxy statement for the 2000 Annual Meeting of Stockholders, a copy
of which will be filed not later than 120 days after the close of the fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements
Reference is made to the index on page F-1 for a list of all
financial statements filed as part of this Form 10-K.
(a)(2) List of Financial Statement Schedules
Reference is made to the index on page F-1 for a list of all
financial statement schedules filed as part of this Form 10-K.
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<PAGE>
(a)(3) List of Exhibits
Exhibit
Number Description
2 Plan of acquisition, reorganization, arrangement, liquidation
or succession (None)
3(i) Certificate of Incorporation of the Registrant, as amended,
filed as Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 filed on June 24, 1997 and incorporated
herein by reference
3(ii) By-laws of the Registrant, as amended, filed as Exhibit 4.2 to
the Registrant's Registration Statement on Form S-8 filed on
June 24, 1997 and incorporated herein by reference
4.1 Specimen Common Stock Certificate, filed as Exhibit 4(a) to
the Registrant's Registration Statement on From SB-2 filed on
October 27, 1994 and incorporated herein by reference (File
#33-80676)
4.2 Certificate of Designations of Series A - Preferred Stock of
Hungarian Telephone and Cable Corp., filed as Exhibit 4.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated herein by reference
9 Voting trust agreement (None)
10 Material contracts:
10.1 Concession Agreement dated May 10, 1994 between the Ministry
of Transportation, Telecommunications and Water Management of
the Republic of Hungary and Raba-Com Rt., filed as Exhibit
10(y)(y) to the Registrant's Current Report on Form 8-K for
February 28, 1994 (Registrant File #1-11484) and incorporated
herein by reference
10.2 Concession Agreement dated May 10, 1994 between the Ministry
of Transportation, Telecommunications and Water Management of
the Republic of Hungary and Kelet-Nograd Com Rt., filed as
Exhibit 10(z)(z) to the Registrant's Current Report on Form
8-K for February 28, 1994 (Registrant File #1-11484) and
incorporated herein by reference
10.3 English translation of Amended and Restated Concession
Contract between Papa es Tersege Telefon Koncesszios Rt. and
the Hungarian Ministry for Transportation, Telecommunications
and Water Management dated as of June 3, 1996, filed as
Exhibit 10.78 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference
10.4 English translation of Amended and Restated Concession
Contract between Hungarotel Tavkozlesi Rt. and the Hungarian
Ministry for Transportation, Telecommunications and Water
Management dated as of June 3, 1996 (Oroshaza), filed as
Exhibit 10.79 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference
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<PAGE>
Exhibit
Number Description
10.5 English translation of Amended and Restated Concession
Contract between Hungarotel Tavkozlesi Rt. and the Hungarian
Ministry for Transportation, Telecommunications and Water
Management dated as of June 3, 1996 (Bekescsaba), filed as
Exhibit 10.80 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference
10.6 Non-Employee Director Stock Option Plan, as amended to date
10.7 1992 Incentive Stock Option Plan of the Registrant, as amended
to date
10.8 Employment Agreement dated as of December 4, 1998 between the
Registrant and Ole Bertram filed as Exhibit 10.12 to the
Registrant's Form 10-K for 1998 filed on March 30, 1999.
10.9 Termination and Release Agreement dated as of July 26, 1996
between the Registrant and Robert Genova, filed as Exhibit
10.62 to the Registrant's Current Report on Form 8-K for July
26, 1996 and incorporated herein by reference
10.10 Consulting Agreement dated as of July 26, 1996 between the
Registrant and Robert Genova, filed as Exhibit 10.63 to the
Registrant's Current Report on Form 8-K for July 26, 1996 and
incorporated herein by reference
10.11 Noncompetition Agreement dated as of July 26, 1996 between the
Registrant and Robert Genova, filed as Exhibit 10.64 to the
Registrant's Current Report on Form 8-K for July 26, 1996 and
incorporated herein by reference
10.12 Irrevocable Proxy dated July 26, 1996 executed by Robert
Genova appointing Hungarian Telephone and Cable Corp. as his
proxy, filed as Exhibit 10.65 to the Registrant's Current
Report on Form 8-K for July 26, 1996 and incorporated herein
by reference
10.13 Termination and Release Agreement dated as of July 26, 1996
between the Registrant and Frank R. Cohen, filed as Exhibit
10.66 to the Registrant's Current Report on Form 8-K for July
26, 1996 and incorporated herein by reference
10.14 Consulting Agreement dated as of July 26, 1996 between the
Registrant and Frank R. Cohen, filed as Exhibit 10.67 to the
Registrant's Current Report on Form 8-K for July 26, 1996 and
incorporated herein by reference
10.15 Noncompetition Agreement dated as of July 26, 1996 between the
Registrant and Frank R. Cohen, filed as Exhibit 10.68 to the
Registrant's Current Report on Form 8-K for July 26, 1996 and
incorporated herein by reference
10.16 Irrevocable Proxy dated July 26, 1996 executed by Frank R.
Cohen appointing Hungarian Telephone and Cable Corp. as his
proxy, filed as Exhibit 10.69 to the Registrant's Current
Report on Form 8-K for July 26, 1996 and incorporated herein
by reference
10.17 Termination and Release Agreement dated as of July 26, 1996
between the Registrant and Donald K. Roberton, filed as
Exhibit 10.70 to the Registrant's Current Report on Form 8-K
for July 26, 1996 and incorporated herein by reference
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<PAGE>
Exhibit
Number Description
10.18 Consulting Agreement dated as of July 26, 1996 between the
Registrant and Donald K. Roberton, filed as Exhibit 10.71 to
the Registrant's Current Report on Form 8-K for July 26, 1996
and incorporated herein by reference
10.19 Noncompetition Agreement dated as of July 26, 1996 between the
Registrant and Donald K. Roberton, filed as Exhibit 10.72 to
the Registrant's Current Report on Form 8-K for July 26, 1996
and incorporated herein by reference
10.20 Irrevocable Proxy dated July 26, 1996 executed by Donald K.
Roberton appointing Hungarian Telephone and Cable Corp. as his
proxy, filed as Exhibit 10.73 to the Registrant's Current
Report on Form 8-K for July 26, 1996 and incorporated herein
by reference
10.21 Registration Agreement, dated May 31, 1995, between the
Registrant and CU CapitalCorp., filed as Exhibit 10(f)(f) to
the Registrant's Current Report on Form 8-K for May 31, 1995
and incorporated herein by reference
10.22 Replacement and Termination Agreement, dated as of September
30, 1998, between the Registrant and Citizens International
Management Services Company and CU CapitalCorp. filed as
Exhibit 10.69 to the Registrant's Current Report on Form 8-K
for September 30, 1998 and incorporated herein by reference
10.23 Form of Promissory Note dated September 30, 1998 issued by the
Registrant payable to Citizens International Management
Services Company filed as Exhibit 10.70 to the Registrant's
Current Report on Form 8-K for September 30, 1998 and
incorporated herein by reference
10.24 Amended, Restated and Consolidated Stock Option Agreement
dated as of September 30, 1998, between the Registrant and
CU CapitalCorp. filed as Exhibit 10.71 to the Registrant's
Current Report on Form 8-K for September 30, 1998 and
incorporated herein by reference
10.25 Dual-Currency Bridge Loan Agreement between Hungarian
Telephone and Cable Corp. and its subsidiaries and Postabank
es Takarekpenztar Reszvenytarsasag, as Lender, Facility Agent
and Security Agent dated as of May 12, 1999, filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by
reference
10.26 Securities Purchase Agreement between Hungarian Telephone and
Cable Corp., as Seller and Postabank es Takarekpenztar
Reszvenytarsasag, as Buyer, dated as of May 12, 1999, filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 and incorporated herein
by reference
10.27 Form of Warrant to Purchase Common Stock of Hungarian
Telephone and Cable Corp., dated as of May 12, 1999, filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 and incorporated herein
by reference
-50-
<PAGE>
Exhibit
Number Description
10.28 Form of Unsecured Note issued by Hungarian Telephone and Cable
Corp. to Postabank es Takarekpenztar Reszvenytarsasag, dated
as of May 12, 1999, filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and incorporated herein by reference
10.29 Stock Purchase Agreement between Hungarian Telephone and Cable
Corp., as Seller, and Tele Danmark A/S, as Buyer, dated as of
May 12, 1999, filed as Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and incorporated herein by reference
10.30 Stock Purchase Agreement between Hungarian Telephone and Cable
Corp., as Seller, and the Danish Investment Fund for Central
and Eastern Europe, as Buyer, dated as of May 12, 1999, filed
as Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 and incorporated
herein by reference
10.31 Stock Purchase Agreement among Hungarian Telephone and Cable
Corp., as Seller, and Citizens International Management
Services Company, as Buyer, and CU CapitalCorp., dated as of
May 12, 1999, filed as Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and incorporated herein by reference
10.32 EUR 130 million Senior Secured Debt Facility dated April 11,
2000 among Hungarian Telephone and Cable Corp. and its
subsidiaries; Citibank N.A. and Westdeutsche Landesbank
Girozentrale, as arrangers; Citibank International PLC as
facility agent; and Citibank Rt. as Security Agent.
10.33 Form of Amended and Restated Unsecured Note issued by
Hungarian Telephone and Cable Corp. to Postabank es
Takarekpenztar Reszvenytarsasag, dated as of April 11, 2000.
10.34 Security Deposit Agreement dated April 11, 2000 among
Hungarian Telephone and Cable Corp. as Depositor; Citibank
Rt., as Depositee and Security Agent; and Hungarotel
Tavkozlesi Rt., Raba Com. Rt., Papa es Tersege Telefon
Koncesszios Rt., and Kelet-Nograd Com Rt., as Countersignors.
10.35 Security Deposit Agreement dated April 11, 2000 among HTCC
Consulting Rt., as Depositor; Citibank Rt., as Depositee and
Security Agent; and Hungarotel Tavkozlesi Rt., Raba Com. Rt.,
Papa es Tersege Telefon Koncesszios Rt., and Kelet-Nograd
Com Rt., as Countersignors.
11 Statement re computation of per share earnings (not required)
12 Statement re computation of ratios (not required)
13 Annual report to security holders (not required)
16 Letter re change in certifying accountant (not required)
18 Letter re change in accounting principles (None)
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<PAGE>
Exhibit
Number Description
21 Subsidiaries of the Registrant, filed as Exhibit 21 to the
Registrant's Form 10-K for the fiscal year ending December 31,
1997 and incorporated herein by reference
22 Published report regarding matters submitted to vote of
security holders (not required)
23 Consents of experts and counsel (not required)
24 Power of Attorney (not required)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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, on April 11, 2000.
HUNGARIAN TELEPHONE AND CABLE CORP.
(Registrant)
By /s/ Ole Bertram
Ole Bertram
President and Chief Executive Officer,
Director
Pursuant to the requirements of the Securities Exchange of 1934, this
Report has been signed below by the following persons and on behalf of the
Registrant and in the capacities indicated as of April 11, 2000.
Signature/Name Title
/s/William T. McGann Treasurer and Controller
- --------------------------------------------
William T. McGann (Principal Accounting Officer;
Principal Financial Officer)
/s/David A. Finley Director, Chairman of the Board
- --------------------------------------------
David A. Finley
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<PAGE>
Signature/Name Title
/s/Daryl A. Ferguson Director
- ------------------------------------
Daryl A. Ferguson
/s/Torben V. Holm Director
- ------------------------------------
Torben V. Holm
/s/Lennart F. Meineche Director
- ------------------------------------
Lennart F. Meineche
/s/John B. Ryan Director
- ------------------------------------
John B. Ryan
/s/William E. Starkey Director
- ------------------------------------
William E. Starkey
/s/Leonard Tow Director
- ------------------------------------
Leonard Tow
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<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
The following information is included on the pages indicated:
Consolidated Financial Statements Page
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and Comprehensive
Income (Loss) F-4
Consolidated Statements of Stockholders' Deficiency F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-33
Financial Statements Schedules:
All financial statement schedules are omitted as the
required information is not applicable or the information is presented
in the consolidated financial statements or related notes.
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Hungarian Telephone and Cable Corp.
We have audited the accompanying consolidated balance sheets of
Hungarian Telephone and Cable Corp. and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of
operations and comprehensive income (loss), stockholders' deficiency
and cash flows for each of the years in the three-year period ended
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 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 Hungarian Telephone and Cable Corp. and subsidiaries as of December
31, 1999 and 1998, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1999, in conformity with generally accepted accounting principles
in the United States of America.
KPMG HUNGARIA KFT.
Budapest, Hungary
April 12, 2000
F-2
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES DRAFT 4/11/00
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets 1999 1998
------ ---- ----
Current assets:
Cash $ 17,197 8,489
Restricted cash 111 64
Accounts receivable, net of allowance
of $1,030 in 1999 and $962 in 1998 6,940 6,703
Inventories 885 1,111
Prepayments and other current assets 1,082 187
--------- -------
Total current assets 26,215 16,554
Property, plant and equipment, net 115,526 136,489
Goodwill, net of accumulated amortization
of $1,775 in 1999 and $1,303 in 1998 7,859 10,000
Other intangibles, net of accumulated amortization
of $1,156 in 1999 and $1,238 in 1998 4,526 5,592
Other assets 557 8,432
--------- ---------
Total assets $ 154,683 177,067
======= ========
Liabilities and Stockholders' Deficiency
Current liabilities:
Current installments of long-term debt $ - 31,804
Short-term loans 5,048 -
Accounts payable 3,994 2,061
Accruals 5,561 3,552
Other current liabilities 1,349 932
Due to related parties 996 1,011
-------- -------
Total current liabilities 16,948 39,360
Long-term debt, excluding current installments 122,917 202,881
Long-term notes payable, $25,000,000 aggregate face
amount; interest - LIBOR plus 4%, due March 31, 2007
(less unamortized discount based on imputed
interest rate of 5% - $8,256,000 in 1999; $0 in 1998) 16,744 -
Due to related parties 1,728 22,372
Deferred credits and other liabilities 3,292 1,491
--------- ---------
Total liabilities 161,629 266,104
-------- -------
Commitments and Contingencies
Stockholders' deficiency:
Preferred stock, $.01 par value; $70.00 liquidation value.
Authorized 200,000 shares; issued and outstanding
30,000 shares in 1999 and no shares in 1998 - -
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
11,981,579 shares in 1999 and 5,395,864 in 1998 11 5
Additional paid-in capital 144,052 71,467
Accumulated deficit (164,705) (167,809)
Accumulated other comprehensive income 13,696 7,300
--------- -----------
Total stockholders' deficiency (6,946) (89,037)
---------- -----------
Total liabilities and stockholders' deficiency $ 154,683 177,067
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years ended December 31, 1999, 1998 and 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Telephone services revenues, net $ 45,438 38,707 37,891
------------- ------------- ------------
Operating expenses:
Operating and maintenance expenses 17,467 19,575 25,044
Depreciation and amortization 11,782 11,560 8,349
Management fees - 2,500 5,761
Termination of management
services agreement - 11,131 -
------------- ------------- -----------
Total operating expenses 29,249 44,766 39,154
------------- ------------- ------------
Income (loss) from operations 16,189 (6,059) (1,263)
Other income (expenses):
Foreign exchange losses, net (2,786) (230) (517)
Interest expense (32,450) (45,856) (35,159)
Interest income 1,708 686 690
Other, net (434) 847 13
------------- ------------- ------------
Loss before extraordinary items (17,773) (50,612) (36,236)
Extraordinary items, net 20,945 - -
------------- ------------- ------------
Net income (loss) $ 3,172 (50,612) (36,236)
Preferred stock dividends (68) - -
------------- ------------- ------------
Net income (loss) available for
common stockholders 3,104 (50,612) (36,236)
Comprehensive income adjustments 6,396 2,336 6,458
------------- ------------- ------------
Total comprehensive income (loss) $ 9,500 (48,276) (29,778)
============== ============= ============
Earnings (loss) per common share - basic and diluted:
Before extraordinary items $ (1.85) (9.53) (7.97)
Extraordinary items $ 2.18 - -
------------- ------------- ------------
Net earnings (loss) $ 0.33 (9.53) (7.97)
============= ============= ============
Weighted average number of
Common shares outstanding - basic and diluted 9,617,939 5,309,985 4,546,163
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficiency
Years ended December 31, 1999, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Other Total
Common Preferred Paid-in Accumulated Comprehensive Deferred Stockholders'
Shares Stock Stock Capital Deficit Income Compensation Deficiency
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 4,179,626 $ 4 - 59,327 (80,961) (1,494) (666) $(23,790)
Exercise of options and warrants 81,586 - - 635 - - - 635
Shares issued as compensation 5,000 - - 52 - - - 52
Options issued to officers - - - 70 - - - 70
Shares issued to Tele Danmark A/S 969,158 1 - 10,688 - - - 10,689
Earned compensation - - - - - - 285 285
Foreign currency translation adjustment - - - - - 6,458 - 6,458
Net loss - - - - (36,236) - - (36,236)
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 5,235,370 $ 5 - 70,772 (117,197) 4,964 (381) $(41,837)
Earned compensation - - - - - - 125 125
Cancellation of shares (25,000) - - (256) - - 256 -
Exercise of options and warrants 56,400 - - 224 - - - 224
Shares issued as compensation 10,625 - - 93 - - - 93
Shares issued to Citizens 100,000 - - 513 - - - 513
Shares issued as consideration
relating To former acquisitions 18,469 - - - - - - -
Options granted in connection with
Termination agreement - - - 121 - - - 121
Net loss - - - - (50,612) - - (50,612)
Foreign currency translation adjustment - - - - - 2,336 - 2,336
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 5,395,864 $ 5 - 71,467 (167,809) 7,300 - $(89,037)
Shares issued to Tele Danmark A/S 1,571,429 2 - 10,998 - - - 11,000
Shares issued to Postabank 2,428,572 2 - 33,998 - - - 34,000
Shares issued to Citizens 1,300,000 1 - 11,199 - - - 11,200
Shares issued to Danish Fund 1,285,714 1 - 8,999 - - - 9,000
Stock issuance cost - - - (1,488) - - - (1,488)
Warrant issued in connection with
Long-term notes - - - 8,825 - - - 8,825
Modification of option terms - - - 54 - - - 54
Cumulative preferred stock
dividends in arrears - - - - (68) - - (68)
Net income - - - - 3,172 - - 3,172
Foreign currency translation adjustment - - - - - 6,396 - 6,396
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 11,981,579 $ 11 - 144,052 (164,705) 13,696 - $(6,946)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Net cash provided by operating activities $ 18,522 11,118 4,937
--------- -------- ---------
Cash flows from investing activities:
Construction of telecommunications
networks (9,998) (16,451) (83,055)
Decrease (increase) in construction deposits (17) 520 9,780
Other 86 301 -
--------- -------- ---------
Net cash used in investing activities (9,929) (15,630) (73,275)
---------- -------- ---------
Cash flows from financing activities:
Borrowings under long-term debt agreement 41,391 16,099 72,064
Borrowings under short-term debt agreements 124,753 - -
Proceeds from exercise of options and warrants - 224 635
Repayments and settlement of long-term debt (217,697) (7,048) (14,326)
Proceeds from issuance of common stock, net 52,511 - -
--------- -------- ---------
Net cash provided by financing activities 958 9,275 58,373
--------- -------- ---------
Effect of foreign exchange rate changes on cash (843) (305) (1,880)
---------- --------- ----------
Net increase (decrease) in cash 8,708 4,458 (11,845)
Cash at beginning of year 8,489 4,031 15,876
--------- -------- ---------
Cash at end of year $ 17,197 8,489 4,031
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Description of Business and Other Related Matters
Hungarian Telephone and Cable Corp. was organized on March 23,
1992 to own and manage telecommunications companies in Hungary.
Four subsidiaries of the Company ("the Operating Companies") are
presently engaged in the ownership and operation of public
switched telephone service.
The Company, through two of its subsidiaries, commenced operations
in two concession regions in 1995 and through two other
subsidiaries, commenced operations in three additional concession
areas effective January 1, 1996. Accordingly, the Company devoted
substantially all of its efforts through 1994 and a considerable
portion of 1995 to obtaining concession rights, negotiating
acquisitions, raising capital in the form of debt and equity and
preparing to commence operations. As a result, the Company
recognized no revenues until 1995.
From 1995 through 1998, the Company's activities involved the
acquisition of the concessions and telecommunications networks
from Magyar Tavkozlesi Rt. ("Matav") and the subsequent design,
development and construction of the modern telecommunications
infrastructure that the Company now has in service. By the end of
1998, the Company's networks had the capacity, with only normal
capital expenditure requirements in the future, to provide basic
telephone services to virtually all of the potential subscribers
within its operating areas. The Company earns substantially all of
its telecommunications revenue from measured service fees, monthly
line rental fees, connection fees, public pay telephone services
and ancillary services (including charges for additional services
purchased at the customer's discretion). The Company paid the
Ministry $11.5 million (at historical exchange rates) for its
concessions, spent approximately $23.2 million (at historical
exchange rates) to acquire the existing telecommunications assets
in its Operating Areas from Matav, and has spent $181 million
through December 31, 1999 (at historical exchange rates) on the
development and construction of its telecommunications
infrastructure. The Company funded these costs and working capital
needs primarily through a $170 million Credit Facility with
Postabank Rt. (the "Original Postabank Credit Facility") and a
$47.5 million contractor financing facility. The Company and the
Hungarian contractor which granted the contractor financing
facility have a disagreement with respect to several issues
relating to the quality and quantity of the work done by the
contractor. In addition, on March 31, 1999, the Company did not
have sufficient funds on hand to pay the first installment due on
the Original Postabank Credit Facility. Due to this fact, as well
as the disagreement the Company has with the Hungarian contractor,
on March 30, 1999, and May 12, 1999, the Company entered into a
series of transactions (see notes 4, 5, 6, 8 and 11) which
restructured the Company's debt and capital structure. As the
final step in the Company's debt and capital restructuring which
started in 1999, on April 11, 2000, the Company entered into a EUR
130 million Senior Secured Debt Facility with a European banking
syndicate (see note 19).
(b) Principles of Consolidation and the Use of Estimates
The consolidated financial statements include the financial
statements of the Hungarian Telephone and Cable Corp. and its
majority owned subsidiaries; Kelet-Nograd Com Rt., "KNC"),
Raba-Com Rt., ("Raba-Com"), Hungarotel Tavkozlesi Rt.
("Hungarotel"), Papa es Tersege Telefon Koncesszios Rt.
("Papatel"), HTCC Consulting Rt. ("HTCC Consulting") and
Pilistav Rt. ("Pilistav"). All material intercompany balances
and transactions have been eliminated.
F-7
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles (U.S. GAAP). In
preparing financial statements in conformity with U.S. GAAP,
management is required to make estimates and assumptions that
affect reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Revenue Recognition
Telephone service revenues are recognized when earned and are
primarily derived from usage of the Company's local exchange
networks and facilities or under revenue sharing agreements with
Matav, the international and national long distance interconnect
service provider.
Advance subscriber payments represent advance connection fees
received from telephone subscribers and are recognized as income
when the subscriber is connected to the telephone network. Advance
fees received are required to be repaid with interest if the
subscriber is not connected to the local telephone network.
(d) Foreign Currency Translation
The statutory accounts of the Company's consolidated subsidiaries
and affiliates are maintained in accordance with local accounting
regulations and are stated in local currencies. Local statements
are adjusted to U.S. GAAP and then translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No.
52, "Accounting for Foreign Currency Translation" ("SFAS 52").
Since commencement of revenue generating activities, the Company
has used the Hungarian forint ("HUF") as the functional currency
for its majority owned Hungarian subsidiaries. Accordingly,
foreign currency assets and liabilities are translated using the
exchange rates in effect at the balance sheet date. Results of
operations are generally translated using the average exchange
rates prevailing throughout the year. The effects of exchange rate
fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated as part of other
comprehensive income in stockholders' equity. Foreign exchange
fluctuations related to intercompany balances are included in
equity if such balances are intended to be long-term in nature. At
the time the Company settles such balances, the resulting gain or
loss is reflected in the consolidated statement of operations.
Gains and losses from foreign currency transactions are included
in operations in the period in which they occur.
(e) Cash Equivalents
For the purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
F-8
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(f) Inventories
Inventories consist primarily of telephones for resale and spare
parts, are valued using the FIFO method, and are stated at the
lower of cost or market.
(g) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the respective assets.
(h) Intangible Assets
Intangible assets are comprised of concession fees paid and the
excess of cost over net assets acquired. The concession fees are
being amortized over the 25-year concession period using the
straight-line method. The excess of cost over net assets acquired,
goodwill, is also amortized over 25 years using the straight-line
method.
(i) Stock Based Compensation
The Company accounts for its stock option plans in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123 which
allows entities to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25 and provide pro forma net
income (loss) and pro forma earnings (loss) per share disclosures
for employee stock option grants made in 1995 and future years as
if the fair-value-based method, as defined in SFAS No. 123, had
been applied. The Company has elected to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure required
by SFAS No. 123. See Note 12.
(j) Income Taxes
Deferred tax assets and liabilities, net of appropriate valuation
allowances, 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
carry-forwards. Deferred tax assets and liabilities, if any, 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. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date.
The Company's Hungarian operating subsidiaries are 100% exempt
from Hungarian income tax for a period of five years beginning
from January 1, 1994 and 60% exempt for the subsequent five years
as long as (1) capitalization stays above 50,000,000 HUF
(approximately $198,000 at December 31, 1999 exchange rates), (2)
foreign ownership exceeds 30% of the registered capital, and (3)
more than 50% of the revenue earned arises from telecommunication
services.
(k) Net Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") is computed by dividing
income or loss attributable to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock.
F-9
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net earnings (loss) and weighted average shares outstanding used
for computing diluted loss per common share were the same as that
used for computing basic loss per common share for each of the
years ended December 31, 1999, 1998 and 1997.
The Company had potentially dilutive common stock equivalents of
8,237,059, 7,474,915 and 7,200,859 for the years ended December
31, 1999, 1998 and 1997, respectively, which were not included in
the computation of diluted net loss per common share because they
were antidilutive for the periods presented. The basis for
determining whether common stock equivalents were potentially
dilutive was loss before extraordinary items.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company evaluates the carrying value of long-lived assets to
be held and used, including goodwill, whenever events or changes
in circumstances indicate that the carrying amount may not be
recoverable. The carrying value of a long-lived asset, including
goodwill, is considered impaired when the projected undiscounted
future cash flows related to the asset are less than its carrying
value. The Company measures impairment based on the amount by
which the carrying value exceeds the fair market value. Fair
market value is determined primarily using the projected future
cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are
reduced for the cost to dispose.
(2) Cash and Restricted Cash
(a) Concentration
At December 31, 1999, cash of $16,622,000 ($374,000 denominated in
U.S. dollars and the equivalent of $16,248,000 denominated in
Hungarian Forints) was on deposit with banks in Hungary. In
addition, cash of $575,000 denominated in U.S. dollars was on
deposit with two major banks in the United States.
(b) Restriction
At December 31, 1999, $22,000 of cash denominated in U.S. dollars
was deposited in escrow accounts under terms of construction
contracts. In addition, $89,000 was restricted pursuant to certain
arrangements with other parties.
F-10
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(3) Property, Plant and Equipment
The components of property, plant and equipment at December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 Estimated Useful Lives
---- ---- ----------------------
(in thousands)
Land and Buildings $ 6,526 7,402 25 to 50 years
Telecommunications equipment 128,116 141,752 7 to 25 years
Other equipment 5,766 5,891 5 years
Construction in progress 1,921 700
------- -------
142,329 155,745
Less: accumulated depreciation (26,803) (19,256)
-------- --------
$ 115,526 136,489
======== ========
</TABLE>
Interest capitalized and included in the cost of construction of certain
long-term assets amounted to approximately $310,000 in 1998 and
$4,504,000 in 1997. No interest has been capitalized in 1999.
(4) Short-Term Loans
There were no short-term loans outstanding at December 31, 1998.
Short-term loans at December 31, 1999 consist of the following:
1999
(in thousands)
Bridge loan:
Euro - EUR 25,000,000 $ 25,238
Hungarian Forint - HUF 25,940,624,000 102,727
-------
Total short-term loans 127,965
Less amounts refinanced subsequent to December 31, 1999 122,917
-------
Short-term loans, excluding portion classified as
long-term debt $ 5,048
=========
On May 12, 1999, as a part of the restructuring of its debt and capital
structure, see Notes 5 and 11, the Company borrowed from Postabank es
Takarekpenztar ("Postabank"), a Hungarian commercial bank, $138 million
($128 million at December 31, 1999 exchange rates) under a one-year dual
currency bridge loan agreement in Hungarian forints and euros. The bridge
loan is repayable on May 12, 2000 and bears interest at an initial rate
of 2.25% (the "Margin") plus the Budapest Interbank Offering Rate or Euro
LIBOR Rate (14.64% and 3.47%, respectively at December 31, 1999) which
Margin increases incrementally to 4.25%, in quarterly increments of 1%
during the loan term. At December 31, 1999, the Margin was 3.25%. On
April 11, 2000, the Company signed a 130 million Euro senior secured debt
facility agreement with a syndicate of Hungarian and non-Hungarian banks,
the proceeds of which will be used to repay the existing bridge loan. As
a result of this refinancing, the Company has classified $123 million of
its short-term loans at December 31, 1999, as long-term debt. See Note 19
for further explanation of this subsequent event.
F-11
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
HTCC and one of its subsidiaries, HTCC Consulting Rt. are guarantors for
the HTCC subsidiaries under the Bridge Loan Agreement. The Company has
pledged all of its intangible and tangible assets, including HTCC's
ownership interests in its subsidiaries, and its real property to secure
all of the obligations under the Bridge Loan Agreement.
(5) Long-term Debt
Long-term debt at December 31, 1999 consisted of short-term loans refinanced
subsequent to December 31, 1999 in the amount of $122,917,000. See Notes 4 and
19 for further explanation.
Long-term debt at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
1998
(in thousands)
Loan payable including deferred interest, interest at the National Bank
of Hungary weighted average Treasury Bill + 2.5% (19% at December 31,
1998), payable in 32 quarterly installments beginning March 31, 1999
with final payment due December 21, 2006; HUF 42,863,437,000
outstanding at December 31, 1998. $ 197,984
Construction loan including deferred interest, interest at the National
Bank of Hungary weighted average Treasury Bill + 2.5% (19% at
December 31, 1998) payable in 20 quarterly installments beginning
March 31, 1998 with final payment due December 31, 2002;
HUF 7,926,002,000 outstanding at December 31, 1998. 36,610
Loan payable, without interest due in equal annual installments
over three years 91
---------------
Total long-term debt $ 234,685
Less current installments 31,804
---------------
Long-term debt, excluding current installments $ 202,881
===============
</TABLE>
On October 15, 1996, the Company and its subsidiaries entered into a $170
million 10-year Multi-Currency Credit Facility with Postabank (the
"Original Postabank Credit Facility"). The Company utilized the funding
provided by the Original Postabank Credit Facility to continue
construction of its telecommunications networks, provide working capital,
and repay other debt obligations during 1997 and 1998. The Company did
not have sufficient funds to meet the required repayment obligations
under the Original Postabank Credit Facility as of March 31, 1999. On May
12, 1999, the Company entered into various agreements as part of the
restructuring of its capital structure with the following parties:
Postabank; Tele Danmark A/S ("Tele Danmark"); and the Danish Investment
F-12
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Fund for Central and Eastern Europe (the "Danish Fund") (see Notes 8 and
11). As a result of such agreements, the Company extinguished all of its
obligations to Postabank under the Original Postabank Credit Facility in
the amount of approximately $193 million and the $16.4 million borrowed
in settlement of the amount due under the contractor financing facility
described below. On the same day, the Company borrowed from Postabank
$138 million ($128 million at December 31, 1999 exchange rates) under a
one-year dual currency bridge loan agreement in Hungarian forints and
euros and $25 million pursuant to certain unsecured notes payable (the
"Notes") (see Note 6).
As a result of the extinguishment of the Original Postabank Credit
Facility, the Company recorded an extraordinary loss of HUF 1.5 billion
(approximately $6.2 million at historical exchange rates) during the
second quarter of 1999 which represented the write-off of the remaining
unamortized deferred financing costs, included in other assets and
deferred credits at December 31, 1998, pertaining to the Original
Postabank Credit Facility.
During 1996 and 1997, Hungarotel entered into several construction
contracts with a Hungarian contractor which totalled $59.0 million in
the aggregate (at historical exchange rates), $47.5 million of which was
financed by a contractor financing facility. The financing was provided
by the contractor. The contractor financed the financing facility
through a facility provided by Postabank. As of December 31, 1998, the
balance owed under the contractor financing facility was $36.6 million.
On March 30, 1999, Postabank assumed HUF 7 billion plus accrued interest
of HUF 348 million (approximately $30.9 million at historical exchange
rates) of the Company's liability under the contractor financing
facility from the contractor, due to the contractor's financial
difficulties, and sold this debt back to the Company for HUF 3 billion
(approximately $12.6 million at historical exchange rates). The purchase
of the debt was financed by Postabank. On the same day, the Company
purchased HUF 4 billion (approximately $16.8 million at historical
exchange rates) of loans the contractor had with Postabank for HUF 900
million (approximately $3.8 million at historical exchange rates) and
subsequently offset the booked value of the loans purchased of HUF 900
million (approximately $3.8 million at historical exchange rates)
against the outstanding amounts owed to the contractor. The purchase of
these loans was also financed by Postabank. As a result of the above
transactions, the Company recorded an extraordinary gain of HUF 4.3
billion (approximately $18.1 million at historical exchange rates)
during the second quarter of 1999 which reflected the extinguishment of
all amounts due under the contractor financing facility.
In 1995, the Company was awarded subsidies from the Ministry aggregating
HUF 118,720,000 (approximately $850,000 at December 31, 1995 exchange
rates). The required conditions were satisfied in 1996 and the funds were
received one-half in the form of a grant and one-half in the form of a
non-interest bearing loan repayable over a three year period. As of
December 31, 1999, the loan had been fully repaid.
(6) Long-term Notes Payable
As described in Notes 4 and 5 above, on May 12, 1999, the Company entered
into various agreements as part of the restructuring of its debt and
capital structure. As one part of this overall restructuring, the Company
issued notes to Postabank in an aggregate amount of $25 million with
detachable warrants (the "Warrants"). The Notes accrue interest, which is
payable semi-annually, at the LIBOR rate applicable for the six month
interest period plus 4%. On April 11, 2000, the Notes were amended such
that the interest rate was changed to six month LIBOR plus 3.5%. The
Notes which mature in 2007 are transferable subject to applicable
security laws.
The Warrants which were issued pursuant to a series of Warrant Agreements
between the Company and Postabank enable Postabank to purchase 2,500,000
shares of the Company's common stock at an exercise price of $10 per
share. The exercise period commences on January 1, 2004 and terminates on
March 31, 2007. The fair value of the warrants amounted to $8.8 million
F-13
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
and has been charged directly to additional paid-in capital. The fair
value of the warrants was determined using the Black Scholes Warrant
Option valuation model. The unamortized discount on the notes at December
31, 1999 was approximately $8.3 million. The Company has the right to
terminate the Warrants in full or proportionately prior to January 1,
2004 provided that the Company repays a proportionate amount of the Notes
and an amount equal to 7-1/2% of the aggregate principal amount of the
Notes repaid, concurrently with the termination of the Warrants.
(7) Deferred Credits and Other Liabilities
During 1999, one of the Company's subsidiaries, Papatel, entered into an
agreement with the Hungarian Ministry of Transportation,
Telecommunications and Water Management (the "Ministry") for the
relinquishment of the subsidiary's right to use a broadcasting frequency
previously granted by the Ministry. The frequency was used to provide
telephone services to certain customers. In return for the subsidiary
agreeing to relinquish the use of the frequency, the Ministry paid a
total of 308 MHUF ($1,220,000 at December 31, 1999 exchange rates) as a
contribution towards the costs of purchasing and installing fixed
network equipment to replace the parts of the network using the
frequency. The new fixed network equipment was placed into service on
December 31, 1999, and the compensation received from the Ministry,
which is included in deferred credits and other liabilities at December
31, 1999, will be recognized over the new fixed network equipment's
depreciable life as a reduction in depreciation expense over the future
depreciable periods.
During 1999, another of the Company's subsidiaries, Hungarotel, entered
into an agreement with the Ministry for the relinquishment by July 2000
of the subsidiary's right to use a broadcasting frequency previously
granted by the Ministry. The frequency is used to provide telephone
services to certain customers. For relinquishing the right to use the
frequency, the Ministry has paid a total of 557 MHUF ($2,205,000 at
December 31, 1999 exchange rates) which is equivalent to the September
30, 1999 net book value of the assets utilizing the frequency, which
amount is included in deferred credits and other liabilities at December
31, 1999. In addition, the Ministry also granted Hungarotel the right to
an interest free loan in the amount of 334 MHUF ($1,323,000 at December
31, 1999 exchange rates). No amounts have been drawn under this loan as
of December 31, 1999. The 557 MHUF deferred credit will be recognized
over the remaining life of the assets utilizing the frequency to offset
depreciation expense on such assets. Any gain, as a result of selling the
equipment utilizing the frequency, will be recognized at such time as the
equipment is sold.
(8) Transactions with Tele Danmark A/S and the Danish Fund for Central and
Eastern Europe
On July 1, 1997, the Company entered into an agreement with Tele Danmark
A/S ("TDI") pursuant to which TDI agreed to exchange its 20% interest in
each of two operating subsidiaries for 420,908 shares of the Company's
common stock. The value of shares on the date of issue totalled
$3,630,000. Under the agreement, TDI was granted the preemptive right to
maintain its equity ownership percentage and the right, if TDI acquired
the 4.8% stake in each of the operating subsidiaries owned by the Danish
Fund for Central and Eastern Europe ("the Danish Fund"), to sell such
shares to the Company on similar terms.
On September 30, 1997, TDI exercised its right and agreed to exchange the
4.8% interest in each of two operating subsidiaries purchased from the
Danish Fund for 101,018 shares of the Company's common stock. The value
of shares on the date of issue totalled $1,301,000.
F-14
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The total value of shares issued relating to these two transactions has
been recorded as an increase to goodwill and to Common Stock and
additional paid-in capital.
On September 30, 1997, the Company and TDI entered into an agreement
whereby TDI agreed to exchange loans and accrued interest totalling
$5,534,000 to two operating subsidiaries for 447,232 shares of the
Company's common stock.
On May 12, 1999, the Company and TDI entered into a Stock Purchase
Agreement (the "TD Stock Purchase Agreement") pursuant to which the
Company issued 1,571,429 shares of the Company's common stock in exchange
for $11 million. The Company applied the proceeds from the TD Stock
Purchase Agreement to the repayment of the Original Postabank Credit
Facility (see Note 5). TDI agreed not to transfer the shares to any party
prior to May 11, 2000 without the prior written consent of the Company.
As a result of these transactions, TDI's share ownership in the Company
is 21.4% of the shares outstanding at December 31, 1999. TDI has been
granted preemptive rights to maintain its ownership percentage.
On May 12, 1999, the Company and the Danish Fund entered into a Stock
Purchase Agreement (the "Danish Fund Stock Purchase Agreement") pursuant
to which the Company issued 1,285,714 shares of the Company's common
stock in exchange for $9 million. The Company applied the proceeds from
the Danish Fund Stock Purchase Agreement to the repayment of the Original
Postabank Credit Facility (see Note 5). The Danish Fund agreed not to
transfer the shares to any party except for Tele Danmark prior to May 11,
2000 without the prior written consent of the Company. As a result of
this transaction, the Danish Fund's share ownership in the Company is
10.7% of the shares outstanding at December 31, 1999.
(9) Income Taxes
The statutory U.S. Federal tax rate for the years ended December 31,
1999, 1998 and 1997 was 35% and the Hungarian corporate income tax rate
for the years ended December 31, 1999, 1998 and 1997 was 18%. For
Hungarian corporate income tax purposes, the operating companies were
entitled to a 100% reduction in income taxes for the five year period
ending December 31, 1998 and are now entitled to a 60% reduction in
income taxes for the subsequent five year period ending December 31,
2003. The effective tax rate was zero for the years ended December 31,
1999, 1998 and 1997 due to the Company incurring net operating losses for
which no tax benefit was recorded.
For U.S. Federal income tax purposes, the Company has unused net
operating loss carryforwards at December 31, 1999 of approximately
$16,760,000 which expire in 2007, $142,000; 2008, $422,000; 2009,
$950,000; 2010, $6,507,000; 2011, $6,328,000; 2012, $1,906,000; 2018,
$14,000; and 2019, $491,000. As a result of various recent equity
transactions, management believes the Company experienced an "ownership
change" in 1999, as defined by Section 382 of the Internal Revenue Code
which limits the annual utilization of net operating loss carryforwards
incurred prior to the ownership change.
F-15
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
For Hungarian corporate income tax purposes, the Hungarian subsidiaries
have unused net operating loss carryforwards at December 31, 1999, at
current exchange rates, of approximately $62,972,000. Of this amount,
$12,437,000 may be carried forward indefinitely while $1,383,000 may be
carried forward until 2000, $7,760,000 until 2001, $11,741,000 until
2002, $19,532,000 until 2003 and $10,119,000 until 2004.
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets are as follows:
<TABLE>
<S> <C> <C>
December 31
---------------------
1999 1998
---- ----
($ thousand)
Net operating loss carryforwards $ 5,866 5,982
Write down of assets 418 418
Stock compensation 1,467 1,467
Citizen's options 3,926 2,205
Termination benefits 746 1,169
Citizen's termination agreement - 3,896
Management fees 3,236 3,236
Interest expense 1,381 918
Other 474 674
-------- --------
Total gross deferred tax assets 17,514 19,965
Less valuation allowance (17,514) (19,965)
-------- --------
Net deferred tax assets $ 0 0
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers projected future taxable income and tax
planning in making these assessments. During 1999, the valuation
allowance decreased by $2,451,000, while in 1998 it increased by
$5,011,000.
(10) Commitments and Contingencies
(a) Concession Agreements
Certain subsidiaries of the Company have been awarded concession
rights by the Hungarian Ministry of Transportation,
Telecommunications and Water Management ("the Ministry") to own
and operate local public telephone networks in five regions of
Hungary. Each of the concession agreements are for a term of 25
years and provide for an eight-year exclusivity period.
Agreements providing concession rights in two regions to
Hungarotel and one region to Papatel were entered into prior to
their acquisition by the Company and were renegotiated by the
Company. The renegotiated concession agreements provided for an
initial payment to the Ministry of HUF 938,250,000 (approximately
$6.7 at December 31, 1995 exchange rates) which was paid in
November 1995, and for annual concession fees based upon 2.3% and
0.3% of net telephone service revenues for the regions operated by
Hungarotel and 2.3% of net telephone service revenues for the
region operated by Papatel.
F-16
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In 1994, the Ministry awarded concession rights to own and operate
local public telephone networks to KNC and Raba-Com under
agreements which provide for annual concession fees based upon
0.1% and 1.5% of net telephone service revenues for regions
operated by KNC and Raba-Com, respectively.
The concession agreements provide for, among other things, the
subsidiaries to provide telephone service to specific numbers of
customers by specified dates or be subject to possible monetary
penalties and possibly reduction in the period of exclusivity. As
of December 31, 1999, the Company believes it has fulfilled these
service requirements in their concession areas in all material
respects, and has not provided for any potential liability.
The activities of the subsidiaries which own concession rights are
regulated by the Ministry and by the terms of their respective
concession agreements. The Ministry regulates the construction,
operation and sale of local telephone exchanges and has been given
the authority to regulate the industry. This authority includes
approving local, long distance and international rates, the
sharing of revenues between concession companies and Matav, the
equipment that can be used in the public switched telephone
network and requiring local companies to meet specified standards
as to growth and services.
The Ministry has stipulated in the Concession Contracts for
Hungarotel and Papatel, as amended in June 1996, that each of the
Operating Companies must meet certain Hungarian ownership
requirements so that by the end of the seventh year of their
Concession Contracts Hungarian ownership must consist of 25% plus
one share of the relevant Operating Company. For the seven-year
period following the date or amendment of a Concession Contract,
as the case may be, Hungarian ownership must be at least 10%,
except that during such period, such ownership may be reduced to
as low as 1% for a period of up to two years. During such
seven-year period, while the Hungarian ownership block is required
to be at least 10%, such Hungarian ownership of a 10% equity
holding in an Operating Company must have voting power of at least
25% plus one share, thus providing Hungarian owners the right to
block certain transactions which, under Hungarian corporate law,
require a supermajority (75%) of stockholders voting on the
matter, such as mergers and consolidations, increases in share
capital and winding-up.
For these purposes, Hungarian ownership of shares means shares
owned by Hungarian citizens. Shares owned by a corporation are
considered Hungarian owned only in proportion to the Hungarian
ownership of such corporation. The LTOs can also fulfill the 25%
plus one share Hungarian ownership requirement by listing such
shares on the Budapest Stock Exchange.
The equity ownership requirements and exceptions described above
are contained in the June 1996 amended Concession Contracts for
Hungarotel and Papatel. The equity ownership requirements
expressly set forth in KNC's and Raba-Com's Concession Contracts
call for a strict 25% plus one share Hungarian ownership.
However, the Ministry has stated, pursuant to a letter dated
September 18, 1996, that it intends that all of the Operating
Companies be treated equally with respect to such ownership
requirements.
Following a capital transaction with Postabank in May 1999 (see
note 11) each of the Operating Companies is deemed in compliance
with the 10% ownership requirement, however none of the Companies
are currently in compliance with the 25% voting requirement.
Failure to comply with the 25% Hungarian ownership requirement at
F-17
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
the end of the seven-year period might be considered a serious
breach of a Concession Contract, giving the Ministry the right,
among other things, to terminate the Concession Contract. There
can be no assurance that the Company will be able to increase the
Hungarian ownership in the Operating Companies in a manner
sufficient to comply with such requirements in the future.
The Hungarian ownership requirements would effectively give
minority Hungarian stockholders in the Operating Companies the
ability to block certain corporate transactions requiring the
approval of 75% of stockholders voting on the matter, including
mergers and consolidations, increases in share capital and
winding-up. In addition, unless the Hungarian ownership
requirements are formally changed, compliance would result in a
reduction in the Company's ownership in the Operating Companies,
and, consequently, the Company's share of income, if any, or loss
of the Operating Companies may be reduced proportionately.
(b) Construction Commitments
KNC has a long-term frame contract with Siemens which provides for
the continued construction of a local telephone network and the
addition of new subscribers in its service area. During the year,
the contract was amended to expand the number of subscribers the
contractor must connect in order to complete the contract. This
contract totals, with the amendment during 1999, approximately
$20.0 million, $2.6 million of which remains to be spent.
(c) Leases
The Company leases office facilities in Connecticut, which require
minimum annual rentals. Certain of the Company's subsidiaries also
rent office space and other facilities. Rent expense for the years
ended December 31, 1999, 1998 and 1997, was $395,000, $199,000 and
$160,000, respectively, and is included in operating and
maintenance expenses. Lease obligations for the subsequent five
years are as follows (at current exchange rates): 2000, $307,000;
2001, $280,000; 2002, $269,000; 2003, $270,000; and 2004,
$290,000.
(d) Legal Proceedings
Hungarotel is a defendant in a lawsuit brought in Hungary that
alleges breach of contract. The plaintiff is seeking payment of
approximately HUF 222 million (approximately $879,000 at December
31, 1999 exchange rates) plus interest. The Company believes it
has meritorious defenses to the claim and does not believe there
will be any material adverse effect from the outcome of this
proceeding.
Raba-Com is a defendant in a lawsuit seeking refund of the
connection fee paid by a residential customer due to delay in
providing telephone service. Management believes there are
meritorious defenses to the claim and expects to prevail. Should,
however, the legal proceedings result in a final unfavorable
outcome, the Company could be subject to additional claims for
refunds of connection fees received.
HTCC Consulting and Papatel are involved in several disputes with
the Hungarian taxing authorities (the "APEH") pursuant to which
the APEH alleges Consulting owes HUF 105 million (approximately
$416,000 at December 31, 1999 exchange rates) and Papatel owes HUF
26 million (approximately $103,000 at December 31, 1999 exchange
rates) for various reasons. The Operating Companies believe that
the APEH claims are without merit and are vigorously defending
themselves against such claims.
F-18
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
During 1996 and 1997, the Company entered into several
construction contracts with a Hungarian contractor which totaled
$59.0 million in the aggregate, $47.5 million of which was
financed by a contractor financing facility. At December 31, 1998,
the balance on the contractor financing facility was $36.6
million. The Company and the contractor have a disagreement with
respect to several issues relating to the quality and quantity of
the work done by the contractor. The Company has rejected invoices
of approximately HUF 700 million (approximately $2.8 million at
December 31, 1999 exchange rates). Following a series of
transactions with the contractor's major creditor, the Company was
able to settle the contractor's claims arising from the accepted
but unpaid invoices. During 1998 the Company and the contractor
engaged in settlement discussions in order to resolve these issues
but were unable to reach a settlement. In addition, in March 1999,
Hungarotel acquired a HUF 4 billion (approximately $15.8 million
at December 31, 1999 exchange rates) claim against the contractor
in order to strengthen its position in any potential procedures
initiated by the contractor. The contractor is now seeking payment
under separate invoices in the amount of approximately $24 million
for work which the Company is disputing because of quality and
quantity issues. The Company still has claims against the
contractor of approximately $31 million which is more than the
contractor's claim. The Company believes that it will prevail on
the merits such that it will not be responsible for the full
payment on the aggregate contractual amount. There can, however,
be no assurances as to the final outcome or course of action of
such dispute.
The Company and its subsidiaries are involved in various other
claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations
or liquidity.
(e) Agreements with Lucent Technologies
In October 1997, the Company entered into an agreement with Lucent
Technologies to become the exclusive distributor of Lucent PBX and
Key System products in Hungary. As part of the agreement, the
Company purchased fixed assets and inventory valued at $470,000
and agreed to purchase commitments starting at $6 million for each
of the next three years. The agreement provided for the imposition
of penalties of up to $500,000 annually for failure to meet the
purchase requirements. The Company also assumed the employment of
36 employees. During the first quarter of 1998, the Company
amended the original agreement with Lucent. Under the first
amended agreement, the Company became the exclusive supplier of
PBX and Key System products in its Operating Areas while retaining
non-exclusive rights to service other Hungarian customers outside
its Operating Areas. In addition, the Company was entitled to sell
large call centers on a commission basis. The Company's minimum
purchase commitments, under the first amended agreement, were
reduced to $2 million annually with potential penalties being
reduced to a maximum of $200,000 annually for failure to meet the
purchase requirements. As a part of the first amended agreement,
the Company transferred back $400,000 of assets to Lucent and paid
$150,000 to Lucent. In addition, the Company transferred to a
third party subcontractor, 28 of the 36 employees originally
assumed. For 1998, the Company negotiated a penalty payment of
approximately $24,000 towards Lucent for non-performance under the
first amended agreement, and this was settled during 1999 in the
form of marketing and sales promotions expenses. Effective
February 1999, Lucent and the Company agreed that the Company
F-19
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
would give up its right of exclusivity in its Operating Areas. In
addition, as a part of this agreement, the Company no longer has
any minimum purchase commitments towards Lucent, nor are there any
potential penalty fees payable. At the present time, Lucent is
changing its distribution channels in Europe and has informed the
Company that once they have their new distribution channels in
place, the second amended agreement with Lucent will be terminated
and the Company will be able to enter into a new agreement with
Lucent. No details of the proposed new agreement have been
presented to the Company at the present time.
(f) Local Tax
Hungarotel's Concession Contracts require Hungarotel to pay an
amount equal to 10 times the local occupational excise tax. The
applicability and enforceability of such obligation is not certain
at this time, however, the Ministry has clearly stated in a letter
to Hungarotel that it will not enforce this particular provision
of the Concession Contract. It is not possible to predict with
certainty the effect, if any, such provision will have on the
Company. The Company has not accrued any amounts related to such
tax.
(g) Subsidiary Capital Requirements
In July 1998, Hungary adopted a law requiring corrective action by
certain Hungarian companies which have negative net equity for
more than two years. Each of the Operating Companies currently
have negative net equity. The effective date of the applicability
of the law to the Operating Companies is not certain at this time.
The Company's debt and equity restructuring which took place
during 1999, was the first step in several to remedy the capital
structure in each of the Operating Companies and the Company is
continuing to work on the matter in order to bring each of the
Operating Companies into compliance with the law. While the
Company believes that each of the Operating Companies will be able
to comply with the law if and when it affects the Operating
Companies, there can be no assurance that the Operating Companies
will be able to comply with such law.
(11) Common and Preferred Stock
In connection with a 1992 private placement and public offering, in
addition to a 1994 private placement, the Company issued warrants to
purchase 141,950 shares of Common Stock at prices ranging from $3.60 to
$14.00 per share. During 1998, warrants to purchase 4,650 shares of
Common Stock at $3.60 were exercised. Proceeds from the exercise of these
warrants totaled $17,000 in 1998.
During 1998, a former officer exercised options to purchase 51,750 shares
of Common Stock at $4.00 per share. Proceeds from the exercise of these
options totaled $207,000.
During 1997, options to purchase 70,000 shares of Common Stock at prices
ranging from $7.00 to $10.00 per share and warrants to purchase 11,586
shares of Common Stock at $10.15 per share were exercised. Proceeds from
the exercise of these options and warrants amounted to approximately
$635,000. In addition, the company issued options to purchase up to
70,000 shares of Common Stock at below market prices to three officers as
compensation, resulting in a $70,000 increase to additional paid-in
capital.
F-20
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
During the third quarter of 1997, the Company entered into various
agreements with TDI pursuant to which TDI agreed to exchange its
ownership interest and outstanding loans in each of two operating
subsidiaries for a total of 969,158 shares of the Company's Common Stock.
The value of shares on the dates of issue totaled $10,689,000 which was
recorded as an increase to Common Stock and additional paid-in capital.
During 1999, the Company issued 1,571,429 shares and 1,285,714 shares to
TDI and the Danish Fund, respectively, as part of its overall capital and
debt restructuring during the period (see Note 8).
During the third quarter of 1998, the Company entered into certain
agreements with certain wholly-owned subsidiaries of Citizens Utilities
Company (Citizens Utilities Company and its subsidiaries are hereinafter
referred to as "Citizens") pursuant to which the Company settled its
disagreements with Citizens regarding certain issues with respect to (i)
2.1 million shares of the Company's common stock subject to Citizens'
accrued preemptive rights and (ii) the Company's management services
agreement with Citizens dated as of May 31, 1995 as amended (the
"Management Services Agreement"). As part of the settlement of the
Management Services Agreement with Citizens (see note 15), the Company
issued 100,000 shares of Common Stock. The value of the shares on the
date of issue totaled $513,000 which was recorded as an increase to
Common Stock and additional paid-in capital.
On May 12, 1999, the Company and Citizens entered into a Stock Purchase
Agreement (the "Citizens Stock Purchase Agreement') pursuant to which the
Company issued to Citizens 1,300,000 shares of the Company's common stock
and 30,000 shares of the Company's Series A Preferred Stock, par value
$0.001 (the "Preferred Shares") in consideration for the extinguishment
of liabilities the Company had with Citizens (see note 15). The value of
the common stock on the date of issue totaled $9,100,000 which was
recorded as an increase to Common Stock and additional paid-in capital.
The value of the preferred shares on the date of issue totaled $2,100,000
which was recorded as an increase to Preferred Stock and additional
paid-in capital. Citizens, as the holder of the Preferred Shares, is
entitled to receive cumulative cash dividends at an annual rate of 5%,
compounded annually on the liquidation value of $70 per share. The
Company may redeem the Preferred Shares at any time. Citizens can convert
each of the Preferred Shares into shares of the Company's common stock on
a one for ten basis.
On May 12, 1999, the Company and Postabank entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement") pursuant to
which Postabank purchased 2,428,572 shares of the Company's common stock
for an aggregate purchase price of $34 million. The Securities Purchase
Agreement provides for one person designated by Postabank to be
nominated for election to the Company's Board of Directors. Postabank
cannot transfer its shares until the earlier of (x) the repayment in
full of all the obligations under the Bridge Loan Agreement or (y) May
10, 2000, and then Postabank can only transfer such shares incrementally
through 2003 subject to the Company's right of first refusal. The
Company's right of first refusal expires in January 2003 and is
assignable by the Company to any beneficial holder of more than 10% of
the Company's outstanding common stock. The Company applied the proceeds
from the stock issuance to the repayment of the Original Postabank
Credit Facility (see Note 5). Pursuant to the Securities Purchase
Agreement, the Company issued notes to Postabank in an aggregate amount
of $25 million (see Note 6) with detachable warrants. As a result of
this transaction, Postabank's share ownership in the Company was 20.3%
of the Company's outstanding common stock as of December 31, 1999.
F-21
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
During 1998, the Company issued 18,469 shares of Common Stock as
contingent consideration related to the acquisition of Hungarotel and
Papatel in 1995, per the acquisition agreement.
The Company has reserved 8,237,059 shares as of December 31, 1999 for
issuance under stock option plans and agreements and warrants.
(12) Stock Based Compensation
Stock Option Plans
The Company adopted a stock option plan (the "Plan") in April 1992 which
provided for the issuance of an aggregate of 90,000 stock options which
was increased to 250,000 at the 1994 Annual Meeting of Stockholders. In
1996, the stockholders of the Company approved an increase in the number
of shares available under the plan from 250,000 to 750,000. In 1998, the
stockholders of the Company approved an increase in the number of shares
available under the plan from 750,000 to 1,000,000. Under the Plan,
incentive and non-qualified options may be granted to officers, directors
and consultants to the Company. The plan is administered by the Board of
Directors, which may designate a committee to fulfill its
responsibilities. Options granted under the Plan are exercisable for up
to 10 years from the date of grant. As of December 31, 1999, 820,990
options provided for by the Plan had been issued, of which 167,500 were
exercised and 653,490 remained outstanding.
In 1997, the Company adopted a director stock option plan (the
"Directors' Plan") which provides for the issuance of an aggregate of
250,000 stock options. Options granted under the Directors' Plan are
exercisable for up to 10 years from the date of grant. As of December 31,
1999, 80,000 options provided for by the Directors' Plan had been issued,
of which 5,000 were exercised and 75,000 remained outstanding.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock options issued under the Plan and the Directors'
Plan. Had the Company determined compensation cost for options issued
under the plans based on the fair value at the grant date according to
SFAS No. 123, the Company's net pro forma income and Earnings Per Share
would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998 1997
---- ---- ----
(in thousands)
Net income (loss) As reported $3,172 ($50,612) ($36,236)
Pro forma $2,526 ($51,065) ($36,468)
Earnings (loss) Per Share As reported $0.33 ($9.53) ($7.97)
Pro forma $0.27 ($9.62) ($8.02)
</TABLE>
For purposes of the pro forma calculation under SFAS 123, the fair value
of each option grant has been estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions: (1) a
risk free rate of 5.03% in 1999, 5.58% in 1998 and 6.56% in 1997, (2) an
expected life of 5 years for 1999, 6 years for 1998 and 7 years for 1997,
and (3) volatility of approximately 81% for 1999, 84% for 1998 and 33%
for 1997.
Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock
under SFAS 123 is not reflected in the pro forma net loss amounts because
compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to January 1, 1995 is not
considered.
F-22
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The following is a summary of stock options and warrants, including those
issued under the Plan and Directors' Plan referred to above, and other
agreements which were granted, exercised and cancelled for the three
years ended December 31, 1999:
<TABLE>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
Outstanding Option/Warrant Price
Options/Warrants Per Share
------------------------------------ ------------------------ -----------------------
December 31, 1996 705,476 $3.60-$20.00
Granted 140,000 $8.75-$11.69
Exercised (81,586) $7.00-$10.15
Cancelled (5,793) $10.15
------------------------------------ ------------------------ -----------------------
December 31, 1997 758,097 $3.60-$20.00
Granted 151,000 $5.81-$8.00
Exercised (56,400) $3.60-$4.00
Cancelled - -
------------------------------------ ------------------------ -----------------------
December 31, 1998 852,697 $4.00-$20.00
Granted 189,990 $3.25-$6.00
Exercised - -
Cancelled (116,950) $8.00-$20.00
------------------------------------ ------------------------ -----------------------
December 31, 1999 925,737 $3.25-$14.00
------------------------------------ ------------------------ -----------------------
</TABLE>
The following table summarizes information about shares subject to
outstanding options as of December 31, 1999 which were issued to current
or former employees, directors or consultants pursuant to the Plan,
Directors' Plan, employment or other agreements.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Weighted- Average Weighted-
Number Range of Average Exercise Remaining Life Number Average
Outstanding Exercise Prices Price in Years Exercisable Exercise Price
----------- --------------- ----- -------- ----------- --------------
408,237 $3.25-$6.78 $4.43 4.45 343,237 $4.21
220,000 $8.00-$9.44 $8.57 3.32 220,000 $8.57
97,500 $11.69-$12.25 $12.16 0.51 97,500 $12.16
200,000 $14.00 $14.00 1.58 200,000 $14.00
------- -------
925,737 $3.25-$14.00 $8.29 3.15 860,737 $8.50
======== =======
</TABLE>
Stock Grants
During the second quarter of 1998, the Company issued 10,625 shares of
Common Stock to two former officers as compensation. An amount of
$93,000, representing the fair market value of the stock on the date of
grant, has been recorded as compensation expense and as an increase in
Common Stock and additional paid-in-capital.
F-23
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In March 1997, the Company issued 5,000 shares to a former officer as
compensation. An amount of $51,875, representing the fair market value of
the stock on the date of grant, has been recorded as compensation expense
and as an increase in Common Stock and additional paid-in-capital.
In October 1996, the Board of Directors of the Company amended and
restated employment agreements with three executive officers. As part of
these agreements, in March 1997, based on performance in 1996, options to
purchase 70,000 shares of stock at an exercise price of $8.75 were
granted which became effective April 1, 1997.
In December 1995, the Company entered into employment agreements with
three executives which provided for, among other things, the granting of
a total of 102,500 shares of Common Stock. The Common Stock grants vest
over a four year period from the effective date of each agreement. As a
result of these employment agreements, in 1995 the Company recorded an
increase in additional paid-in-capital of $1,050,000, and a corresponding
increase in deferred compensation which was being amortized over the
vesting period. During 1998, the Company canceled 25,000 shares of the
total 102,500 shares granted in December 1995. As a result of the
cancellation, the Company recorded a decrease in additional
paid-in-capital of $256,000, and a corresponding decrease in deferred
compensation.
In November 1999, the Company cancelled 30,000 fully vested employee
stock options previously issued with an original exercise price of $8.00
per share and an expiration date of March 31, 2003, and issued 30,000
options with like terms except that the newly issued options have been
granted with an exercise price of $5.46 per share, the fair value of such
options at the date of modification. The Company has recognized
approximately $54,000 of compensation expense in 1999 as a result of the
modification.
F-24
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(13) Reconciliation of Net Income (Loss) to Net Cash Provided by Operating
Activities
The reconciliation of net income (loss) to net cash provided by operating
activities for the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
(in thousands)
Net income (loss) $ 3,172 (50,612) (36,236)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of property, plant and
equipment 11,008 10,598 7,445
Amortization of intangibles 774 962 904
Asset write-downs 237 45 162
Non-cash compensation 54 339 407
Unrealized foreign currency loss 2,580 353 209
Extraordinary items, net (20,193) - -
Termination charges - 11,131 -
Other (income)/expense (1,177) (787) 224
Unpaid interest 16,345 36,494 34,963
Changes in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable (1,277) (2,199) (6,273)
Restricted cash 60 444 (4,797)
VAT receivable - 2,503 1,864
Other assets 2,508 1,461 (3,938)
Accounts payable and accruals 4,929 (6,156) (3,955)
Due to related parties (498) 2,144 4,364
-------- ------- -------
Net cash provided by operating activities $ 18,522 11,118 4,937
======= ======= =======
Cash paid during the year for:
Interest $ 10,521 9,362 196
======= ======= =======
</TABLE>
Summary of non-cash transactions (figures in dollars):
During 1999 the Company:
o Issued 1,300,000 shares of Common Stock valued at $9,100,000 and 30,000
shares of Preferred Stock valued at 2,100,000 in settlement of an $8.4
million promissory note and Citizens renouncement and forgiveness of any
rights whatsoever in respect of the $21 million aggregate amount payable
to Citizens beginning in 2004.
o Modified the exercise price on 30,000 stock options issued to an
executive pursuant to a termination agreement.
F-25
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
During 1998 the Company:
o Issued 100,000 shares of Common Stock valued at $513,000 and a
promissory note in the amount of $8.4 million to Citizens in settlement
of $9.6 million of accrued fees and expenses due and payable to Citizens
under the terminated management services agreement.
o Issued 10,625 shares of Common Stock as compensation to two former
executive officers valued at $93,000.
o Canceled 25,000 restricted shares to a former executive pursuant to a
retirement agreement.
o Issued 2,110,896 options to purchase Common Stock valued at $121,000 in
settlement of Citizens' accrued preemptive rights.
During 1997 the Company:
o Issued 969,158 shares of Common Stock valued at $10,689,000 to TDI in
exchange for interests and loans in two operating subsidiaries.
o Issued 5,000 shares of Common Stock to a former officer and options to
purchase 70,000 shares of Common Stock to three officers at exercise
prices below market as compensation.
(14) Related Parties
Transactions entered into with certain related parties are as follows:
(a) Transactions with former officers and directors
On July 26, 1996, the Company entered into Termination and Release
Agreements, Consulting Agreements and Non-competition Agreements
with its former Chairman and Chief Executive Officer, former Vice
Chairman and former Chief Financial Officer, Treasurer, Secretary
and Director. Pursuant to these agreements, the Company agreed to
make payments for severance, consulting fees and non-compete
agreements amounting to $7.25 million, in equal monthly
installments over a 72 month period commencing August 31, 1996,
and also issued options to purchase 200,000 shares of Common Stock
at an exercise price of $14.00 per share. These commitments are
supported by letters of credit. The Company recorded a charge of
approximately $6.3 million in 1996 and has made payments
aggregating approximately $1,208,000 in each of 1999, 1998 and
1997 related to these agreements.
(b) Transactions with Citizens
Transactions with Citizens including those under the Management
Service Agreements are discussed in Footnote 15.
(c) Transactions with Postabank
Transactions with Postabank are discussed in Notes 4, 5, 6 and 11.
F-26
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Amounts payable to related parties as of December 31, 1999 and 1998, were
as follows:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Payable to former officers and directors $ 2,656,000 $ 3,476,000
Due to Citizens 68,000 19,873,000
Due to Teleconstruct - 34,000
---------- ----------
$ 2,724,000 $ 23,383,000
========= ==========
</TABLE>
(15) Agreements with Citizens
During 1995, the Company and certain subsidiaries of Citizens entered
into a Master Agreement, a Loan Agreement and related Promissory Note, a
Warrant to Purchase Shares of Common Stock to Citizens (the Warrant), a
Stock Pledge Agreement, a Stock Option Agreement and second Stock Option
Agreement, a Registration Agreement and a Management Services Agreement
(the "Citizens Agreements"). Simultaneously, Citizens entered into voting
agreements with three affiliates of the Company and consummated the
purchase of 300,000 shares of Common Stock of the Company from the then
President, Chief Executive Officer and Chief Financial Officer and
Director of the Company. Certain of these agreements were subsequently
amended in connection with Citizens providing additional financial
support to the Company and expanding its management services
responsibilities as a result of the Company's acquisition of additional
concession companies.
The Citizens Agreements, as amended, resulted in and provided for
among other matters the following:
o The nomination by Citizens of one representative to the Company's board of
directors (out of a minimum of six directors) for as long as Citizens owns
at least 300,000 shares of Common Stock of the Company.
o Citizen's receipt of options and a warrant to purchase an aggregate of
3,635,472 (as adjusted for items described below) additional shares of
Common Stock of the Company at exercise prices ranging from $13 to $18 per
share under the Stock Option Agreement and Warrant, as amended (the
"Citizens Options and Warrant"). The Citizens Options and Warrant were
originally due to expire at various dates from May 31, 1997 to September
12, 2000. Expiration dates of the warrant and certain options were extended
as discussed below. All of the options were subject to anti-dilution
provisions.
o Certain corporate, financial, technical, construction, marketing and
operational services were to be provided by Citizens to the Company under
the terms of the Management Services Agreement. Such services commenced on
July 1, 1995 and were to continue through December 31, 2007. All services
rendered by Citizens were subject to the oversight, supervision and
approval of the Company. The management fee payable to Citizens was the
greater of 5% of Adjusted Gross Revenues, as defined, or a fixed amount
ranging from $100,000 to $395,800 per month from July 1995 through December
31, 1996, and $416,600 per month for each month commencing January 1997 for
the remainder of the term, subject to adjustment for inflation. Management
fees payable to Citizens during 1998 amounted to $2,500,000, while 1997
fees amounted to $5,000,000 plus reimbursable costs of $691,000. There were
no fees payable in 1999 as a result of the September 30, 1998 settlement
with Citizens described below.
F-27
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
o The right for Citizens to purchase additional shares of Common Stock, if
the Company issues, in connection with any public or private offering,
shares of Common Stock, other stock of the Company or any securities
convertible into, or exchangeable or exercisable for shares of Common Stock
or other stock of the Company at the applicable offering price the number
of shares as is necessary to maintain Citizens' then existing percentage
ownership on a fully diluted basis.
o On October 18, 1996, the Company entered into certain agreements with
Citizens in consideration for, among other things, Citizens' support in
fulfilling all terms under a Citicorp Credit Facility and in obtaining the
Original Postabank Credit Facility (see note 5). Under such agreements, the
Company agreed to (i) extend to September 12, 2000 the exercise periods of
a warrant and certain stock options to purchase approximately 2,139,801
shares of Common Stock (as adjusted), (ii) grant Citizens the option to
purchase an additional 875,850 shares of Common Stock at an exercise price
of $12.75 exercisable through September 12, 2000, and (iii) pay Citizens
$750,000 in cash. The cost of this consideration to the Company
representing the increase in fair value of the options previously granted,
the fair value of the newly granted options and the cash payment amounted
to $11.97 million. The fair value of the options was determined using the
Black Scholes option pricing model. The Company reflected the portion of
the cost related to the financial support in fulfilling the terms of the
Citicorp Credit Facility, $5.7 million, as a charge in 1996. The remaining
$6.27 million had been capitalized in other assets with other direct costs
incurred in obtaining the Postabank Credit Facility and was being amortized
over the term of the related debt. As discussed in note 5 above, the
Company extinguished the Original Postabank Credit Facility during 1999 and
as a result, wrote-off the remaining unamortized deferred financing costs,
which included the $6.27 million mentioned above, pertaining to the
Original Postabank Credit Facility.
o On September 30, 1998, the Company entered into certain agreements with
Citizens pursuant to which the Company settled disagreements with Citizens
regarding certain issues with respect to (i) 2.1 million shares of the
Company's common stock subject to Citizens' accrued preemptive rights and
(ii) the Company's management services agreement with Citizens dated as of
May 31, 1995, as amended (the "Management Services Agreement").
o Such agreements provided for, among other things, (i) the termination of
the Master Agreement dated as of May 31, 1995 between the Company and
Citizens; (ii) the issuance by the Company to Citizens of 100,000
shares of the Company's common stock and a promissory note in the
principal amount of $8,374,498 (the "Note") in settlement of $9.6
million accrued fees and expenses due and payable to Citizens under
the Management Services Agreement; (iii) the termination of the Management
Services Agreement; (iv) payments by the Company to Citizens in the
aggregate amount of $21,000,000 payable in 28 quarterly installments from
2004 through and including 2010 in part as consideration for Citizens'
agreement to terminate the Management Services Agreement and in part
as consideration for certain consulting services to be provided by
Citizens to the Company from 2004 through and including 2010; (v) the
grant by the Company to Citizens of certain preemptive rights in
connection with any public or private issuances by the Company of
shares of its common stock to purchase within 30 days for cash such number
of shares of the Company's common stock sufficient to maintain Citizens'
then existing percentage ownership interest of the Company's common
stock on a fully diluted basis; and (vi) the right of one Citizens
designee to the Company's Board of Directors to be renominated for
reelection to the Company's Board of Directors for so long as Citizens owns
at least 300,000 shares of the Company's common stock.
F-28
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
o The principal on the promissory note was payable in full on September 15,
2004 and bore interest at a varying rate per annum which was 2-1/2% per
annum above the one-year LIBOR rate with monthly adjustments in such
varying rate. Accrued interest was to be paid annually.
o The Company recorded a charge totaling $11.1 million in 1998 representing
the present value of the $21 million aggregate amount payable to Citizens
beginning in 2004 in part as consideration for Citizens' agreement to
terminate the Management Services Agreement and in part as consideration
for certain consulting services to be provided by Citizens to the Company
from 2004 through and including 2010.
o The agreements included an Amended, Restated and Consolidated Stock Option
Agreement (the "Restated Stock Option Agreement") pursuant to which the
Company granted Citizens an option to purchase 2,110,896 shares of the
Company's common stock at a price of $13.00 per share with an expiration
date of July 1, 1999 in settlement of Citizens' accrued preemptive rights.
The Restated Stock Option agreement also acknowledged Citizens existing
options to date to purchase an aggregate of 4,511,322 shares of the
Company's common stock at exercise prices ranging from $12.75 to $18.00 per
share with an expiration date of September 12, 2000. The cost of this
consideration to the Company representing the fair value of the newly
granted options in settlement of Citizen's accrued preemptive rights
amounted to $121,000. The fair value of the newly granted options was
determined using the Black Scholes option pricing model. The Company
reflected this cost as a charge in 1998.
o On May 12, 1999, the Company and Citizens entered into a Stock Purchase
Agreement (the "Citizens Stock Purchase Agreement') pursuant to which the
Company issued to Citizens 1,300,000 shares of the Company's common stock
and 30,000 shares of the Company's Series A Preferred Stock, par value
$0.01 (the "Preferred Shares"). In consideration for such shares, Citizens
(i) transferred to the Company for cancellation the $8,374,000 promissory
note issued by the Company to Citizens which was to mature in 2004, (ii)
forgave half of the accrued interest due on the promissory note through May
15, 1999 and (iii) agreed to renounce and forego any rights whatsoever to
any payment of the $21 million which was payable by the Company to Citizens
in quarterly installments of $750,000 each from 2004 through and including
2010. Citizens, as the holder of the Preferred Shares, is entitled to
receive cumulative cash dividends at an annual rate of 5%, compounded
annually on the liquidation value of $70 per share. The Company may redeem
the Preferred Shares at any time. Citizens can convert each of the
Preferred Shares into shares of the Company's common stock on a one for ten
basis. The Citizens Stock Purchase Agreement provided that if the average
closing price of the Company's common stock for the twenty (20) trading
days ending March 31, 2000 is less than $7.00 per share, then HTCC shall
issue such number of HTCC Preferred Shares (with a value of $70 per share)
equal in value to (i) 1,600,000 times (ii) $7.00 less the average closing
price of HTCC common stock for such twenty (20) trading day period. The
average closing price of the Company's common stock for the above mentioned
period was more than $7.00 per share and as a result, no additional shares
of HTCC preferred stock have been issued to Citizens. The Citizens Stock
Purchase Agreement also requires Citizens not to transfer any shares of
HTCC common stock which it may hold prior to May 15, 2000 without the prior
F-29
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
written consent of the Company and Postabank. Citizens also waived any and
all preemptive and anti-dilution rights in connection with the transactions
described in Notes 6, 8 and 11. As a result of the Stock Purchase Agreement
with Citizens, the Company recorded extraordinary income of $9.0 million
during the second quarter of 1999 which represented the gain on the
extinguishment of the liabilities the Company had with Citizens.
Additionally, the Company is also obligated to bear the cost of
registering shares it has issued to Citizens, including shares issuable
under the Citizens Options. As a result of the above transactions, on
December 31, 1999 Citizens held 19.2% of the Company's outstanding
Common Stock and 4,511,322 options to purchase Common Stock. Citizens
ownership of the Company's outstanding shares on a fully diluted basis
is approximately 35.2% at December 31, 1999.
(16) Employee Benefit Plan
Effective December 1996, the Company established a 401(k) salary deferral
plan (the "401(k) Plan") on behalf of its U.S. employees. The 401(k) Plan
is a qualified defined contribution plan and allows participating
employees to defer up to 15% of their compensation, subject to certain
limitations. Under the 401(k) Plan, the Company has the discretion to
match contributions made by the employee. No matching contributions were
made by the Company in 1999, 1998 or 1997.
(17) Segment Disclosures
The Company operates in a single industry segment, communications
services. The Company's operations involve developing and constructing a
modern telecommunications infrastructure in order to provide a full range
of the Company's products and services in its five concession areas in
Hungary. While the Company's chief operating decision maker monitors the
revenue streams of the various products and services, operations are
managed and financial performance is evaluated based on the delivery of
multiple services to customers over an integrated network. Substantially
all of the Company's assets are located in Hungary and all of its
revenues are generated in Hungary.
Products and Services
The Company groups its products and services into the following
categories:
Telephone Services - local dial tone and switched products and services
that provide incoming and outgoing calls over the public switched
network. This category includes reciprocal compensation revenues and
expenses (i.e. interconnect).
Network Services - point-to-point dedicated services that provide a
private transmission channel for the Company's customers' exclusive use
between two or more locations, both in local and long distance
applications.
Other Service and Product Revenues - PBX hardware sales and service
revenues, as well as miscellaneous other telephony service revenues.
F-30
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The revenues generated by these products and services for the years
ended December 31 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
($ in thousands) 1999 1998 1997
---- ---- ----
Telephone services $42,088 $35,969 $36,738
Network services 2,193 1,402 797
Other service and product
revenues 1,157 1,336 356
------- ------- -------
45,438 $38,707 $37,891
======= ======= =======
</TABLE>
Included in telephone services are connection fee revenues amounting to
$1,844,000, $1,958,000 and $12,925,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Major Customers
For the years ended December 31, 1999, 1998 and 1997, none of the
Company's customers accounted for more than 10% of the Company's total
revenue.
(18) Quarterly Financial Data (unaudited)
------------------------------------
<TABLE>
<S> <C> <C> <C>
($ in thousands)
Net Income (Loss)
Revenue Net Income (Loss) per Share
1999
First quarter 11,205 (8,014) (1.49)
Second quarter 10,790 15,977 1.77
Third quarter 11,169 (2,736) (0.23)
Fourth quarter 12,274 (2,055) (0.17)
1998
First quarter 9,372 (11,700) (2.22)
Second quarter 9,718 (10,955) (2.07)
Third quarter 9,412 (19,073) (3.61)
Fourth quarter 10,205 (8,884) (1.65)
</TABLE>
(19) Subsequent Events
On April 11, 2000, the Company entered into a EUR 130 million Senior
Secured Debt Facility Agreement (the "Debt Agreement") with a European
banking syndicate. The Company intends to draw down the entire EUR 130
million ($124 million at current exchange rates), which funds will be
used in their entirety, along with another $6 million of other Company
funds, to pay off the entire outstanding balance EUR 128 million
(approximately $128 million at December 31, 1999 exchange rates) of the
Postabank Bridge Loan Agreement which will result in the termination of
the Postabank Bridge Loan which matures on May 12, 2000, as well as fees
associated with the Debt Agreement. The borrowers under the Debt
Agreement are the Operating Companies who were the borrowers under the
Postabank Bridge Loan Agreement.
F-31
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Debt Agreement has two facilities. Facility A is a floating rate
term loan in the amount of EUR 125 million (the "Term Facility") which
principal is repayable semi-annually on each June 30 and December 31
beginning on June 30, 2001 and ending on December 31, 2007. The amount
of the principal repayments on the Term Facility are to be an escalating
percentage of the amounts drawn down (EUR 125 million). Any amounts
borrowed under the Term Facility have to be drawn down within thirty
days of the execution of the Debt Agreement in either euros or, if
funded by the banking syndicate, Hungarian forints. The Company intends
to borrow the full EUR 125 million, or its equivalent in euros and
Hungarian forints. Any amounts borrowed in Hungarian forints are
repayable in Hungarian forints. The Term Facility loans denominated in
euros accrue interest at the rate of the Applicable Margin (defined
below) plus the EURIBOR rate for the applicable interest period. The
EURIBOR rate is the percentage rate per annum determined by the Banking
Federation of the European Union for the applicable interest period. The
Term Facility loans denominated in Hungarian forints accrue interest at
the rate of the Applicable Margin (defined below) plus the BUBOR rate
for the applicable interest period. The BUBOR rate is the percentage
rate per annum determined according to the rules established by the
Hungarian Forex Association and published by the National Bank of
Hungary for the applicable interest period. The applicable interest
period for Term Facility Loans denominated in euros is, at the Company's
option in one, three or six months. The Company intends to choose six
months. The applicable interest period for Term Facility Loans
denominated in Hungarian forints is, at the Company's option in one or
three months. The Company intends to choose three months. Interest is
payable at the end of each interest period. The Applicable Margin is
initially 1.75%. The Applicable Margin may be adjusted downward
incrementally to a minimum of 1.15% subject to the financial performance
of the Company as measured by the ratio of the Company's senior debt to
its earnings before interest, taxes, depreciation and amortization.
Facility B is a floating rate revolving loan in the amount of EUR 5
million (the "Revolving Facility") which can only be drawn down in
euros. The Revolving Facility will be reduced to EUR 2.5 million on
December 31, 2005. The Revolving Facility is available until December
31, 2007. The Company intends to borrow the full amount of the Revolving
Facility to pay off the balance of the Postabank Bridge Loan Agreement
and fees associated with the transaction. The principal amount borrowed
under the Revolving Facility is due at the end of each interest period
at which point the Company can, subject to certain conditions, roll over
the amount of principal borrowed. The applicable interest period for the
Revolving Facility is, at the Company's option, one, three, or six
months. The Company intends to choose six months. Interest is payable at
the end of each interest period calculated similar to Term Facility A
loans denominated in euros.
As a part of the Debt Agreement, the Company is required to hedge at
least 50% of the euro borrowings until a minimum of 50% of Facility A
has been cancelled, prepaid or repaid. Dependent on its cash flow,
commencing in 2001, the Company will be required to prepay the
equivalent of $25 million on Facility A until such time as $25 million
has been prepaid. The amount of the prepayment in any year shall be at
least 50% of the Company's excess cash flow, if any, for the previous
financial year as defined in the Debt Agreement. The prepayment amount
is due within 15 days of the publication of each annual Form 10-K
filing.
F-32
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Company is obligated to pay a commitment fee equal to the lower of
0.75% or 50% of the Applicable Margin on any available unused
commitment. Since the Company intends to borrow the full amount of the
Debt Agreement soon, there will be no commitment fee payable at the
present time. The Company will pay an arrangement fee in the amount of
EUR 2,665,000 (approximately $2,500,000) and an agency fee in the amount
of $60,000. HTCC and one of its subsidiaries, HTCC Consulting Rt., are
guarantors for the HTCC operating subsidiaries under the Debt Agreement.
The Company has pledged all of its intangible and tangible assets,
including HTCC's ownership interests in its subsidiaries, and its real
property to secure all of the obligations under the Debt Agreement. The
Company and Citibank Rt.(as security agent) entered into a series of
agreements to secure all of the Company's obligations under the Debt
Agreement. The Debt Agreement contains customary representation and
warranties. The Company is subject to some restrictive covenants
including restrictions regarding the ability of the Company to pay
dividends, borrow funds, merge and dispose of its assets. The Debt
Agreement contains the customary events of default, which would trigger
early repayment of the balance on the Debt Agreement including those
related to a change of control. If prior to the later of the December
31, 2001 or the Trigger Date (as defined below), Tele Danmark sells any
of the shares of Common Stock that it currently owns or Tele Danmark and
the Danish Fund, together, no longer own 30.1% of the outstanding Common
Stock, then an event of default shall have occurred. Tele Danmark and
the Danish Fund currently own 32.1% of the outstanding Common Stock. The
Trigger Date is defined as the date on which for the prior two fiscal
quarters the Company's debt to EBITDA ratio is less than 3.5 to 1.
Following the Trigger Date, Tele Danmark can only transfer its shares
with the prior written consent of banks holding at least 66.7% of the
Company's outstanding debt under the Debt Agreement.
F-33
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP.
Index to Exhibits
Exhibit No. Description
10.32 EUR 130 million Senior Secured Debt Facility dated April 11,
2000 among Hungarian Telephone and Cable Corp. and its
subsidiaries; Citibank N.A. and Westdeutsche Landesbank
Girozentrale, as arrangers; Citibank International PLC as
facility agent; and Citibank Rt. as Security Agent.
10.33 Form of Amended and Restated Unsecured Note issued by
Hungarian Telephone and Cable Corp. to Postabank es
Takarekpenztar Reszvenytarsasag, dated as of April 11, 2000.
10.34 Security Deposit Agreement dated April 11, 2000 among
Hungarian Telephone and Cable Corp. as Depositor; Citibank
Rt., as Depositee and Security Agent; and Hungarotel
Tavkozlesi Rt., Raba Com. Rt., Papa es Tersege Telefon
Koncesszios Rt., and Kelet-Nograd Com Rt., as Countersignors.
10.35 Security Deposit Agreement dated April 11, 2000 among HTCC
Consulting Rt., as Depositor; Citibank Rt., as Depositee and
Security Agent; and Hungarotel Tavkozlesi Rt., Raba Com. Rt.,
Papa es Tersege Telefon Koncesszios Rt., and Kelet-Nograd
Com Rt., as Countersignors.
27.1 Financial Data Schedule
Exhibit 10.32
EUR 130,000,000
SENIOR SECURED DEBT FACILITY AGREEMENT
dated April 11, 2000
for
HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
KNC KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
as Borrowers
with
HUNGARIAN TELEPHONE AND CABLE CORP.
HTCC TANACSADO RESZVENYTARSASAG
as Guarantors
arranged by
CITIBANK, N.A.
WESTDEUTSCHE LANDESBANK GIROZENTRALE
with
CITIBANK INTERNATIONAL PLC
acting as Facility Agent
and
CITIBANK RT.
acting as Security Agent
Ormai es Tarsai
CMS Cameron McKenna CMS Cameron McKenna
Citibank Tower, 4th Floor Mitre House
Bank Center 160 Aldersgate Street
Szabadsag ter 7 London
H-1944 Budapest EC1A 4DD
Hungary England
Tel: +36 1 302 9302 Tel: +44 171 367 3000
Fax: +36 1 302 9300 Fax: +44 171 367 2000
(i)
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THIS SENIOR SECURED DEBT FACILITY AGREEMENT (the "Agreement") is dated 11 April
2000 and is made between:
(1) HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG acting in its capacity
as borrower;
(2) RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG acting in its capacity as
borrower;
(3) PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG acting in its
capacity as borrower;
(4) KNC KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG acting in its
capacity as borrower,
(the Parties detailed at (1) to (4) inclusive above each a "Borrower" and
together, the "Borrowers");
(5) HUNGARIAN TELEPHONE AND CABLE CORP. acting in its capacity as guarantor;
(6) HTCC TANACSADO RESZVENYTARSASAG acting in its capacity as guarantor,
(the Parties detailed at (5) and (6) above each a "Guarantor" and together, the
"Guarantors");
(7) CITIBANK, N.A. and WESTDEUTSCHE LANDESBANK GIROZENTRALE acting in their
capacity as arrangers (each an "Arranger" and together, the "Arrangers");
(8) CITIBANK INTERNATIONAL PLC acting in its capacity as facility agent (the
"Facility Agent");
(9) CITIBANK RT. acting in its capacity as security agent (the "Security
Agent"); and
(10) THE FINANCIAL INSTITUTIONS listed in Schedule 1 (The Original Lenders)
acting in their capacity as lenders (each, an "Original Lender" and
together, the "Original Lenders").
IT IS AGREED as follows:
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SECTION 1 - DEFINITIONS AND INTERPRETATION
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement the following terms have the meanings given to them
in this Clause 1.1.
"10K Document" means any 10K filing made by Hungarian Telephone and
Cable Corp. to the Securities and Exchange Commission of the United
States of America in respect of any financial year of Hungarian
Telephone and Cable Corp. ending on 31 December each year.
"10Q Document" means any 10Q filing made by Hungarian Telephone and
Cable Corp. to the Securities and Exchange Commission of the United
States of America in respect of any quarter financial year of Hungarian
Telephone and Cable Corp.
"Affiliate" means, in relation to any person, a Subsidiary of that
person or a Holding Company of that person or any other Subsidiary of
that Holding Company.
"Agents" means each of the Facility Agent and the Security Agent and
"Agent" means any and each of them.
"Amendment No. 1 to Securities Purchase Agreement" means the first
amendment to the Securities Purchase Agreement dated on or about the
date of this Agreement made between: (1) Hungarian Telephone and Cable
Corp.; and (2) Postabank es Takarekpenztar Reszvenytarsasag.
"Annual Operating Budget" means, in respect of the Group at any time,
the annual operating budget of the Group at such time, being as at the
date of this Agreement as set out in the Information Memorandum and
with each revised or amended annual operating budget (if any) to be,
except as otherwise approved in advance in writing by the Facility
Agent, acting on the instructions of the Majority Lenders, in
substantially the same form as the annual operating budget set out in
the Information Memorandum.
"Applicable Law" means, in relation to any person, any law, regulation,
rule, executive order, decree, judicial or official order, code of
practice, circular, guidance note or injunction of, or made by, any
Competent Authority, which is binding and enforceable on or against the
relevant person and/or with which the relevant person is required to
comply.
"Applicable Margin" means the margin from time to time applicable to
Interest Periods for Loans, determined in accordance with Clause 9.5
(Applicable Margin).
"Articles of Association" means the articles of incorporation, the
articles of association or the deed of foundation, as applicable, of
any person as at the date of this Agreement.
"Assignment of Contractual Rights No. 1 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as assignor; (2) Citibank Rt. as assignee and Security
Agent; (3) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
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"Assignment of Contractual Rights No. 2 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as assignor; (2) Citibank Rt. as assignee and Security
Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Assignment of Contractual Rights No. 3 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as assignor; (2) Citibank Rt. as assignee and Security
Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; and (5) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor.
"Assignment of Contractual Rights No. 4 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as assignor; (2) Citibank Rt. as assignee and Security
Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; and (5) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor.
"Assignment of Contractual Rights No. 5 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) HTCC Tanacsado Reszvenytarsasag as
assignor; (2) Citibank Rt. as assignee and Security Agent; (3)
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as countersignor;
(4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor;
(5) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; and (6) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor.
"Assignment of Contractual Rights No. 6 Agreement" means the assignment
of contractual rights agreement dated on or about the date of this
Agreement made between: (1) Hungarian Telephone and Cable Corp. as
assignor; (2) Citibank Rt. as assignee and Security Agent; (3)
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as countersignor;
(4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor;
(5) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (6) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (7) HTCC Tanacsado
Reszvenytarsasag as countersignor.
"Assignment of Contractual Rights Agreements" means, at any time, each
of the Assignment of Contractual Rights No. 1 Agreement, the Assignment
of Contractual Rights No. 2 Agreement, the Assignment of Contractual
Rights No. 3 Agreement, the Assignment of Contractual Rights No. 4
Agreement, the Assignment of Contractual Rights No. 5 Agreement, the
Assignment of Contractual Rights No. 6 Agreement and any other
assignment of contractual rights agreement at such time designated as
such in writing jointly by the Facility Agent, the Security Agent and
the Obligors.
"Associated Costs" means, in relation to each Loan and/or Unpaid Sum,
the percentage rate from time to time determined by the Facility Agent
(at its sole discretion, in consultation with the other Finance
Parties) as reflecting the costs, loss or difference in return which
would be suffered or incurred by the Facility Agent and/or any Finance
Party or Finance Parties if the Facility Agent or such Finance Party or
Finance Parties funded such Loan or Unpaid Sum, as a result of any
maintenance or reserve requirements of and/or any charge imposed by the
Bank of
3
<PAGE>
England, the Financial Services Authority, the NBH, the European
Central Bank or any central bank or similar authority, agency or body
having authority with respect to that Finance Party or Finance Parties,
as applicable, (or any other authority which replaces all of any of
such authority's functions) in respect of eligible liabilities or
analogous liabilities (assuming these to be in excess of any stated
minimum) which relate to funding such Loan and/or Unpaid Sum.
"Auditors" means, at any time, the auditors of each member of the Group
at such time, being, as at the date of this Agreement, KPMG Hungaria
Konyvvizsgalo, Ado- es Kozgazdasagi Tanacsado Kft., or any other
internationally recognised firm of independent auditors licensed to
practice in Hungary and/or the United States of America, as
appropriate, duly appointed by each member of the Group to replace
such firm and approved in advance in writing by the Facility Agent,
acting on the instructions of the Majority Lenders.
"Authorisation" means an authorisation, notification, permit,
acknowledgement, consent, approval, resolution, licence, exemption,
filing, notarisation, registration or similar proceedings.
"Authorised Signatory" means, in respect of any person at any time, any
individual duly authorised under Applicable Law and by such person's
by-laws, board of directors and/or analogous body, as applicable, at
such time to sign, execute and deliver at such time the applicable
document(s), notice(s) or instrument(s) for and on behalf of such
person.
"Availability Period" means:
(a) in relation to Facility A, the period from and including the
date of this Agreement to and including the date thirty (30)
days following the date of this Agreement or, if earlier, the
date Facility A is first utilised or cancelled in full; and
(b) in relation to Facility B, the period from and including the
date of this Agreement to and including the date falling one
(1) Month prior to the Final Maturity Date or, if earlier, the
date Facility B is cancelled in full.
"Available Commitment" means:
(a) in relation to Facility A, prior to the simultaneous making of
the Facility A Loans as contemplated and provided for in
Clause 5 (Utilisation), a Lender's Commitment under Facility
A, thereafter, zero (0); and
(b) in relation to Facility B, a Lender's Commitment under
Facility B minus:
(i) the amount of such Lender's participation in any
outstanding Facility B Loans; and
(ii) in relation to any proposed Utilisation, the amount
of its participation in any Facility B Loans that are
due to be made under Facility B on or before the
proposed Utilisation Date, other than that Lender's
participation in any Facility B Loans that are due to
be repaid or prepaid on or before the proposed
Utilisation Date.
"Available Facility" means, in relation to a Facility, the aggregate
for the time being of each Lender's Available Commitment in respect of
that Facility.
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"Bankruptcy Act" means Act IL of 1991 on Bankruptcy, Liquidation and
Final Accounting, as amended, of Hungary.
"Base Currency" means the euro.
"Base Currency Amount" means, in relation to a Loan, the amount
specified in the Utilisation Request delivered by a Borrower for such
Loan (or, if the amount requested is not denominated in the Base
Currency, that amount converted into the Base Currency at the Security
Agent's Spot Rate of Exchange on the date which is three (3) Business
Days before the Utilisation Date or, if later, on the date the Facility
Agent receives the Utilisation Request) adjusted to reflect any
repayment or prepayment of such Loan.
"Break Costs" means the amount (if any) by which:
(a) the interest which a Lender should have received for the
period from the date of receipt of all or any part of its
participation in a Loan or Unpaid Sum to the last day of the
current Interest Period in respect of that Loan or Unpaid Sum,
had the principal amount or Unpaid Sum received been paid on
the last day of that Interest Period;
exceeds:
(b) the amount which that Lender would be able to obtain by
placing an amount equal to the principal amount or Unpaid Sum
received by it on deposit with a leading bank in the Relevant
Interbank Market for a period starting on the Business Day
following receipt or recovery and ending on the last day of
the current Interest Period.
"Bridge Loan Agreement" means the thirty three billion seven hundred
million forints (HUF 33,700,000,000) dual currency bridge loan
agreement dated 10 May 1999 made between: (1) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as borrower; (2) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as borrower; (3) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as borrower; (4) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as borrower;
(5) Postabank es Takarekpenztar Reszvenytarsasag as arranger; (6)
Postabank es Takarekpenztar Reszvenytarsasag as facility agent; (7)
Postabank es Takarekpenztar Reszvenytarsasag as security agent; and (8)
the banks defined therein as the Banks; and countersigned by (9)
Hungarian Telephone and Cable Corp. as countersignor; and (10) HTCC
Tanacsado Reszvenytarsasag as countersignor.
"BUBOR" means, in relation to any Loan or Unpaid Sum denominated in
forints:
(a) the applicable Screen Rate; and
(b) if no Screen Rate is available for the period of that Loan,
the arithmetic mean of the rates (rounded upwards to four
decimal places) as supplied to the Facility Agent at its
request quoted by the Relevant Reference Banks to leading
banks in the Budapest interbank market,
as of the Specified Time on the Quotation Day for the offering of
deposits in forint for a period comparable to the Interest Period of
the relevant Loan or period on which interest is to accrue.
"Budget Comparison Certificate" means a certificate substantially in
the form set out in Schedule 6 (Form of Budget Comparison Certificate).
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"Business Day" means a day (other than a Saturday or Sunday) on which
banks are open for general business in both London and Budapest and:
(a) in relation to any date for payment or purchase of a currency
other than euro, the principal financial centre of the country
of that currency; or
(b) in relation to any date for payment or purchase of euro, any
TARGET Day.
"Business Plan" means, in respect of the Group at any time, the
business plan of the Group at such time, being as at the date of this
Agreement, as set out in the Information Memorandum and with each
revised or amended business plan (if any) to be, except as otherwise
approved in advance in writing by the Facility Agent, acting on the
instructions of the Majority Lenders, in substantially the same form as
the business plan set out in the Information Memorandum.
"Citizens International Management Services Company" means Citizens
International Management Services Company, a company duly incorporated
under the laws of the State of Delaware, United States of America,
whose principal place of business is at 3 High Ridge Park, Stamford,
Connecticut, CT06902, United States of America.
"Citizens Utilities Company" means Citizens Utilities Company, a
corporation incorporated under the laws of the State of Delaware,
United States of America, whose principal place of business is at 3
High Ridge Park, Stamford, Connecticut, CT06902, United States of
America.
"Citizens" means Citizens Utilities Company, Citizens International
Management Services Company or any of their respective Affiliates.
"Civil Code" means Act IV of 1959 on the Civil Code, as amended, of
Hungary.
"Commitment" means a Facility A Commitment or Facility B Commitment.
"Companies Act" means Act CXLIV of 1997 on Business Associations, as
amended, of Hungary.
"Competent Authority" means, in respect of any person, any local,
national, supranational agency, authority, department, inspectorate,
minister, official, court, tribunal or public or statutory person
(whether autonomous or not) of any other country, which has
jurisdiction over such person.
"Compliance Certificate" means a certificate substantially in the form
set out in Schedule 5 (Form of Compliance Certificate).
"Concession Contract" means, in respect of:
(a) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag:
(i) the concession contract in respect of the Bekescsaba
primary area dated 6 May 1994 made between: (1)
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag;
and (2) the Minister, as amended on 16 June 1996; and
(ii) the concession contract in respect of the Oroshaza
primary area dated 6 May 1994 between: (1) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag; and (2) the
Minister, as amended on 16 June 1996;
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(b) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag, the
concession contract in respect of the primary area dated 6 May
1994 made between: (1) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag; and (2) the Minister;
(c) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag, the
concession contract in respect of the primary area dated 6 May
1994 made between: (1) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag; and (2) the Minister, as amended on 16 June
1996; and
(d) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag,
the concession contract in respect of the primary area dated 6
May 1994 made between: (1) KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag; and (2) the Minister.
"Confidentiality Undertaking" means a confidentiality undertaking
substantially in the form set out in Schedule 8 (Form of
Confidentiality Undertaking) or in any other form agreed between the
Obligors and the Facility Agent.
"Constitutional Documents" means, in respect of any person at any time,
the then current and up-to-date constitutional documents of such person
at such time (including, inter alia, such person's articles of
incorporation, by-laws, articles of association or deed of foundation,
as applicable, internal rules of organisation and operation, rules of
procedure of board of directors meetings, if applicable, rules of
procedure of supervisory board meetings, if applicable, register of
quotaholder(s) or shareholder(s), as appropriate, and all similar
and/or analogous documents whatsoever).
"Default" means an Event of Default or any fact, event or circumstance
specified in Clause 22 (Events of Default) which would (with the expiry
of a grace period which has commenced, the giving of notice where such
notice could be issued, the making of any determination under the
Finance Documents or any combination of any of the foregoing) be an
Event of Default.
"Deed of Guarantee No. 1" means the deed of guarantee dated on or about
the date of this Agreement made between: (1) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as guarantor; (2) Citibank International
plc as beneficiary and Facility Agent; (3) Citibank Rt. as beneficiary
and Security Agent; (4) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (5) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Deed of Guarantee No. 2" means the deed of guarantee dated on or about
the date of this Agreement and made between: (1) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as guarantor; (2) Citibank International
plc as beneficiary and Facility Agent; (3) Citibank Rt. as beneficiary
and Security Agent; (4) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (5) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Deed of Guarantee No. 3" means the deed of guarantee dated on or about
the date of this Agreement and made between: (1) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as guarantor; (2) Citibank
International plc as beneficiary and Facility Agent; (3) Citibank Rt.
as beneficiary and Security Agent; (4) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (5) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
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"Deed of Guarantee No. 4" means the deed of guarantee dated on or about
the date of this Agreement and made between: (1) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as guarantor; (2) Citibank
International plc as beneficiary and Facility Agent; (3) Citibank Rt.
as beneficiary and Security Agent; (4) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (5) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (6) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Deed of Guarantee No. 5" means the deed of guarantee dated on or about
the date of this Agreement made between: (1) HTCC Tanacsado
Reszvenytarsasag as guarantor; (2) Citibank International plc as
beneficiary and Facility Agent; (3) Citibank Rt. as beneficiary and
Security Agent; (4) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag
as countersignor; (5) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag
as countersignor; (6) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (7) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Deed of Guarantee No. 6" means the deed of guarantee dated on or about
the date of this Agreement made between: (1) Hungarian Telephone and
Cable Corp. as guarantor; (2) Citibank International plc as beneficiary
and Facility Agent; (3) Citibank Rt. as beneficiary and Security Agent;
(4) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (5) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (6) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (7) KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (8) HTCC Tanacsado
Reszvenytarsasag as countersignor.
"Deeds of Guarantee" means, at any time, each of the Deed of Guarantee
No. 1, the Deed of Guarantee No. 2, the Deed of Guarantee No. 3, the
Deed of Guarantee No. 4, the Deed of Guarantee No. 5, the Deed of
Guarantee No. 6 and any other deed of guarantee at such time designated
as such in writing jointly by the Facility Agent, the Security Agent
and the Obligors.
"Dispute" has the meaning attributed to it in Clause 37.7 (Facility
Agent's option to refer disputes to arbitration).
"Distribution" means, at any time, any dividend or distribution or
other payment whatsoever made, paid or otherwise provided by, or on
behalf of, any Obligor to or for the benefit of any of its
shareholders.
"EBITDA" means, in respect of any period, the consolidated net
operating income of the Group for such period plus any net hedging
costs, net interest, Tax, and any amount(s) of depreciation and
amortisation charged to the consolidated profit and loss account of the
Group, adjusted to reflect the amounts of any extraordinary items and
any foreign exchange gains and losses (such that foreign exchange gains
are deducted and foreign exchange losses added back) and non-cash items
in respect of ongoing operations, in each case, during such period.
"Encumbrance" means: (a) a mortgage, charge, pledge, lien or other
encumbrance or security interest whatsoever securing any obligation of
any person; (b) any arrangement under which money or claims to, or the
benefit of, a bank or other account may be applied, set-off or made
subject to a combination of accounts so as to effect payment of sums
owed or payable to any person; or (c) any other type of agreement or
arrangement (including, but not limited to, title transfer and
retention arrangements) having a similar effect.
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"Enforcement of Judicial Decisions Act" means Act LIII of 1994 on the
Enforcement of Judicial Decisions, as amended, of Hungary.
"Escrow Account" means the closed ("zarolt") bank account denominated
in dollars of Hungarian Telephone and Cable Corp. opened (or to be
opened) and maintained with the Escrow Bank for the purposes of the
Escrow Agreement.
"Escrow Agreement" means the escrow agreement dated on or about the
date of this Agreement made between: (1) Hungarian Telephone and Cable
Corp.; (2) Citibank Rt. as Escrow Bank; and (3) Citibank International
plc in its capacity as Facility Agent.
"Escrow Bank" means Citibank Rt. acting in its capacity as Escrow Bank
under the Escrow Agreement.
"EURIBOR" means, in relation to any Loan or Unpaid Sum denominated in
euro:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for the period of that Loan or
Unpaid Sum) the arithmetic mean of the rates (rounded upwards
to four (4) decimal places) as supplied to the Facility Agent
at its request quoted by the Relevant Reference Banks to
leading banks in the European interbank market,
as of the Specified Time on the Quotation Day for the offering of
deposits in euro for a period comparable to the Interest Period of the
relevant Loan or period on which interest is to accrue.
"Event of Default" means any fact, event or circumstance specified or
described as such in Clause 22 (Events of Default).
"Excess Cashflow" means, in respect of any period, EBITDA for such
period adjusted downwards to reflect any changes in working capital,
capital expenditure, acquisitions (less disposals), amount(s) paid in
respect of Tax, net interest costs (including in respect of the Notes),
any costs incurred as a result of implementing the Hedging Strategy,
any Related Party Payments, any payments of dividends made in respect
of the Preference Shares and scheduled repayments of the Loans (or
part(s) thereof).
"Facility" means Facility A or Facility B.
"Facility A" means the term loan facility made available under this
Agreement as described in Clause 2 (The Facilities).
"Facility A Commitment" means:
(a) in relation to an Original Lender, the amount in the Base
Currency set opposite its name under the heading "Facility A
Commitment" in Schedule 1 (The Original Lenders) and the
amount of any other Facility A Commitment transferred to it
under this Agreement; and
(b) in relation to any other Lender, the amount in the Base
Currency of any Facility A Commitment transferred to it under
this Agreement,
to the extent not cancelled, reduced or transferred by it under this
Agreement.
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"Facility A EURO Commitment" means, in respect of any Lender, such Base
Currency Amount of its Facility A Commitment which is not to be funded
in forint pursuant to the Utilisation Request in respect of Facility A.
"Facility A HUF Commitment" means, in respect of any Lender, such Base
Currency Amount, if any, of its Facility A Commitment as such Lender
has previously, by written notice to the Facility Agent, agreed to
provide denominated in forint.
"Facility A Loan" means a loan made or to be made under Facility A or
the principal amount outstanding for the time being of that loan.
"Facility B" means the revolving loan facility made available under
this Agreement as described in Clause 2 (The Facilities).
"Facility B Commitment" means:
(a) in relation to an Original Lender, the amount in the Base
Currency set opposite its name under the heading "Facility B
Commitment" in Schedule 1 (The Original Lenders) and the
amount of any other Facility B Commitment transferred to it
under this Agreement; and
(b) in relation to any other Lender, the amount in the Base
Currency of any Facility B Commitment transferred to it under
this Agreement,
to the extent not cancelled, reduced or transferred by it under this
Agreement.
"Facility B Loan" means a loan made or to be made under Facility B or
the principal amount outstanding for the time being of that loan.
"Facility Office" means the office or offices notified by a Lender to
the Facility Agent in writing on or before the date such Lender becomes
a Lender (or, following that date, by not less than five (5) Business
Days' written notice) as the office or offices through which such
Lender will perform its obligations under this Agreement.
"Fee Letter" means any letter or letters dated on or before the date of
this Agreement from the Arrangers to any of the Obligors (or from any
Agent to any of the Obligors) setting out any of the fees referred to
in Clause 12 (Fees).
"Final Maturity Date" means 31 December 2007.
"Finance Documents" means, at any time, each of this Agreement, each
Fee Letter, each Hedging Document, the Letter of Borrowings and
Encumbrances, each Note, each Security Agreement, the Subordination and
Trust Deed and any other document, notice, instrument or agreement
entered into or delivered pursuant to any of the foregoing and any
other document, notice, instrument or agreement at such time designated
as such in writing jointly by the Facility Agent, the Security Agent
and the Obligors, and "Finance Document" means any and each such
document, notice, instrument or agreement.
"Finance Parties" means, at any time, each of the Arrangers, the
Facility Agent, the Security Agent, the Lenders and the Hedging Banks
at such time and "Finance Party" shall mean any or each of them.
"Financial Indebtedness" means any indebtedness for or in respect of:
10
<PAGE>
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit
facility or any other documentary credit facility;
(c) any amount raised pursuant to any note purchase facility or
the issue of bonds, notes, debentures, loan stock or any
similar instrument;
(d) any guarantee, indemnity, bond, standby letter of credit or
any other instrument issued in connection with the performance
of any contract or other obligation;
(e) the amount of any liability in respect of any lease or hire
purchase contract which would, in accordance with US GAAP, IAS
and/or HAS, as appropriate and as consistently applied in such
jurisdiction, be treated as a finance or capital lease;
(f) any amount raised pursuant to any issue of shares which are
expressed to be redeemable;
(g) receivables sold or discounted (other than any receivables to
the extent they are sold on a non-recourse basis);
(h) the amount of any liability in respect of any advance or
deferred purchase agreement if one of the primary reasons for
entering into such agreement is to raise finance;
(i) any amount raised under any other transaction (including, but
not limited to, any forward sale or purchase agreement) having
the commercial effect of a borrowing;
(j) any agreement or option to re-acquire an asset if one of the
primary reasons for entering into such agreement or option is
to raise finance;
(k) any derivative transaction, including, but not limited to, any
interest rate swap, currency swap, forward foreign exchange
transaction, cap, floor, or option transaction or any other
transaction entered into in connection with protection against
or benefit from fluctuation in any rate or price (and the
amount of the Financial Indebtedness in relation to any such
transaction shall be calculated by reference to the
marked-to-market valuation of such transaction at the relevant
time);
(l) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, standby or documentary letter of credit or
any other instrument issued by a bank or financial
institution; and
(m) the amount of any liability in respect of any guarantee or
indemnity for any of the items referred to in paragraphs (a)
to (l) above.
"Financial Services Authority" means the Financial Services Authority
of the United Kingdom of Great Britain and Northern Ireland.
"Fixed Charge No. 1 Agreement" means the fixed charge agreement dated
on or about the date of this Agreement made between: (1) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2) Citibank Rt. as
pledgee and Security Agent; (3) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag
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<PAGE>
as countersignor; and (5) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor.
"Fixed Charge No. 2 Agreement" means the fixed charge agreement dated
on or about the date of this Agreement made between: (1) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2) Citibank Rt. as
pledgee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Fixed Charge No. 3 Agreement" means the fixed charge agreement dated
on or about the date of this Agreement made between: (1) Papa es
Tersege Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2)
Citibank Rt. as pledgee and Security Agent; (3) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Fixed Charge No. 4 Agreement" means the fixed charge agreement dated
on or about the date of this Agreement made between: (1) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as pledgor;
(2) Citibank Rt. as pledgee and Security Agent; (3) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (5) Papa
es Tersege Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Fixed Charge No. 5 Agreement" means the fixed charge agreement dated
on or about the date of this Agreement made between: (1) HTCC Tanacsado
Reszvenytarsasag as pledgor; (2) Citibank Rt. as pledgee and Security
Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (5) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Fixed Charge Agreements" means, at any time, each of the Fixed Charge
No. 1 Agreement, the Fixed Charge No. 2 Agreement, the Fixed Charge No.
3 Agreement, the Fixed Charge No. 4 Agreement, the Fixed Charge No. 5
Agreement and any other fixed charge agreement at such time designated
as such in writing jointly by the Facility Agent, the Security Agent
and the Obligors.
"Floating Charge No. 1 Agreement" means the floating charge agreement
dated on or about the date of this Agreement made between: (1)
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2)
Citibank Rt. as pledgee and Security Agent; (3) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (4) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (5) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor.
"Floating Charge No. 2 Agreement" means the floating charge agreement
dated on or about the date of this Agreement made between: (1) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2) Citibank Rt. as
pledgee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
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<PAGE>
"Floating Charge No. 3 Agreement" means the floating charge agreement
dated on or about the date of this Agreement made between: (1) Papa es
Tersege Tavkozlesi Koncesszios Reszvenytarsasag as pledgor; (2)
Citibank Rt. as pledgee and Security Agent; (3) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Floating Charge No. 4 Agreement" means the floating charge agreement
dated on or about the date of this Agreement made between: (1) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as pledgor;
(2) Citibank Rt. as pledgee and Security Agent; (3) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (5) Papa
es Tersege Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Floating Charge No. 5 Agreement" means the floating charge agreement
dated on or about the date of this Agreement made between: (1) HTCC
Tanacsado Reszvenytarsasag as pledgor; (2) Citibank Rt. as pledgee and
Security Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag
as countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag
as countersignor; (5) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Floating Charge Agreements" means, at any time, each of the Floating
Charge No. 1 Agreement, the Floating Charge No. 2 Agreement, the
Floating Charge No. 3 Agreement, the Floating Charge No. 4 Agreement,
the Floating Charge No. 5 Agreement and any other floating charge
agreement designated at such time as such in writing jointly by the
Facility Agent, the Security Agent and the Obligors.
"Foreign Exchange Act" means Act XCV of 1995 on Foreign Exchange, as
amended, of Hungary.
"Good Industry Practice" means the exercise of that degree of skill,
diligence, prudence, foresight and operating practice which would
reasonably and ordinarily be expected from a skilled and experienced
telecommunications operator engaged in the same type of undertaking as
the Group.
"Government Decree" means government decree number 7 of 1997 (I.22.)
issued by the Hungarian Government pursuant to the Civil Code.
"Group" means, at any time, Hungarian Telephone and Cable Corp. and its
Subsidiaries at such time.
"HAS" means, at any time, accounting principles, standards and
practices generally accepted and implemented in Hungary at such time.
"Hedging Bank" means, at any time, any financial institution or bank
which is at such time a counterparty to a Hedging Document entered into
by any Borrower.
"Hedging Document" means each agreement in respect of any derivative
transaction, including, but not limited to, any interest rate swap,
currency swap, forward foreign exchange transaction, cap, floor, or
option transaction, or any other transaction entered into in connection
with protection against any fluctuation in any rate or price, in each
case, entered into by a Borrower in compliance with and in order to
implement the Hedging Strategy, each such agreement to be based on the
1992
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ISDA Master Agreement (multicurrency-cross border) and each in a form
approved in advance by the Facility Agent, acting on the instructions
of the Majority Lenders.
"Hedging Strategy" means, at any time, in respect of the Borrowers, the
strategy of the Borrowers at such time, devised by the Borrowers in
accordance with sound and prudent business practices, for the
management and mitigation of the risks arising to the financial
condition of the Borrowers from interest rate and/or foreign exchange
rates and implemented by the Borrowers during the term of this
Agreement pursuant to Clause 21.20 (Hedging Strategy).
"Holding Company" means, in relation to a company or corporation, any
other company or corporation in respect of which it is a Subsidiary.
"HTCC Tanacsado Reszvenytarsasag" means HTCC Tanacsado
Reszvenytarsasag, a company duly incorporated under the laws of
Hungary, with its registered office at Terez krt. 46, H-1066 Budapest,
Hungary and registered at the Metropolitan Court of Registration with
registration number 01-10-042606.
"Hungarian Telephone and Cable Corp." means Hungarian Telephone and
Cable Corp., a company registered under the laws of the State of
Delaware, United States of America and whose principal place of
business as at the date of this Agreement is at 100 First Stamford
Place Suite, 204 Stamford, CT06902, Connecticut, United States of
America.
"Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag" means Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag, a company duly incorporated
under the laws of Hungary, with its registered office at Terez krt. 46,
H-1066 Budapest, Hungary and registered at the Metropolitan Court of
Registration with registration number 01-10-043040.
"Hungary" means the Republic of Hungary.
"IAS" means, at any time, international accounting standards issued by
the International Accounting Standards Committee from time to time as
such international accounting standards are accepted and implemented in
Hungary at such time.
"Income" means, in respect of any person at any time, the entire income
of and all cash and/or money and/or money equivalent receivables
whatsoever and howsoever arising of such person at such time.
"Income Accounts" means the bank accounts of the Obligors, being, as at
the date of this Agreement, in respect of:
(a) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag, those set
out and detailed in Schedule 11 (List of Bank Accounts) and
any sub-accounts of such account;
(b) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag, those set
out and detailed in Schedule 11 (List of Bank Accounts) and
any sub-accounts of such account;
(c) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag, those
set out and detailed in Schedule 11 (List of Bank Accounts)
and any sub-accounts of such account;
(d) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag,
those set out and detailed in Schedule 11 (List of Bank
Accounts) and any sub-accounts of such account; and
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<PAGE>
(e) HTCC Tanacsado Reszvenytarsasag, those set out and detailed in
Schedule 11 (List of Bank Accounts) and any sub-accounts of
such account,
and/or any other account(s) and/or branch(es) with any Lender or which
the Facility Agent and the Security Agent, acting on the instructions
of the Majority Lenders, may approve.
"Information Memorandum" means the document in the form approved by
each member of the Group concerning the Obligors which, at the
Hungarian Telephone and Cable Corp.'s request and on its behalf, was
prepared in relation to this transaction and distributed by the
Arrangers to selected financial institutions prior to the date of this
Agreement.
"Interest Period" means, in relation to a Loan, each period determined
in accordance with Clause 10 (Interest periods) and, in relation to an
Unpaid Sum, each period determined in accordance with Clause 9.3
(Default interest).
"IO Fund" means the Danish Investment Fund for Central and Eastern
Europe, an entity organised under the laws of Denmark.
"Key Performance Indicators Certificate" means a certificate
substantially in the form set out in Schedule 7 (Form of Key
Performance Indicators Certificate).
"KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag" means
KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag, a company
duly incorporated under the laws of Hungary, with its registered office
at Dozsa Gy. utca 15., H-3162 Sagujfalu, Hungary and registered at the
Nograd County Court of Registration with registration number
12-10-001503.
"Lender" means:
(a) any Original Lender; and
(b) any bank or financial institution which has become a Party in
accordance with Clause 23 (Changes to the Lenders),
which in each case has not ceased to be a Party in accordance with the
terms of this Agreement.
"Letter of Borrowings and Encumbrances" means the letter dated on or
about the date of this Agreement, addressed to the Facility Agent and
signed by each member of the Group setting out, in reasonable detail,
particulars of: (i) all of their respective indebtedness, (whether
incurred as principal or surety), whether present or future, actual or
contingent; (ii) all Encumbrances (if any), whether present or future,
actual or contingent, over any of their respective assets (other than
Permitted Encumbrances); and (iii) an explanation as to how such
indebtedness and encumbrances will be repaid, eliminated, discharged,
released, replaced and/or consolidated, as applicable, on the basis
agreed in advance in writing prior to the date of this Agreement by
each member of the Group and the Facility Agent.
"LIBOR" means, in relation to any Loan or Unpaid Sum denominated in a
currency other than forint or euro:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for the currency or period of
that Loan or Unpaid Sum) the arithmetic mean of the rates
(rounded upwards to four decimal places) as supplied to the
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<PAGE>
Facility Agent at its request quoted by the Relevant Reference
Banks to leading banks in the London interbank market,
as of the Specified Time on the Quotation Day for the offering of
deposits in the currency of that Loan or Unpaid Sum and for a period
comparable to the Interest Period of the relevant Loan or period on
which interest is to accrue.
"Loan" means a Facility A Loan or a Facility B Loan.
"Majority Lenders" means:
(a) if there are no Loans then outstanding, a Lender or Lenders
whose Commitments aggregate more than sixty six and two-thirds
per cent. (66 2/3%) of the Total Commitments (or, if the Total
Commitments have been reduced to zero (0), aggregated more
than sixty six and two-thirds per cent. (66 2/3%) of the Total
Commitments immediately prior to the reduction); or
(b) at any other time, a Lender or Lenders whose participations in
the Loans then outstanding aggregate more than sixty six and
two-thirds per cent. (66 2/3%) of all the Loans then
outstanding,
Provided that, in respect of any Lender which, at the time of any
determination to be made by the Majority Lenders pursuant to this
Agreement, owns, legally and/or beneficially, directly and/or
indirectly, five per cent. (5%) or more of the issued and paid-up share
capital of Hungarian Telephone and Cable Corp. and/or any Note(s)
and/or any Warrant(s), such Lender's Commitment and participation in
the Total Commitments or participations in all the Loans then
outstanding, as applicable, shall be deemed to be zero (0) for the
purposes of determining the composition of the Majority Lenders and
such Lender shall not be entitled to take part in any such
determination by the remaining Lenders.
"Material Adverse Effect" means, in relation to any fact(s), event(s)
and/or circumstance(s) or series of the foregoing, such fact(s),
event(s) and/or circumstance(s) which has or would be reasonably likely
to have a material adverse effect on:
(a) the business, condition (financial or otherwise) or results of
operations of any Obligor;
(b) the business, condition (financial or otherwise) or results of
operations of the Group taken as a whole; and/or
(c) the ability of any Obligor to duly comply, perform and
discharge such Obligor's respective obligations and
liabilities under any of the Finance Documents.
"Minister" means, at any time, the Minister appointed at such time to
head the Ministry.
"Minister's Letter" means the letter from the Minister to Koves
Clifford Chance Punder (as legal counsel acting on behalf of the
Borrowers) confirming, inter alia, the Minister's approval of the
creation of the Encumbrances created by and constituted in the Security
Agreements and approving, on terms and conditions set out in such
letter(s), the transfer of ownership of the Borrowers and/or the assets
of the Borrowers upon the enforcement of the Encumbrances created by
and constituted in the Security Agreements.
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"Ministry" means, as at the date of this Agreement, the Ministry of
Transport, Communication and Water Management of Hungary (or any
successor Competent Authority with relevant responsibilities at such
time in respect of the Concession Contracts).
"Month" means a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next calendar month,
except that:
(a) (subject to paragraph (c) below) if the numerically
corresponding day is not a Business Day, that period shall end
on the next Business Day in that calendar month in which that
period is to end if there is one, or if there is not, on the
immediately preceding Business Day;
(b) if there is no numerically corresponding day in the calendar
month in which that period is to end, that period shall end on
the last Business Day in that calendar month; and
(c) if an Interest Period begins on the last Business Day of a
calendar month, that Interest Period shall end on the last
Business Day in the calendar month in which that Interest
Period is to end.
The above rules will only apply to the last Month of any period.
"Mortgage No. 1 Agreement" means the mortgage agreement dated on or
about the date of this Agreement made between: (1) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as mortgagor; (2) Citibank Rt.
as mortgagee and Security Agent; (3) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Mortgage No. 2 Agreement" means the mortgage agreement dated on or
about the date of this Agreement made between: (1) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as mortgagor; (2) Citibank Rt. as
mortgagee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Mortgage No. 3 Agreement" means the mortgage agreement dated on or
about the date of this Agreement made between: (1) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as mortgagor; (2) Citibank Rt.
as mortgagee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (5) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Mortgage No. 4 Agreement" means the mortgage agreement dated on or
about the date of this Agreement made between: (1) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as mortgagor; (2) Citibank Rt.
as mortgagee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (5) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor.
"Mortgage No. 5 Agreement" means the mortgage agreement dated on or
about the date of this Agreement made between: (1) HTCC Tanacsado
Reszvenytarsasag as mortgagor; (2) Citibank Rt. as mortgagee and
Security Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag
as
17
<PAGE>
countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (5) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Mortgage Agreements" means, at any time, each of the Mortgage No. 1
Agreement, the Mortgage No. 2 Agreement, the Mortgage No. 3 Agreement,
the Mortgage No. 4 Agreement, the Mortgage No. 5 Agreement and any
other mortgage agreement at such time designated as such in writing
jointly by the Facility Agent, the Security Agent and the Obligors.
"NBH" means the National Bank of Hungary.
"NBH Acknowledgement" means the acknowledgement of the NBH issued in
respect of Facility A pursuant to the Foreign Exchange Act.
"NBH Permission" means the licence of the NBH issued in respect of
Facility B pursuant to the Foreign Exchange Act.
"Net Cumulative Excess Cashflow" means, at any time, the aggregate of
all positive Excess Cashflow amounts, calculated from 1 January 2000
onwards, up to such time less the aggregate of all prepayments made to
the Lenders, calculated from 1 January 2000 onwards, up to such time by
any Borrower(s) pursuant to Clause 8.2 (Mandatory prepayment).
"Notaries Public Act" means Act XLI of 1991 on Notaries Public, as
amended, of Hungary.
"Notary Public" means a notary public of Hungary, duly operating under
the Notaries Public Act who, amongst other matters, is entitled to
notarise and enter details of applicable collateral securities into the
Register of Pledges.
"Notes" means each of the twenty five (25) unsecured loan notes, each
of one million dollar (USD 1,000,000) nominal value, dated 10 May 1999
issued by Hungarian Telephone and Cable Corp. to Postabank es
Takarekpenztar Reszvenytarsasag as noteholder, as amended and restated
pursuant to the Amendment No. 1 to Securities Purchase Agreement, as
such notes may have been prepaid in accordance with this Agreement and
"Note" means any or each of them.
"Obligors" means each of the Borrowers and each Guarantor and "Obligor"
shall mean any or each of them.
"Optional Currency" means, in respect of Facility A, forint.
"Original Financial Statements" means, in respect of:
(i) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag, its
financial statements for its financial year ended 31 December
1998 audited by the Auditors;
(ii) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag, its
financial statements for its financial year ended 31 December
1998 audited by the Auditors;
(iii) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag, its
financial statements for its financial year ended 31 December
1998 audited by the Auditors;
(iv) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag,
its financial statements for its financial year ended 31
December 1998 audited by the Auditors;
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(v) HTCC Tanacsado Reszvenytarsasag, its financial statements for
its financial year ended 31 December 1998 audited by the
Auditors;
(vi) PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt
Felelossegu Tarsasag, its financial statements for its
financial year ended 31 December 1998 audited by the Auditors;
and
(vii) Hungarian Telephone and Cable Corp., the 10K Document for its
financial year ended 31 December 1998 audited by KPMG L.L.P.
and the 10Q Document in respect of the first nine (9) Months
of its 1999 financial year, such nine (9) Month period ending
30 September 1999.
"Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag" means Papa es
Tersege Tavkozlesi Koncesszios Reszvenytarsasag, a company duly
incorporated under the laws of Hungary, with its registered office at
Major utca 2., H-8500 Papa, Hungary and registered at the Veszprem
County Court of Registration with registration number 19-10-500090.
"Participating Member State" means any member state of the European
Communities that adopts or has adopted the euro as its lawful currency
in accordance with legislation of the European Communities relating to
European Monetary Union.
"Party" means a party to this Agreement and includes its successors in
title, permitted assigns and permitted transferees and "Parties" means
any two (2) or more such persons.
"Permitted Fee Distribution" means any Distribution to be made by any
Obligor (other than Hungarian Telephone and Cable Corp.) to Hungarian
Telephone and Cable Corp. and/or HTCC Tanacsado Reszvenytarsasag, as
appropriate, as guarantee or similar fees in respect of the guarantees
created by and constituted in the Deed of Guarantee No. 5 or the Deed
of Guarantee No. 6, as applicable, and/or as loan fees, interest or
similar fees in respect of the Financial Indebtedness of such Obligor
to Hungarian Telephone and Cable Corp. or HTCC Tanacsado
Reszvenytarsasag, as applicable, made in accordance with Clause 21.13
(Loans and guarantees), in each case the amounts of which have been
expressly approved in advance in writing by the Facility Agent, acting
on the instructions of the Majority Lenders.
"Permitted Inter-company Loan" means any loan made between any of the
Borrowers or any loan made between any of the Borrowers and HTCC
Tanacsado Reszvenytarsasag, expressly contemplated by and permitted
pursuant to paragraph (a) of Clause 21.13 (Loans and guarantees).
"Permitted Management Contracts" means any management or similar
agreement, contract or other arrangement whatsoever to which any member
of the Group is or will be a party which:
(a) has been fully disclosed to and approved by the Facility Agent
prior to the date of this Agreement;
(b) which has been approved in advance in writing by the Facility
Agent, acting on the instructions of the Majority Lenders; or
(c) does not give rise to a Material Adverse Effect and which (if
not already falling into the scope of paragraphs (a) or (b)
above) when aggregated with all other such agreements,
contracts or other arrangements does not in any financial year
give rise to a liability (present or future, actual or
contingent) of an amount more than the equivalent to five
hundred thousand dollars (USD 500,000).
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"PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu
Tarsasag" means PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt
Felelossegu Tarsasag a company duly incorporated under the laws of
Hungary, with its registered office at Jozsef Attila u. 1., H-2083
Solymar, Hungary and registered at the Pest County Court of
Registration with registration number 13-09-065295.
"Pledge and Security Agreement" means the pledge and security agreement
dated on or about the date of this agreement made between: (1)
Hungarian Telephone and Cable Corp. as grantor; and (2) Citibank Rt. as
Security Agent.
"Pledge Over Bank Accounts No. 1 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
pledgor; (2) Citibank Rt. as pledgee and Security Agent; (3) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; (4) Papa es
Tersege Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and
(5) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor.
"Pledge Over Bank Accounts No. 2 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
pledgor; (2) Citibank Rt. as pledgee and Security Agent; (3) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; (4) Papa es
Tersege Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and
(5) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor.
"Pledge Over Bank Accounts No. 3 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag as
pledgor; (2) Citibank Rt. as pledgee and Security Agent; (3) Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (5) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor.
"Pledge Over Bank Accounts No. 4 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag as pledgor; (2) Citibank Rt. as pledgee and Security
Agent; (3) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; (4) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor; and (5) Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor.
"Pledge Over Bank Accounts No. 5 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) HTCC Tanacsado Reszvenytarsasag as pledgor; (2) Citibank
Rt. as pledgee and Security Agent; (3) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (5) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (6) KNC
Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag as
countersignor.
"Pledge Over Bank Accounts No. 6 Agreement" means the pledge over bank
accounts agreement dated on or about the date of this Agreement made
between: (1) Hungarian Telephone and Cable Corp. as pledgor; (2)
Citibank Rt. as pledgee and Security Agent; (3) Hungarotel Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; (5) Papa es Tersege
Tavkozlesi
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<PAGE>
Koncesszios Reszvenytarsasag as countersignor; and (6) KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag as countersignor; and (7)
HTCC Tanacsado Reszvenytarsasag as countersignor.
"Pledge Over Bank Accounts Agreements" means, at any time, each of the
Pledge Over Bank Accounts No. 1 Agreement, the Pledge Over Bank
Accounts No. 2 Agreement, the Pledge Over Bank Accounts No. 3
Agreement, the Pledge Over Bank Accounts No. 4 Agreement, the Pledge
Over Bank Accounts No. 5 Agreement, the Pledge Over Bank Accounts No. 6
Agreement and any other pledge over bank accounts agreement at such
time designated as such in writing jointly by the Facility Agent, the
Security Agent and the Obligors.
"Preference Shares" means the thirty thousand (30,000) preference
shares ("Preferred Stock Series A"), each with a par value of zero
point zero zero one dollars (USD 0.001) and each with a liquidation
value of seventy dollars (USD 70), in Hungarian Telephone and Cable
Corp. issued to Citizens International Management Services Company on
12 May 1999 which are convertible at any time after 10 May 2000, at the
option of the holder, into common shares of Hungarian Telephone and
Cable Corp. on a one for ten (1:10) basis and which until such
conversion entitle the holder to receive cumulative dividends payable
in arrears at an annual rate of five per cent. (5%) compounded annually
on the liquidation value.
"Qualifying Lender" has the meaning provided for in Clause 13.1
(Definitions).
"Quotation Day" means, in relation to any period for which an interest
rate is to be determined:
(a) if the currency is euro, two (2) TARGET Days before the first
day of that period; or
(b) for any currency other than euro, two (2) Business Days before
the first day of that period,
unless market practice differs in the Relevant Interbank Market for a
currency, in which case the Quotation Day for that currency will be
determined by the Facility Agent in accordance with market practice in
the Relevant Interbank Market (and if quotations would normally be
given by leading banks in the Relevant Interbank Market on more than
one day, the Quotation Day will be the last of those days).
"RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag" means RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag, a company duly incorporated
under the laws of Hungary, with its registered office at Ady Endre utca
1., H-9600 Sarvar, Hungary and registered at the Vas County Court of
Registration with registration number 18-10-100512.
"Reduction Date" means 31 December 2005.
"Reduction Instalment" means two million five hundred thousand euro
(EUR 2,500,000).
"Register of Pledges" means the register of pledges maintained by the
Hungarian National Chamber of Notaries Public, as provided for by the
Government Decree.
"Related Party" means, at any time, with respect to any person: (a) an
Affiliate of such person; (b) a director, managing director,
supervisory board member, employee or similar officer of such person;
or (c) any spouse, relative in a direct line, adopted child, stepchild,
foster-child, adoptive, step- or foster-parent, brother or sister of
any person referred to in paragraph (a) above at such time.
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<PAGE>
"Related Party Payments" means the payments to be made to former
members of the management of the Group as detailed in the Information
Memorandum, being for 2000 the amount not to exceed one million two
hundred and eight thousand three hundred and forty dollars (USD
1,208,340), for 2001 the amount not to exceed one million two hundred
and eight thousand three hundred and forty dollars (USD 1,208,340) and
for 2002 an amount not to exceed seven hundred and seventeen thousand
dollars (USD 717,000).
"Relevant Interbank Market" means:
(a) in respect of any Facility A Loan or Unpaid Sum denominated in
forint, the Budapest interbank market for BUBOR;
(b) in respect of any Facility A Loan, Facility B Loan or Unpaid
Sum denominated in euro, the Brussels interbank market for
EURIBOR; and
(c) in respect of any Unpaid Sum denominated in any currency other
than euro or forint, the London interbank market for LIBOR.
"Relevant Interbank Market Rate" means
(a) in respect of a Facility A Loan or Unpaid Sum denominated in
forints, BUBOR;
(b) in respect of a Facility A Loan, Facility B Loan or Unpaid Sum
denominated in euro, EURIBOR; and
(c) in respect of an Unpaid Sum denominated in a currency other
than euro or forint, LIBOR.
"Relevant Reference Banks" means:
(a) in respect of BUBOR, the principal Budapest offices of
Citibank Rt., Westdeutsche Landesbank (Hungaria) Rt. and
Magyar Kulkereskedelmi Bank Rt. and/or such other bank or
banks as may be appointed as such by the Facility Agent after
consultation with the Borrowers;
(b) in respect of EURIBOR, the principal Brussels offices of
Citibank, N.A., principal Dusseldorf offices of Westdeutsche
Landesbank Girozentrale and principal Paris offices of Credit
Lyonnais S.A. and/or such other bank or banks as may be
appointed as such by the Facility Agent after consultation
with the Borrowers; and
(c) in respect of LIBOR, the principal London offices of Citibank,
N.A., Westdeutsche Landesbank Girozentrale and Credit Lyonnais
S.A. and/or such other bank or banks as may be appointed as
such by the Facility Agent after consultation with the
Borrowers.
"Repayment Dates" means each of the dates provided for under Clause 7.1
(Repayment of Facility A Loans) and "Repayment Date" means any such
date Provided that where any such Repayment Date is not a Business Day,
the relevant date shall be deemed to be the Business Date immediately
preceding such Repayment Date and "Repayment Date" and "Repayment
Dates" shall, in such circumstances, be construed accordingly.
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<PAGE>
"Repeating Representations" means each of those representations set out
in Clause 18 (Representations) which are stated as being deemed to be
repeated as provided for pursuant to Clause 18.29 (Repetition).
"Rollover Loan" means one or more Facility B Loans:
(a) made or to be made on the same day that a maturing Facility B
Loan is due to be repaid;
(b) the aggregate amount of which is equal to or less than the
maturing Facility B Loan; and
(c) made or to be made to the same Borrower for the purpose of
refinancing a maturing Facility B Loan.
"Screen Rate" means:
(a) in relation to LIBOR, the British Bankers Association Interest
Settlement Rate for the relevant currency and period displayed
on the appropriate page of the Telerate Screen, being, as at
the date of this Agreement, page 3750;
(b) in relation to EURIBOR, the percentage rate per annum
determined by the Banking Federation of the European Union for
the relevant period displayed on the appropriate page of the
Telerate Screen, being, as at the date of this Agreement, page
248; and
(c) in relation to BUBOR, the percentage rate per annum determined
according to the rules established by the Hungarian Forex
Association and published by the NBH for the relevant period
displayed on the appropriate page of the Reuters Screen,
being, as at the date of this Agreement, page BUBOR,
or, if the agreed page is replaced or service ceases to be available,
such other page or service displaying the appropriate rate as the
Facility Agent, after consultation with the Borrowers and the Lenders,
may select.
"Securities Purchase Agreement" means the securities purchase agreement
dated 10 May 1999 made between: (1) Hungarian Telephone and Cable
Corp.; and (2) Postabank es Takarekpenztar Reszvenytarsasag.
"Security Agent's Spot Rate of Exchange" means the Security Agent's
spot rate of exchange for the purchase of the relevant currency with
the Base Currency in the Budapest foreign exchange market at or about
10.00 a.m. (Budapest time) on a particular day.
"Security Agreements" means, at any time, each of the Assignment of
Contractual Rights Agreements, the Deeds of Guarantee, the Fixed Charge
Agreements, the Floating Charge Agreements, the Mortgage Agreements,
the Pledge and Security Agreement, the Pledge Over Bank Accounts
Agreements, the Security Deposit Agreements and any other document at
such time designated as such in writing jointly by the Facility Agent,
the Security Agent and the Obligors.
"Security Deposit No. 1 Agreement" means the security deposit agreement
dated on or about the date of this Agreement made between: (1)
Hungarian Telephone and Cable Corp. as depositor; (2) Citibank Rt. as
depositee and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (5) KNC Kelet-Nograd COM Tavkozlesi
Koncesszios
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Reszvenytarsasag as countersignor; (6) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (7) HTCC Tanacsado
Reszvenytarsasag as countersignor.
"Security Deposit No. 2 Agreement" means the security deposit agreement
dated on or about the date of this Agreement made between: (1) HTCC
Tanacsado Reszvenytarsasag as depositor; (2) Citibank Rt. as depositee
and Security Agent; (3) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (4) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as countersignor; (5) KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag as countersignor; and (6) Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag as countersignor.
"Security Deposit Agreements" means each of the Security Deposit No. 1
Agreement, the Security Deposit No. 2 Agreement and any other security
deposit agreement designated as such in writing jointly by the Facility
Agent, the Security Agent and the Obligors.
"Selection Notice" means a notice substantially in the form set out in
Part II of Schedule 3 (Form of Requests) given in accordance with
Clause 10 (Interest Periods) in relation to Facility A.
"Senior Finance Documents" means, at any time, each of this Agreement,
each Fee Letter, each Hedging Document, each Security Agreement, the
Subordination and Trust Deed and any other document, notice, instrument
or agreement entered into or delivered pursuant to any of the foregoing
and any other document, notice, instrument or agreement at such time
designated as such in writing jointly by the Facility Agent, the
Security Agent and the Obligors, and "Senior Finance Document" means
any and each such document, notice, instrument or agreement.
"Specified Time" means a time determined in accordance with Schedule 9
(Timetables).
"Subordination and Trust Deed" means the subordination and trust deed
dated on or about the date of this Agreement made between: (1)
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag; (2) RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag; (3) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag; (4) KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag; (5) Hungarian Telephone and Cable Corp.;
(6) HTCC Tanacsado Reszvenytarsasag; (7) Citibank International plc
acting in its capacity as Facility Agent on behalf of each and every
Finance Party; and (8) Citibank Rt. acting in its capacity as Security
Agent on behalf of each and every Finance Party.
"Subsidiary" means, in respect of a company or corporation, any other
company or corporation:
(a) which is controlled, directly or indirectly, by the
first-mentioned company or corporation;
(b) more than half the issued share or quota capital of which is
beneficially owned, directly or indirectly, by the
first-mentioned company or corporation; or
(c) which is a subsidiary of another subsidiary of the
first-mentioned company or corporation;
and, for these purposes, a company or corporation shall be treated as
being controlled by another if that other company or corporation is
able to direct its affairs and/or to direct and/or control the
composition of its board of directors or equivalent body.
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<PAGE>
"TARGET" means Trans-European Automated Real-time Gross Settlement
Express Transfer payment system.
"TARGET Day" means any day on which TARGET is open for the settlement
of payments in euro.
"Tax" means any tax, stamp tax, registration tax, documentary tax,
levy, impost, duty or other charge or withholding of a similar nature
(including any penalty or interest payable in connection with any
failure to pay or any delay in paying any of the same).
"Taxes Act" means the Income and Corporation Taxes Act 1988, as
amended, of England and Wales.
"Telecommunications Act" means Act LXXVII of 1992 on Telecommunication,
as amended, of Hungary.
"Telecommunications Authority" means Hirkozlesi Fofelugyelet, being an
organ of the Ministry, with, inter alia, certain responsibilities,
duties and rights in respect of the Telecommunications Act.
"Tele Danmark A/S" means Tele Danmark A/S, a corporation duly
incorporated under the laws of Denmark, whose principal place of
business is at Kannikegade 16, DK 8000, Aarhus-C, Denmark.
"Total Commitments" means the aggregate of the Total Facility A
Commitments and the Total Facility B Commitments, being one hundred and
thirty million euro (EUR 130,000,000) at the date of this Agreement.
"Total Facility A Commitments" means the aggregate of the Facility A
Commitments, being one hundred and twenty five million euro (EUR
125,000,000) at the date of this Agreement.
"Total Facility A EURO Commitments" means the aggregate Base Currency
Amount of the Facility A EURO Commitments of the Lenders.
"Total Facility A HUF Commitments" means the aggregate Base Currency
Amount of the Facility A HUF Commitments of the Lenders.
"Total Facility A Loan" means, at any time, the Base Currency Amount of
all Facility A Loans drawn down and outstanding at such time.
"Total Facility B Commitments" means the aggregate of the Facility B
Commitments, being five million euro (EUR 5,000,000) at the date of
this Agreement.
"Transfer Certificate" means a certificate substantially in the form
set out in Part I of Schedule 4 (Form of Transfer Certificate) or any
other form agreed between the Facility Agent and the Obligors.
"Transfer Date" means, in relation to a transfer, the later of:
(a) the proposed Transfer Date specified in the Transfer
Certificate; and
(b) the date on which the Facility Agent executes the Transfer
Certificate.
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"Trigger Date" means the first date on which, for the then two (2)
preceding financial quarter years of the Group, the ratio, calculated
on the basis of the financial statements set out in the relevant 10K
Document and/or 10Q Documents in respect of such financial quarter
years, of the aggregate amount of all indebtedness (including, for the
purpose of these calculations, the amount of twenty five million
dollars (USD 25,000,000) being the amount of principal outstanding
under the Notes) of each member of the Group (excluding any
indebtedness arising between members of the Group) to EBITDA
(calculated, in each case, on the basis of the four (4) previous
financial quarter years) was less than three point five to one (3.5:1).
"Unpaid Sum" means any sum due and payable but unpaid by an Obligor
under the Finance Documents.
"US GAAP" means, from time to time, the general accounting principles
generally accepted in the United Sates of America at such time;
"Utilisation" means a utilisation of a Facility.
"Utilisation Date" means the date of a Utilisation, being the date on
which the relevant Loan is to be made.
"Utilisation Request" means a notice substantially in the form set out
in Part I of Schedule 3 (Form of Requests).
"VAT" means value added tax and any other Tax of a similar nature.
"Warrant Confirmation Letter" means the letter dated on or about the
date of this Agreement from Hungarian Telephone and Cable Corp. to
Postabank es Takarekpenztar Reszvenytarsasag, in its capacities as
holder of the Notes and as holder of the Warrants, confirming and
affirming that each of the Warrants remains in full force and effect
notwithstanding the amendment and restatement of the Notes pursuant to
the Amendment No. 1 to Securities Purchase Agreement.
"Warrants" means each warrant dated 12 May 1999 made between: (1)
Hungarian Telephone and Cable Corp.; and (2) Postabank es
Takarekpenztar Reszvenytarsasag, issued pursuant to the Securities
Purchase Agreement and "Warrant" means any and each of them.
1.2 Construction
(a) Any reference in this Agreement to:
(i) the "Arrangers", any "Arranger", the "Facility Agent", the
"Security Agent", the "Agents", any "Agent", the "Lenders",
any "Lender", any "Finance Party", the "Finance Parties",
"Citizens", "Tele Danmark A/S", "IO Fund" or "Beneficiary"
shall be construed so as to include its (and any
participant's) and any subsequent successors, transferees
assigns and/or replacements in accordance with their
respective interests;
(ii) "assets" includes present and future properties, revenues and
rights of every description;
(iii) the "equivalent" on any given date in one currency (the "first
currency") of an amount denominated in another currency (the
"second currency") is, where neither the first currency nor
the second currency is forint, a reference to the amount of
the first currency which could be purchased with the amount of
the second currency at the spot rate of exchange quoted by the
Facility Agent at or about 9.15 a.m. (London time) on
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<PAGE>
such date for the purchase of the first currency with the
second currency or, if either the first currency or the second
currency is forint, the amount of the first currency which
could be purchased with the amount of the second currency at
the spot rate of exchange quoted by the Security Agent at or
about 10.00 a.m. (Budapest time) on such date for the purchase
of the first currency with the second currency;
(iv) the "European interbank market" means the interbank market for
euro operating in Participating Member States;
(v) a "Finance Document" or any other agreement or instrument is a
reference to that Finance Document or other agreement or
instrument as amended or novated;
(vi) "indebtedness" includes any obligation (whether incurred as
principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
(vii) "laws and regulations of Hungary" shall be construed so as to
include any and all laws and regulations adopted in accordance
with Act XI of 1987 on Law Making, as amended, of Hungary;
(viii) a "person" includes any person, firm, company, corporation,
government, state or agency of a state or any association,
trust or partnership (whether or not having separate legal
personality) or two or more of the foregoing;
(ix) a "regulation" includes any regulation, rule, official
directive, request or guideline (whether or not having the
force of law) of any governmental, intergovernmental or
supranational body, agency, department or regulatory,
self-regulatory or other authority or organisation and, in
respect of any such, request or guideline, self-imposed
regulation, being those with which it is customary to comply;
(x) "repay" (or any derivative form thereof) shall, subject to any
contrary indication, be construed to include "prepay" (or, as
the case may be, the corresponding derivative form thereof);
(xi) a "successor" shall be construed so as to include an assignee
or successor in title of such party and any person who under
the laws of its jurisdiction of incorporation or domicile has
assumed the rights and obligations of such party under this
Agreement or to which, under such laws, such rights and
obligations have been transferred;
(xii) the "winding-up", "dissolution" or "administration" of a
company or corporation shall be construed so as to include any
equivalent or analogous proceedings under the law of the
jurisdiction in which such company or corporation is
incorporated or any jurisdiction in which such company or
corporation carries on business including the seeking of
bankruptcy, liquidation, final accounting, winding-up,
reorganisation, dissolution, administration, arrangement,
adjustment, protection or relief of debtors;
(xiii) a statute, law regulation, treaty or provision of any of the
foregoing is, in the absence of express wording to the
contrary, a reference to that statute, law, regulation, treaty
or such provision as amended or re-enacted;
(xiv) unless a contrary indication appears, a time of day is a
reference to Budapest time;
(xv) words imparting the singular shall be deemed to include the
plural and vice versa.
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(b) Section, Clause and Schedule headings are for ease of reference only.
(c) Unless a contrary indication appears, a term used in any other Finance
Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or notice as in
this Agreement.
(d) A Default (other than an Event of Default) is "continuing" if it has
not been remedied or waived and an Event of Default is "continuing" if
it has not been waived.
(e) "US$", "$", "USD", "dollars" and "Dollars" denote lawful currency of
the United States of America; "HUF", "Forint" and "forint" denote
lawful currency of Hungary; and "EUR", "euro" and "Euro" denote lawful
currency of the Participating Member States.
28
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SECTION 2 - THE FACILITIES
2. THE FACILITIES
2.1 The Facilities
Subject to the terms of this Agreement, the Lenders make available to
the Borrowers:
(a) a dual currency term loan facility in an aggregate amount
equal to the Total Facility A Commitments; and
(b) a revolving loan facility in an aggregate amount equal to the
Total Facility B Commitments.
2.2 Lenders' rights and obligations
(a) The obligations of each Lender under the Finance Documents are several.
Failure by a Lender to perform its obligations under the Finance
Documents does not affect the obligations of any other Party under the
Finance Documents. No Finance Party is responsible for the obligations
of any other Finance Party under the Finance Documents.
(b) The rights of each Lender under or in connection with the Finance
Documents are separate and independent rights and any debt arising
under the Finance Documents to a Lender from an Obligor shall be a
separate and independent debt.
(c) A Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce its rights under the Finance Documents
without the prior consent or approval of any other person.
3. PURPOSE
3.1 Purpose
(a) Each Borrower shall apply all amounts borrowed by it under Facility A
towards the refinancing of such Borrower's existing indebtedness
arising under the Bridge Loan Agreement.
(b) Each Borrower shall apply all amounts borrowed by it under Facility B
towards the payment of amounts arising under any Fee Letter, interest
arising under this Agreement and/or for general corporate working
capital purposes.
3.2 Monitoring
No Finance Party is (other than, in respect of a Lender which is a
Hungarian credit institution, as required by mandatory laws and
regulations of Hungary), obliged to monitor, verify or otherwise
concern itself with the application of any amount(s) borrowed pursuant
to this Agreement.
4. CONDITIONS OF UTILISATION
4.1 Initial conditions precedent
No Borrower may deliver a Utilisation Request unless the Facility Agent
has received all of the documents and other evidence listed in Schedule
2 (Conditions precedent) in form and substance satisfactory to the
Facility Agent. The Facility Agent shall notify the Obligors and the
Lenders in writing promptly upon being so satisfied.
4.2 Further conditions precedent
The Lenders will only be obliged to comply with Clause 5.4 (Lenders'
participation) if on the date of the Utilisation Request and on the
proposed Utilisation Date:
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(a) no Event of Default is continuing or would result from the
proposed Loan and, in the case of any other Loan (subject to
Clause 7.2 (Repayment of Facility B Loans), other than a
Rollover Loan), no Default is continuing or would result from
the proposed Loan; and
(b) the Repeating Representations made or deemed to be made by
each Obligor on such date are true in all material respects.
4.3 Conditions relating to Optional Currency
The Borrowers have expressed a desire for all or part of the Facility A
to be utilised and drawn down in Facility A Loans which are denominated
in forints. The forint will constitute the Optional Currency in
relation to the making of a Facility A Loan if it has been approved in
writing by the Facility Agent (acting on the instructions of all the
Lenders who have previously agreed to fund a Facility A Loan in forint)
on or prior to the date four (4) Business Days before the receipt by
the Facility Agent of the relevant Utilisation Request for that
Facility A Loan.
4.4 Maximum number of Loans
A Borrower may not deliver a Utilisation Request if, as a result of the
proposed Utilisation:
(a) more than eight (8) Facility A Loans would then be
outstanding; or
(b) more than five (5) Facility B Loans would then be outstanding.
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SECTION 3 - UTILISATION
5. UTILISATION
5.1 Delivery of a Utilisation Request
(a) The Borrowers may only utilise Facility A by delivery to the Facility
Agent of a single duly completed Utilisation Request not later than the
Specified Time.
(b) A Borrower may utilise Facility B by delivery to the Facility Agent of
a duly completed Utilisation Request not later than the Specified Time.
5.2 Completion of a Utilisation Request
Each Utilisation Request is irrevocable and will not be regarded as
having been duly completed unless:
(a) it identifies the Facility to be utilised;
(b) the proposed Utilisation Date is a Business Day within the
Availability Period applicable to that Facility;
(c) the currency and amount of each Utilisation comply with Clause
5.3 (Currency and amount); and
(d) the proposed Interest Period complies with Clause 10 (Interest
Periods).
5.3 Currency and amount
(a) The currency specified in a Utilisation Request in respect of any
Facility A Loan must be the Base Currency or the Optional Currency and,
in respect of any Facility B Loan must be the Base Currency.
(b) In respect of Facility A:
(i) the Base Currency Amount of any proposed Facility A Loan which
is to be utilised and drawn down by a Borrower denominated in
forint shall, when aggregated with all other Facility A Loans
to be utilised and drawn down by the Borrowers denominated in
forint, not exceed the Base Currency Amount, if any, of
Facility A which the Lenders have previously, by written
notice to the Facility Agent, agreed to provide to the
Borrowers in forint;
(ii) the Base Currency Amount of any proposed Facility A Loan which
is to be utilised and drawn down by a Borrower shall, when
aggregated with any other Facility A Loans to be utilised and
drawn down by such Borrower, not exceed the following Base
Currency Amounts:
(1) in respect of Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag, seventy nine million euro (EUR
79,000,000);
(2) in respect of RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag, fourteen million euro (EUR
14,000,000);
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(3) in respect of Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag, thirteen million euro (EUR
13,000,000); and
(4) in respect of KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag, twenty six million euro
(EUR 26,000,000); and
(iii) the aggregate Base Currency Amount of each Facility A Loan to
be utilised and drawn down by all of the Borrowers shall not
exceed the Total Facility A Commitments.
(c) The amount of any proposed Facility B Loan must be a minimum of one
million euro (EUR 1,000,000) or, if less, the Available Facility (in
respect of Facility B) and, if for a greater amount, an integral
multiple thereof of one million euro (EUR 1,000,000) or the balance of
the Available Facility (in respect of Facility B), up to the Total
Facility B Commitments.
5.4 Lenders' participation
(a) If the conditions set out in this Agreement have been met, each Lender
shall make its participation in each applicable Loan available through
its Facility Office.
(b) In respect of any Facility A Loans to be utilised and drawn down
denominated in forint, each Lender shall participate in such Facility A
Loans in an amount equal to the proportion borne by such Lender's
Facility A HUF Commitment to the Total Facility A HUF Commitments.
(c) In respect of any Facility A Loans to be utilised and drawn down
denominated in euro, each Lender shall participate in each such
Facility A Loan in an amount equal to the proportion borne by such
Lender's Facility A EURO Commitment to the Total Facility A EURO
Commitments.
(d) The amount of each Lender's participation in each Facility B Loan will
be equal to the proportion borne by its Available Commitment to the
Available Facility immediately prior to making such Facility B Loan.
(e) The Facility Agent shall notify each Lender in writing of the amount,
currency and the Base Currency Amount of each Loan at the Specified
Time.
5.5 Rounding by Facility Agent
Each Obligor and each Finance Party hereby authorises and directs the
Facility Agent to make such minor adjustments in respect of the amounts
of the Facility A Loans, with the intent of avoiding problems,
including but not limited to, the rounding of figures and to simplify
the ongoing management of such Facility A Loans.
6. OPTIONAL CURRENCY
6.1 Selection of currency
(a) A Borrower shall select the currency of a Facility A Loan in a
Utilisation Request.
(b) If a Borrower fails to select a currency in relation to a Facility A
Loan, such Facility A Loan will be denominated in euro.
6.2 Unavailability of the Optional Currency
If before the Specified Time on any Quotation Day:
(a) the Facility Agent has received notice from a Lender that the
Optional Currency requested is not readily available to it in
the amount required; or
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(b) a Lender notifies the Facility Agent that compliance with its
obligation to participate in a Facility A Loan in the proposed
Optional Currency would contravene an Applicable Law,
the Facility Agent will give notice to the relevant Borrower to that
effect by the Specified Time on that day. In this event, any Lender
that gives notice pursuant to this Clause 6.2 will be required to
participate in the Facility A Loan in the Base Currency (in an amount
equal to that Lender's proportion of the Base Currency Amount of that
Facility A Loan) and its participation will be treated as a separate
Loan denominated in the Base Currency during that Interest Period.
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<PAGE>
SECTION 4 - REPAYMENT, PREPAYMENT AND CANCELLATION
7. REPAYMENT
7.1 Repayment of Facility A Loans
(a) The Borrowers will repay the Facility A Loans in accordance with the
schedule set out below:
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------------------------------------------------------
Repayment Date (subject to the proviso Amount of the Total Facility A
contained in the definition of Repayment Loan to be repaid on the
Dates in Clause 1.1 (Definitions)) relevant Repayment Date,
expressed as a percentage of the
Total Facility A Loan
outstanding immediately
following the making of the
Facility A Loans (subject to any
adjustment(s) made in respect of
any prepayments made pursuant to
Clause 8.4 (Voluntary Prepayment
of Facility A Loans))
-------------------------------------------------------------------------------------------
1. 30 June 2001 three per cent. (3%)
-------------------------------------------------------------------------------------------
2. 31 December 2001 four per cent. (4%)
-------------------------------------------------------------------------------------------
3. 30 June 2002 five per cent. (5%)
-------------------------------------------------------------------------------------------
4. 31 December 2002 six per cent. (6%)
-------------------------------------------------------------------------------------------
5. 30 June 2003 seven per cent. (7%)
-------------------------------------------------------------------------------------------
6. 31 December 2003 seven per cent. (7%)
-------------------------------------------------------------------------------------------
7. 30 June 2004 seven per cent. (7%)
-------------------------------------------------------------------------------------------
8. 31 December 2004 seven per cent. (7%)
-------------------------------------------------------------------------------------------
9. 30 June 2005 eight per cent. (8%)
-------------------------------------------------------------------------------------------
10. 31 December 2005 eight per cent. (8%)
-------------------------------------------------------------------------------------------
11. 30 June 2006 eight per cent. (8%)
-------------------------------------------------------------------------------------------
12. 31 December 2006 ten per cent. (10%)
-------------------------------------------------------------------------------------------
13. 30 June 2007 ten per cent. (10%)
-------------------------------------------------------------------------------------------
14. 31 December 2007 ten per cent. (10%)
-------------------------------------------------------------------------------------------
TOTAL: one hundred per cent. (100%)
--------------------------------------------------------------------------------
</TABLE>
(b) Each Borrower will, on each Repayment Date, repay such percentage of
the Facility A Loan(s) then drawn down by and outstanding from such
Borrower, as is provided for in the schedule set out under paragraph
(a) above Provided that for the avoidance of doubt, the percentages
specified in the schedule set out under paragraph (a) above are such
percentages as adjusted and revised to reflect any prepayments made
pursuant to Clause 8.4 (Voluntary prepayment of Facility A Loans) and
such percentages or adjusted and revised percentages, as applicable,
are, in respect of any Facility A Loans denominated in forint,
expressed as percentages of the forint amount of each Facility A Loan
funded in forint and, in respect of Facility A Loans funded in euro,
expressed as percentages of the euro amount of each Facility A Loan
funded in euro.
(c) No Borrower may reborrow any part of Facility A which is repaid.
7.2 Repayment of Facility B Loans
Each Borrower which has drawn a Facility B Loan shall repay that Loan
on the last day of its Interest Period or, if earlier, on the Final
Maturity Date. If, in respect of any Facility B Loan which is
outstanding and which the relevant Borrower wishes to continue to
utilise as a Rollover Loan, on the day of issue of a Utilisation
Request by the relevant Borrower (for such Facility B
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<PAGE>
Loan to be a Rollover Loan) and/or on the last day of the Interest
Period for that Facility B Loan, a Default is continuing, then, subject
to paragraph (h) of Clause 8.7 (Restrictions), that Facility B Loan
shall not be repaid on the last day of the Interest Period for that
Facility B Loan, but shall continue to be utilised as a Rollover Loan
for one (1) further Interest Period of (irrespective of any request by
that Borrower for a longer Interest Period in the relevant Utilisation
Request and in any event subject to the other provisions of this
Agreement) one (1) Month and if on the last day of such subsequent one
(1) Month Interest Period a Default is still continuing, that Facility
B Loan shall be repaid on the last day of such subsequent one (1) Month
Interest Period.
7.3 Reduction of Facility B
The amount of Facility B shall reduce on the Reduction Date by the
Reduction Instalment to two million five hundred thousand euro (EUR
2,500,000).
8. PREPAYMENT AND CANCELLATION
8.1 Illegality
If it becomes unlawful in any jurisdiction for a Lender to perform any
of its obligations as contemplated by this Agreement or to fund its
participation in any Loan:
(a) that Lender shall promptly notify the Facility Agent upon
becoming aware of that event;
(b) upon the Facility Agent notifying the relevant Obligor, the
Commitment of that Lender will be immediately cancelled; and
(c) each Borrower shall repay that Lender's participation in the
Loans made to that Borrower on the last day of the Interest
Period for each Loan occurring after the Facility Agent has
notified the relevant Obligor or, if earlier, the date
specified by the Lender in the notice delivered to the
Facility Agent (being no earlier than the last day of any
applicable grace period permitted by Applicable Law).
8.2 Mandatory prepayment
During the period commencing on the date of this Agreement and ending
at such time as at which an aggregate amount (aggregating amounts or
their equivalents which are, in relation to each respective prepayment
made pursuant to this Clause 8.2, determined by reference to the date
on which such prepayment is actually received by the Lenders)
equivalent to twenty five million dollars (USD 25,000,000) of the
aggregate amount of the Facility A Loans (outstanding following the
making of the Facility A Loans pursuant to this Agreement) has been
pre-paid, the Obligors shall procure and ensure that, within fifteen
(15) days of the publication of each 10K Document (commencing with the
10K Document in respect of the financial year ending 31 December 2000),
at least fifty per cent. (50%) of the Group's Excess Cashflow in each
such financial year to which each such 10K Document relates, is applied
towards prepayment of the Facility A Loans. Provided that for the
avoidance of doubt, such amount(s) so repaid will be applied
proportionately between the Facility A Loans denominated in euro and
any Facility A Loans denominated in HUF, in each case by reference to
the amounts of such Facility A Loans, converted into the Base Currency
at the Security Agent's Spot Rate of Exchange on the date of such
mandatory prepayment. Repayments made pursuant to this Clause 8.2 shall
be made in inverse order of maturity.
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<PAGE>
8.3 Voluntary cancellation
(a) The Borrowers may, if they give the Facility Agent not less than
fifteen (15) Business Days' (or such shorter period as the Facility
Agent, acting on the instructions of the Majority Lenders, may agree)
prior notice, cancel the whole or any part (being, during the period
commencing on the date of satisfaction of the conditions precedent
pursuant to Clause 4.1 (Initial conditions precedent) and ending
fifteen (15) days thereafter, a minimum amount of two million euro (EUR
2,000,000) and thereafter being a minimum amount of five million euro
(EUR 5,000,000) and if, in either case, being for a larger amount, an
integral multiple of one million euro (EUR 1,000,000)) of Facility A.
Any cancellation under this Clause 8.3 shall reduce the Commitments of
the Lenders rateably under Facility A.
(b) The Borrowers may, if they give the Facility Agent not less than
fifteen (15) Business Days' (or such shorter period as the Facility
Agent acting on the instructions of the Majority Lenders, may agree)
prior notice, cancel the whole or any part (being a minimum amount of
two million five hundred thousand euro (EUR 2,500,000)) of Facility B.
Any cancellation under this Clause 8.3 shall reduce the Commitments of
the Lenders rateably under Facility B.
8.4 Voluntary prepayment of Facility A Loans
(a) A Borrower to which a Facility A Loan has been made may, if such
Borrower gives the Facility Agent not less than twenty (20) Business
Days' (or such shorter period as the Facility Agent, acting on the
instructions of the Majority Lenders, may agree) prior notice, prepay
the whole or any part of any Facility A Loan (but, in each case, the
amount being so prepaid shall, when aggregated with all other amounts
being prepaid on such date pursuant to this Clause 8.4, be not less
than an amount equivalent to five million euro (EUR 5,000,000) or, if a
larger amount, an integral multiple of one million euro (EUR
1,000,000)).
(b) A Facility A Loan may only be prepaid after the last day of the
Availability Period (or, if earlier, the day on which the applicable
Available Facility is zero (0)).
(c) Any prepayment under this Clause 8.4 shall be applied so as to satisfy
pro rata the obligations under Clause 7.1 (Repayment of Facility A
Loans). The Facility Agent shall, as quickly as practicable following
any prepayment made pursuant to this Clause 8.4, confirm to the
Obligors and to each Lender in writing the percentages provided for in
paragraph (a) of Clause 7.1 (Repayment of Facility A Loans) adjusted
and revised to reflect such prepayment.
8.5 Voluntary prepayment of Facility B Loans
The Borrower to which a Facility B Loan has been made may, if it gives
the Facility Agent not less than twenty (20) Business Days' (or such
shorter period as the Facility Agent, acting on the instructions of the
Majority Lenders, may agree) prior notice, prepay the whole or any part
of a Facility B Loan (but, if in part, being an amount that reduces the
Base Currency Amount of the Facility B Loan by a minimum amount of one
million euro (EUR 1,000,000) and integral multiples of one million euro
(EUR 1,000,000) thereafter).
8.6 Right of repayment and cancellation in relation to a single Lender
(a) If:
(i) any sum payable to any Lender by an Obligor is required to be
increased under paragraph (c) of Clause 13.2 (Tax gross-up);
or
(ii) any Lender claims indemnification from any Borrower under
Clause 13.3 (Tax indemnity) or Clause 14.1 (Increased costs),
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<PAGE>
such Borrower may, whilst the circumstance giving rise to the
requirement or indemnification continues, give the Facility Agent
notice of cancellation of the Commitment of that Lender and such
Borrower's intention to procure the repayment of that Lender's
participation in the Loans.
(b) On receipt of a notice referred to in paragraph (a) above, the
Commitment of that Lender shall immediately be reduced to zero (0).
(c) On the last day of each Interest Period which ends after a Borrower has
given notice under paragraph (a) above (or, if earlier, the date
specified by such Borrower in that notice), such Borrower to which a
Loan is outstanding shall repay that Lender's participation in that
Loan.
8.7 Restrictions
(a) Any notice of cancellation or prepayment given by any Party under this
Clause 8 shall be irrevocable and, unless a contrary indication appears
in this Agreement, shall specify the date or dates upon which the
relevant cancellation or prepayment is to be made and the amount of
that cancellation or prepayment.
(b) Any prepayment under this Agreement shall be made together with accrued
interest on the amount prepaid and, subject to any Break Costs, without
premium or penalty.
(c) No Borrower may reborrow any part of Facility A which is prepaid.
(d) Unless a contrary indication appears in this Agreement, any part of
Facility B which is prepaid may be reborrowed in accordance with the
terms of this Agreement.
(e) The Borrowers shall not repay or prepay all or any part of the Loans or
cancel all or any part of the Commitments except at the times and in
the manner expressly provided for in this Agreement.
(f) No amount of the Total Commitments cancelled under this Agreement may
be subsequently reinstated.
(g) If the Facility Agent receives a notice under this Clause 8 it shall
promptly forward a copy of that notice to either the relevant
Borrower(s) or the affected Lender, as appropriate.
(h) No Interest Period in respect of a Facility B Loan may extend beyond
the Final Maturity Date.
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<PAGE>
SECTION 5 - COSTS OF UTILISATION
9. INTEREST
9.1 Calculation of interest
(a) The rate of interest on each Loan for each Interest Period is the
percentage rate per annum which is the aggregate of:
(i) the Applicable Margin;
(ii) in relation to any Loan denominated in forint, BUBOR or, in
relation to any Loan denominated in euro, EURIBOR; and
(iii) the Associated Costs, if any.
(b) Subject to Clause 9.3 (Default interest), the rate of interest on each
Unpaid Sum for each Interest Period is the percentage rate per annum
which is the aggregate of:
(i) the Applicable Margin;
(ii) in relation to any Unpaid Sum denominated in forint, BUBOR, in
relation to any Unpaid Sum denominated in euro, EURIBOR or, in
relation to any Unpaid Sum denominated in any other currency,
LIBOR; and
(iii) the Associated Costs, if any.
9.2 Payment of interest
The Borrower to which a Loan has been made shall pay accrued interest
on that Loan on the last day of each Interest Period.
9.3 Default interest
(a) If an Obligor fails to pay any amount payable by it under a Finance
Document on its due date, interest shall accrue on the overdue amount
from the due date up to the date of actual payment (both before and
after judgment) at a rate two per cent. (2%) higher than the rate which
would have been payable if the overdue amount had, during the period of
non-payment, constituted a Loan in the currency of the overdue amount
for successive Interest Periods, each of a duration selected by the
Facility Agent (acting reasonably). Any interest accruing under this
Clause 9.3 shall be immediately payable by the Obligor on demand by the
Facility Agent.
(b) Default interest (if unpaid) arising on an overdue amount will be
compounded with the overdue amount at the end of each Interest Period
applicable to that overdue amount but will remain immediately due and
payable.
9.4 Notification of rates of interest
The Facility Agent shall promptly notify the Lenders and the relevant
Borrower(s) in writing of the determination of a rate of interest under
this Agreement. Without prejudice to Clause 30.1 (Communications in
writing), such notification may be made by the Facility Agent by e-mail
to a Lender or Borrower where such Lender or Borrower, as appropriate,
has expressly agreed, by written notice to the Facility Agent, to
receive such notification by e-mail and has informed the Facility Agent
of an e-mail address pursuant to Clause 30.2 (Addresses) or, to the
extent that it becomes common practice in the syndicated euroloan
markets to do so and such Lender or Borrower, as appropriate, has
expressly agreed, by written notice to the Facility Agent (in each
38
<PAGE>
case, such agreement not to be unreasonably withheld or delayed), by
reference to rates quoted on a web site, the address of which (and the
location of the relevant rates at such web site) has been confirmed to
such Lender or Borrower, as appropriate, in accordance with Clause 30
(Notices).
9.5 Applicable Margin
The margin from time to time applicable to Interest Periods (the
"Applicable Margin") shall be:
(a) for any Interest Period which begins on the first Utilisation
or during the twelve (12) Month period following such first
Utilisation, one point seven five per cent. per annum (1.75%
p.a.); and
(b) for any Interest Period which begins on or after the date
which falls twelve (12) Months after the date of first
Utilisation, one point seven five per cent. per annum (1.75%
p.a.) subject to adjustment in accordance with Clause 9.6
(Adjustments to Margin).
9.6 Adjustments to Margin
(a) If, in respect of any Interest Period which commences on or after the
date falling twelve (12) Months after the date of first Utilisation,
the Group's Senior Debt to EBITDA Ratio calculated in accordance with
Clause 20.1 (Financial Condition of the Group) and following the
delivery of Hungarian Telephone and Cable Corp.'s then most recent 10K
Document or 10Q Document, as applicable, together with the supporting
calculations and workings of such calculations:
(i) is equal to or less than four point zero to one (4.0:1) and on
such date no Default or Event of Default is continuing then
the Applicable Margin on the Loan to which such Interest
Period relates will be set at one point six zero per cent. per
annum (1.60% p.a.) for the period up to the earlier of:
(A) the commencement of a subsequent Interest Period
following a change in the Group's Senior Debt to
EBITDA Ratio; and
(B) the occurrence of a Default or Event of Default;
(ii) is equal to or less than three point zero to one (3.0:1) and
on such date no Default or Event of Default is continuing then
the Applicable Margin on the Loan to which such Interest
Period relates will be set at one point three five per cent.
per annum (1.35% p.a.) for the period up to the earlier of:
(A) the commencement of a subsequent Interest Period
following a change in the Group's Senior Debt to
EBITDA Ratio; and
(B) the occurrence of a Default or Event of Default; or
(iii) is equal to or less than two point zero to one (2.0:1) and on
such date no Default or Event of Default is continuing then
the Applicable Margin on the Loan to which such Interest
Period relates will be set at one point five per cent. per
annum (1.15% p.a.) for the period up to the earlier of:
(A) the commencement of a subsequent Interest Period
following a change in the Group's Senior Debt to
EBITDA Ratio, and
(B) the occurrence of a Default or Event of Default,
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<PAGE>
Provided that, and notwithstanding this Clause 9.6 no more than one
downward adjustment of Applicable Margin may take place in any three
(3) Month period.
(b) if the Applicable Margin applicable to a Loan is reduced by operation
of the provisions of paragraph (a) above and:
(i) it is subsequently established that the relevant 10K
Document(s) and/or 10Q Document(s) used for the purposes of
calculating the Group's Senior Debt to EBITDA Ratio before the
relevant Interest Period(s) did not in all material respects
reflect the actual financial position of Hungarian Telephone
and Cable Corp. and/or the Group during the relevant
period(s); and/or
(ii) the relevant 10K Document(s) and/or 10Q Document(s) used for
the purposes of calculating the Group's Senior Debt to EBITDA
Ratio are (with the involvement of the Auditors or otherwise)
re-calculated and/or re-stated and as a result the Applicable
Margin should not have been fixed at the reduced rate, then:
(A) if the reduced Applicable Margin applies to a Loan,
in respect of which the Interest Period has not yet
ended, the Facility Agent may revoke the reduced
Applicable Margin in respect of the entire Interest
Period by notice in writing to the relevant Borrower
and the appropriate rate set out in the definition of
Applicable Margin in Clause 9.5 (Applicable Margin)
or paragraph (a) of this Clause 9.6 (Adjustments to
Margin), as appropriate, shall apply; and/or
(B) if the reduced Applicable Margin applies to a Loan,
in respect of which one or more Interest Period(s)
have already ended, the relevant Borrower shall
promptly on demand by the Facility Agent pay to the
Facility Agent, by way of additional interest, the
amount determined by the Facility Agent to be equal
to that by which the amount of interest that would
have been payable in respect of the relevant Interest
Period(s) calculated in accordance with the
appropriate rate set out in the definition of
Applicable Margin in Clause 9.5 (Applicable Margin)
or paragraph (a) of this Clause 9.6, as appropriate,
exceeds the amount(s) actually paid in respect of the
relevant Interest Period(s).
10. INTEREST PERIODS
10.1 Selection of Interest Periods
(a) The Borrowers may select an Interest Period for their respective
Facility A Loan(s) in the Utilisation Request for Facility A Loan(s) or
(if such Facility A Loan(s) has/have already been borrowed) in a
Selection Notice Provided that (and subject to the provisions of this
Agreement), unless agreed otherwise in advance in writing by the
Facility Agent, acting on the instructions of the Majority Lenders,
each of the Facility A Loans denominated in forint shall have Interest
Periods commencing on the same date and of the same duration and each
of the Facility A Loans denominated in euro shall have Interest Periods
commencing on the same date and of the same duration.
(b) Each Selection Notice in respect of the Facility A Loan(s) then
outstanding is irrevocable and must be delivered to the Facility Agent
by the Borrower(s) to which such Facility A Loan(s) was/were made not
later than the Specified Time Provided that in respect of any such
Facility A Loan denominated in forint, the Borrowers may select from
one (1) and three (3) Months and in respect of any such Facility A Loan
denominated in euro, the Borrowers may select from one (1),
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three (3) and six (6) Months and in respect of any Facility B Loan, the
Borrower(s) may select from one (1), three (3) and six (6) Months.
(c) If the Borrowers fail to deliver a Selection Notice to the Facility
Agent in accordance with paragraph (b) above, the relevant Interest
Period will, subject to Clause 10.2 (Changes to Interest Periods), be
three (3) Months.
(d) Subject to this Clause 10, the Borrowers may select an Interest Period
of any other period agreed between the Borrowers and the Facility
Agent, acting on the instructions of all the Lenders.
(e) An Interest Period for a Facility A Loan shall not extend beyond a
Repayment Date applicable to Facility A.
(f) Each Interest Period for a Facility A Loan shall start on the
Utilisation Date or (if already made) on the last day of its preceding
Interest Period.
(g) A Facility B Loan has one (1) Interest Period only.
10.2 Changes to Interest Periods
(a) Prior to determining the interest rate for any Facility A Loan(s), the
Facility Agent may shorten an Interest Period for any Facility A Loan
to ensure the Interest Periods for such Facility A Loan does not extend
beyond a Repayment Date.
(b) Prior to determining the interest rate for a Facility B Loan, the
Facility Agent may shorten an Interest Period for any Facility B Loan
to ensure that, when aggregated with the Available Facility for
Facility B, there are sufficient Facility B Loans with an Interest
Period ending on the Reduction Date for the Reduction Instalment to be
made on the Reduction Date.
(c) If the Facility Agent makes any of the changes to an Interest Period
referred to in this Clause 10.2, it shall promptly notify the Obligors
and the Lenders in writing.
10.3 Non-Business Days
Subject to paragraph (e) of Clause 10.1 (Selection of Interest
Periods), if an Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period will instead end on the
preceding Business Day.
11. CHANGES TO THE CALCULATION OF INTEREST
11.1 Absence of quotations
Subject to Clause 11.2 (Market disruption), if a Relevant Interbank
Market Rate is to be determined by reference to the Relevant Reference
Banks but a Relevant Reference Bank does not supply a quotation by the
Specified Time on the Quotation Day, the Relevant Interbank Market Rate
shall be determined on the basis of the quotations of the remaining
Relevant Reference Banks.
11.2 Market disruption
(a) If a Market Disruption Event occurs in relation to a Loan for any
Interest Period, then the rate of interest on each Lender's share of
that Loan for that Interest Period shall be the rate per annum which is
the sum of:
(i) the Applicable Margin;
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(ii) the rate notified to the Facility Agent by that Lender as soon
as practicable and in any event before interest is due to be
paid in respect of that Interest Period, to be that which
expresses as a percentage rate per annum the cost to that
Lender of funding its participation in that Loan from whatever
source it may reasonably select; and
(iii) the Associated Costs, if any, applicable to that Lender's
participation in the Loan.
(b) In this Agreement "Market Disruption Event" means:
(i) at or about noon on the Quotation Day for the relevant
Interest Period the Screen Rate is not available and none or
only one of the Relevant Reference Banks supplies a rate to
the Facility Agent to determine the Relevant Interbank Market
Rate for the relevant currency and period; or
(ii) before close of business in London on the Quotation Day for
the relevant Interest Period, the Facility Agent receives
notifications from a Lender or Lenders (whose participations
in a Loan exceed in aggregate thirty five per cent. (35%) of
that Loan) that the cost to it of obtaining matching deposits
in the Relevant Interbank Market would be in excess of the
Relevant Interbank Market Rate.
11.3 Alternative basis of interest or funding
(a) If a Market Disruption Event occurs in respect of an Interest Period
and the Facility Agent or the Obligors so require(s), the Facility
Agent and the Obligors shall enter into negotiations (for a period of
not more than thirty (30) days) with a view to agreeing a substitute
basis for determining the rate of interest for that Interest Period.
(b) Any alternative basis agreed pursuant to paragraph (a) above shall,
with the prior consent of all the Lenders and the Obligors, be binding
on all Parties.
11.4 Break Costs
(a) Each Borrower shall, within three (3) Business Days of demand by a
Finance Party, pay to that Finance Party such Finance Party's Break
Costs attributable to all or any part of a Loan or Unpaid Sum being
paid by that Borrower on a day other than the last day of an Interest
Period for that Loan or Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a demand by
the Facility Agent, provide a certificate confirming the amount of its
Break Costs for any Interest Period in which they accrue.
12. FEES
12.1 Commitment fee
(a) The Borrowers shall, on the basis of joint and several liability, pay
to the Facility Agent (for the account of each Lender) a fee in the
Base Currency computed at the rate of:
(i) the lower of zero point seven five per cent. per annum (0.75%
p.a.) or fifty per cent. (50%) of the Applicable Margin at
such time on that Lender's Available Commitment under Facility
A for the Availability Period applicable to Facility A; and
(ii) the lower of zero point seven five per cent. per annum (0.75%
p.a.) or fifty per cent. (50%) of the Applicable Margin at
such time on that Lender's Available Commitment under Facility
B for the Availability Period applicable to Facility B.
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(b) The accrued commitment fee is payable on the last day of each
successive period of three (3) Months which ends during the relevant
Availability Period, on the last day of the Availability Period and on
the cancelled amount of the relevant Lender's Commitment at the time
the cancellation is effective.
12.2 Arrangement fee
The Borrowers shall pay to the Arrangers an arrangement fee in the
amount and at the times agreed in a Fee Letter.
12.3 Agency fee
The Obligors shall pay to the Facility Agent (for its own account) an
agency fee in the amount and at the times agreed in a Fee Letter.
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SECTION 6 - ADDITIONAL PAYMENT OBLIGATIONS
13. TAX GROSS-UP AND INDEMNITIES
13.1 Definitions
(a) In this Clause 13:
"Protected Party" means a Finance Party which is or will be, for or on
account of Tax, subject to any liability or required to make any
payment in relation to a sum received or receivable (or any sum deemed
for the purposes of Tax to be received or receivable) under a Finance
Document.
"Qualifying Lender" means a Lender which is (on the date of this
Agreement):
(i) resident in Hungary for tax purposes under Applicable Law;
(ii) entitled to that payment under a double taxation agreement in
force on the date (subject to the completion of any necessary
procedural formalities) without a Tax Deduction (a "Treaty
Lender").
"Tax Credit" means a credit against, relief or remission for, or
repayment of any Tax.
"Tax Deduction" means a deduction or withholding for or on account of
Tax from a payment under a Finance Document.
"Tax Payment" means an increased payment made by an Obligor to a
Finance Party under Clause 13.2 (Tax gross-up) or a payment under
Clause 13.3 (Tax indemnity).
(b) In this Clause 13 a reference to "determines" or "determined" means a
determination made in the absolute discretion of the person making the
determination.
13.2 Tax gross-up
(a) Each Obligor shall make all payments to be made by it without any Tax
Deduction, unless a Tax Deduction is required by Applicable Law.
(b) An Obligor shall promptly upon becoming aware that an Obligor must make
a Tax Deduction (or that there is any change in the rate or the basis
of a Tax Deduction) notify the Facility Agent in writing accordingly.
(c) If a Tax Deduction is required by Applicable Law to be made by an
Obligor in one of the circumstances set out in paragraph (d) below, the
amount of the payment due from that Obligor shall be increased to an
amount which (after making any Tax Deduction) leaves an amount equal to
the payment which would have been due if no Tax Deduction had been
required.
(d) The circumstances referred to in paragraph (c) above are where a person
entitled to the payment:
(i) is the Facility Agent or the Arranger (on its own behalf); or
(ii) is a Qualifying Lender, unless that Qualifying Lender is a
Treaty Lender and the Obligor making the payment is able to
demonstrate the Tax Deduction is required to be made as a
result of the failure of that Qualifying Lender to comply with
paragraph (g) below; or
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(iii) has ceased to be a Qualifying Lender to the extent that this
altered status results from any change after the date of this
Agreement in (or in the interpretation, administration, or
application of) any Applicable Law or double taxation
agreement or any published practice or published concession of
any relevant taxing authority.
(e) If an Obligor is required to make a Tax Deduction, that Obligor shall
make that Tax Deduction and any payment required in connection with
that Tax Deduction within the time allowed and in the minimum amount
required by Applicable Law.
(f) Within thirty (30) days of making either a Tax Deduction or any payment
required in connection with that Tax Deduction, the Obligor making that
Tax Deduction shall deliver to the Facility Agent for the Finance Party
entitled to the payment evidence reasonably satisfactory to that
Finance Party that the Tax Deduction has been made or (as applicable)
any appropriate payment paid to the relevant taxing authority.
(g) A Treaty Lender and each Obligor which makes a payment to which that
Treaty Lender is entitled shall co-operate in completing as quickly as
is practicable in the context of the circumstances at such time any
procedural formalities necessary for that Obligor to obtain
authorisation to make that payment without a Tax Deduction.
13.3 Tax indemnity
(a) The Obligors shall (within three (3) Business Days of demand by the
Facility Agent) pay to a Protected Party an amount equal to the loss,
liability or cost which that Protected Party determines will be or has
been (directly or indirectly) suffered for or on account of Tax by that
Protected Party.
(b) Paragraph (a) above shall not apply with respect to any Tax assessed
on:
(i) a Finance Party:
(A) under the Applicable Law of the jurisdiction in which
that Finance Party is incorporated or, if different,
the jurisdiction (or jurisdictions) in which that
Finance Party is treated as resident for tax
purposes; or
(B) under the Applicable Law of the jurisdiction in which
that Finance Party's Facility Office is located in
respect of amounts received or receivable in that
jurisdiction,
if that Tax is imposed on or calculated by reference
to the net income received or receivable (but not any
sum deemed to be received or receivable) by that
Finance Party; or
(ii) the Facility Agent, as a result of the relevant Lender not
correctly representing that Lender's position pursuant to
Clause 25.15 (Lenders' tax status confirmation).
(c) A Protected Party making, or intending to make a claim pursuant to
paragraph (a) above shall promptly notify the Facility Agent in writing
of the event which will give, or has given, rise to the claim,
following which the Facility Agent shall notify the Obligors in
writing.
(d) A Protected Party shall, on receiving a payment from an Obligor under
this Clause 13.3, notify the Facility Agent in writing.
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13.4 Tax Credit
If an Obligor makes a Tax Payment and the relevant Finance Party
determines that:
(a) a Tax Credit is attributable to that Tax Payment; and
(b) that Finance Party has obtained, utilised and retained that
Tax Credit,
the Finance Party shall pay an amount to the Obligor which the Finance
Party, in (for the avoidance of doubt and without otherwise affecting,
qualifying or limiting the determination rights of any Finance Party
provided for in the Finance Documents) that Finance Party's sole and
absolute discretion, determines will leave it (after that payment) in
the same after-Tax position (the after-Tax position of the Finance
Party as consolidated with its Affiliates, Holding Company (or Holding
Companies, as appropriate) and with any Related Party of such Finance
Party) as would have been the case had the Tax Payment not been made by
the Obligor. Each Finance Party and each of its Affiliates, Holding
Company (or Holding Companies, as appropriate) and each Related Party
of such Finance Party, have sole and absolute discretion as to how they
organise their respective tax affairs and none of them are under any
obligation to utilise any amount of the Tax Payment as a Tax Credit.
The Finance Party and each of its Affiliates, Holding Company (or
Holding Companies, as appropriate) and each Related Party of such
Finance Party, will have no obligation to disclose any information
whatsoever regarding their tax affairs to the Obligor or to any other
Party or to any other person.
13.5 Stamp taxes
The Obligors shall, on the basis of joint and several liability, pay
and, within three (3) Business Days of demand, indemnify each Finance
Party against any cost, loss or liability that Finance Party incurs in
relation to all stamp duty, registration and other similar Taxes
payable in respect of any Finance Document.
13.6 Value added tax
(a) All consideration payable under a Finance Document by an Obligor to a
Finance Party shall be deemed to be exclusive of any VAT. If VAT is
chargeable, the Obligor shall pay to the Finance Party (in addition to
and at the same time as paying the consideration) an amount equal to
the amount of the VAT.
(b) Where a Finance Document requires an Obligor to reimburse a Finance
Party for any costs or expenses, that Obligor shall also at the same
time pay and indemnify that Finance Party against all VAT incurred by
that Finance Party in respect of the costs or expenses save to the
extent that that Finance Party is entitled to repayment or credit in
respect of the VAT.
14. INCREASED COSTS
14.1 Increased costs
(a) Subject to Clause 14.3 (Exceptions) the Obligors shall, on the basis of
joint and several liability, within three (3) Business Days of a demand
by the Facility Agent, pay for the account of a Finance Party the
amount of any Increased Costs incurred by that Finance Party or any of
its Affiliates as a result of: (i) the introduction of or any change in
(or in the interpretation or application of) any Applicable Law; or
(ii) compliance with any Applicable Law made after the date of this
Agreement.
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(b) In this Agreement "Increased Costs" means:
(i) a reduction in the rate of return from the Facility or on a
Finance Party's (or its Affiliate's) overall capital;
(ii) an additional or increased cost; or
(iii) a reduction of any amount due and payable under any Finance
Document,
which is incurred or suffered by a Finance Party or any of its
Affiliates to the extent that it is attributable to that Finance Party
having entered into its Commitment or funding or performing its
obligations under any Finance Document.
14.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to Clause 14.1
(Increased costs) shall notify the Facility Agent in writing of the
event giving rise to the claim, following which the Facility Agent
shall promptly notify the Obligors in writing.
(b) Each Finance Party shall, as soon as practicable after a demand by the
Facility Agent, provide a certificate confirming the amount of its
Increased Costs.
14.3 Exceptions
(a) Clause 14.1 (Increased costs) does not apply to the extent any
Increased Cost is:
(i) attributable to a Tax Deduction required by law to be made by
an Obligor;
(ii) compensated for by Clause 13.3 (Tax indemnity) (or would have
been compensated for under Clause 13.3 (Tax indemnity) but was
not so compensated solely because one of the exclusions in
paragraph (b) of Clause 13.3 (Tax indemnity) applied);
(iii) compensated for by the payment of the Associated Costs; or
(iv) attributable to the wilful breach by the relevant Finance
Party or its Affiliates of any law or regulation.
(b) In this Clause 14.3, a reference to a "Tax Deduction" has the same
meaning given to the term in Clause 13.1 (Definitions).
15. OTHER INDEMNITIES
15.1 Currency indemnity
(a) If any sum due from an Obligor under the Finance Documents (a "Sum"),
or any order, judgment or award given or made in relation to a Sum, has
to be converted from the currency (the "First Currency") in which that
Sum is payable into another currency (the "Second Currency") for the
purpose of:
(i) making or filing a claim or proof against that Obligor;
(ii) obtaining or enforcing an order, judgment or award in relation
to any litigation or arbitration proceedings,
that Obligor shall as an independent obligation, within three (3)
Business Days of demand, indemnify each Finance Party to whom that Sum
is due against any cost, loss or liability arising out of or as a
result of the conversion including any discrepancy between: (A) the
rate of
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exchange used to convert that Sum from the First Currency into the
Second Currency; and (B) the rate or rates of exchange available to
that person at the time of its receipt of that Sum.
(b) Each Obligor waives any right it may have in any jurisdiction to pay
any amount under the Finance Documents in a currency or currency unit
other than that in which it is expressed to be payable.
15.2 Other indemnities
The Obligors shall each (or shall procure that another Obligor will),
within three (3) Business Days of demand, indemnify each Lender against
any cost, loss or liability incurred by that Lender as a result of:
(a) the occurrence of any Event of Default;
(b) a failure by an Obligor to pay any amount due under a Finance
Document on its due date, including without limitation, any
cost, loss or liability arising as a result of Clause 27
(Sharing Among the Lenders) Provided that if, at any time
where no Event of Default is continuing, such cost, loss or
liability is incurred in respect any failure to pay which is
caused by administrative or technical error and payment is
made within three (3) Business Days of its due date, the
indemnity provided for pursuant to this sub-clause (ii) shall
only be in respect of any reasonable such cost, loss or
liability incurred during such cure period;
(c) funding, or making arrangements to fund, its participation in
a Loan requested by a Borrower in a Utilisation Request but
not made by reason of the operation of any one or more of the
provisions of this Agreement (other than by reason of default
or negligence by that Lender alone); or
(d) a Loan (or part of a Loan) not being prepaid in accordance
with a notice of prepayment given by an Obligor.
15.3 Indemnity to each Agent
The Obligors shall promptly indemnify the Facility Agent against any
cost, loss or liability incurred by the Facility Agent (acting
reasonably) as a result of:
(a) investigating any event which it reasonably believes is a
Default; or
(b) acting or relying on any notice, request or instruction which
it reasonably believes to be genuine, correct and
appropriately authorised.
16. MITIGATION BY THE LENDERS
16.1 Mitigation
(a) Each Finance Party shall, in consultation with the Obligors, take all
reasonable steps to mitigate any circumstances which arise and which
would result in any amount becoming payable under, or cancelled
pursuant to, any of Clause 8.1 (Illegality), Clause 13 (Tax gross-up
and indemnities), Clause 14 (Increased costs) or paragraph (c) of
Clause 15.2 (Other Indemnities) (where the reason for such Loan not
being made is not attributable to the Obligors) including (but not
limited to) transferring its rights and obligations under the Finance
Documents to another Affiliate or Facility Office.
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(b) Paragraph (a) above does not in any way limit the obligations or
liabilities of any Obligor under the Finance Documents.
16.2 Limitation of liability
(a) The Obligors shall, on the basis of joint and several liability
indemnify each Finance Party for all costs and expenses reasonably
incurred by that Finance Party as a result of steps taken by it under
Clause 16.1 (Mitigation).
(b) A Finance Party is not obliged to take any steps under Clause 16.1
(Mitigation) if, in the opinion of that Finance Party (acting
reasonably), to do so might be prejudicial to it.
17. COSTS AND EXPENSES
17.1 Transaction expenses
The Obligors shall, on the basis of joint and several liability,
promptly on demand pay each Agent and each Arranger the amount of all
costs and expenses (including legal fees) reasonably incurred by any of
them in connection with the negotiation, preparation, printing,
execution and syndication of:
(a) this Agreement and any other documents referred to in this
Agreement; and
(b) any other Finance Documents executed after the date of this
Agreement.
17.2 Amendment costs
If: (a) an Obligor requests an amendment, waiver or consent; or (b) an
amendment is required pursuant to Clause 28.9 (Change of currency), the
Obligors shall, on the basis of joint and several liability, within
three (3) Business Days of demand, reimburse each Agent for the amount
of all costs and expenses (including legal fees) reasonably incurred by
such Agent in responding to, evaluating, negotiating or complying with
that request or requirement.
17.3 Enforcement costs
The Obligors shall, on the basis of joint and several liability, within
three (3) Business Days of demand, pay to each Finance Party the amount
of all costs and expenses (including legal fees) incurred by that
Finance Party in connection with the enforcement of, or the
preservation of any rights under, any Finance Document.
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SECTION 7 - REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
18. REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this
Clause 18 to each Finance Party on the date of this Agreement and
acknowledges that the Finance Parties have entered into this Agreement
in reliance of those representations and warranties.
18.1 Status
(a) Each Obligor is a corporation, duly incorporated and validly existing
under the Applicable Law of its respective jurisdiction of
incorporation and each Obligor is a separate legal entity with
perpetual corporate existence, capable of suing and being sued.
(b) Each Obligor and each of its Subsidiaries has the power to own its
respective assets and carry on its respective business as it is being
conducted.
18.2 Binding obligations
As at the date of this Agreement, the obligations and liabilities
expressed to be assumed by each Obligor in each Finance Document to
which such Obligor is a party are, subject to any general principles of
Applicable Law limiting such Obligor's obligations and/or liabilities
which are specifically referred to in any legal opinion delivered
pursuant to Clause 4 (Conditions of Utilisation) legal, valid, binding
and enforceable obligations.
18.3 Non-conflict with other obligations
The entry into and performance by each Obligor of, and the transactions
contemplated by, the Finance Documents do not and will not conflict
with:
(a) any Applicable Law applicable to such Obligor as at the date
of this Agreement;
(b) the constitutional documents of any member of the Group; or
(c) any agreement or instrument binding upon such Obligor or any
other member of the Group or any of such Obligor's or any
member of the Group's assets.
18.4 Power and authority
Each Obligor has the power to own assets and to enter into, perform and
deliver, and has taken all necessary action to authorise such Obligor's
entry into, performance and delivery of, the Finance Documents to which
such Obligor is a party and the transactions contemplated by those
Finance Documents.
18.5 Validity and admissibility in evidence
All Authorisations required or desirable:
(a) to enable each Obligor lawfully to enter into, exercise such
Obligor's rights and perform, comply with such Obligor's
obligations in the Finance Documents and the Concession
Contract(s) to which such Obligor is a party; and
(b) to ensure that the obligations expressed to be assumed by such
Obligor in such Finance Documents and Concession Contract(s),
are legal, valid, binding and enforceable against such
Obligor,
have been obtained or effected and are in full force and effect.
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18.6 Governing law and enforcement (a) Subject to any general
principles of Applicable Law which are specifically referred to in any
legal opinion delivered pursuant to Clause 4 (Conditions of
Utilisation), as at the date of this Agreement the choice of English
law as the governing law of the Finance Documents will be recognised
and enforced in its jurisdiction of incorporation.
(b) Subject to any general principles of Applicable Law which are
specifically referred to in any legal opinion delivered pursuant to
Clause 4 (Conditions of Utilisation), as at the date of this Agreement
any court judgment obtained in England in relation to a Finance
Document will following its official translation into the Hungarian
language and any other necessary notarisation or similar process, be
admissible in evidence in court proceedings in Hungary.
(c) Subject to any general principles of Applicable Law which are
specifically referred to in any legal opinion delivered pursuant to
Clause 4 (Conditions of Utilisation), as at the date of this Agreement
any arbitral award obtained in any of England, Hungary or the United
States of America will, in respect of any proceeding(s) before the
Hungarian courts, subject to the official translation of such award
into the Hungarian language (if such award is in another language) and
any other necessary notarisation or similar process, compliance with
applicable public policy considerations and compliance with procedural
requirements, be recognised and enforced in its jurisdiction of
incorporation.
18.7 Deduction of Tax
Subject to, in respect of payments of interest, the relevant recipient
being a Treaty Lender at the time of such payments, each Obligor is not
required under the law of such Obligor's jurisdiction of incorporation
to make any deduction for or on account of Tax from any payment such
Obligor may make under any Finance Document.
18.8 No filing or stamp taxes
As at the date of this Agreement, under the Applicable Law of each
Obligor's jurisdiction of incorporation, other than the due
registration of the Fixed Charge Agreements and the Floating Charge
Agreements in the Register of Pledges with a Notary Public and the
registration of the Mortgage Agreements against the relevant land at
the relevant Land Registry (and the payment of all appropriate charges,
duties, fees, costs and expenses in respect of such registration), it
is not necessary that the Finance Documents be filed, recorded or
enrolled with any court or other authority in such jurisdictions or
that any Tax be paid on or in relation to the Finance Documents, the
transactions contemplated by the Finance Documents or (other than the
court duties ("illetek") expressly provided for under Applicable Laws
of Hungary) their enforcement in the courts of Hungary.
18.9 No default
(a) No Event of Default is continuing or would reasonably be expected to
result from the making of any Utilisation.
(b) No other fact(s), event(s) and/or circumstance(s) exist(s) or is/are
outstanding which constitute(s) a default under any other agreement or
instrument which is binding on any Obligor or any of such Obligor's
Subsidiaries or to which such Obligor's (or such Obligor's
Subsidiaries') assets are subject in a manner or to an extent which
gives rise to a Material Adverse Effect.
18.10 No misleading information
(a) As at the date of this Agreement, any factual information provided by
an Obligor or any adviser (including, without limitation, legal
counsel) of an Obligor to any Finance Party or any advisor (including,
without limitation, legal counsel) of a Finance Party for the purposes
of the
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Information Memorandum, in connection with this Agreement and/or
otherwise in respect of the Group or any member, Affiliate or
shareholder of the Group was true and accurate in all material respects
as at the date it was provided or as at the date (if any) at which such
information and/or such Information Memorandum, as appropriate, is
stated to be correct and any projections, estimates and other
non-factual information has been prepared on a reasonable basis by
reference to the facts, events and circumstances existing and
outstanding at the time when such projections, estimates and other
non-factual information were prepared Provided that in respect of any
such factual information provided orally and subsequently (and most
recently) provided in writing, to the extent that any difference(s)
between the oral and the most recently provided written factual
information exist, that latest written information shall, in the
absence of gross negligence or wilful deceit on the part of the
person(s) providing such oral information, be deemed to restate and
correct such oral factual information and shall, for the purposes of
this paragraph (a), prevail.
(b) As at the date of this Agreement, the financial projections contained
in the Information Memorandum have been prepared on the basis of recent
historical information and on the basis of reasonable assumptions.
(c) As at the date of this Agreement, nothing has occurred or been omitted
from the Information Memorandum and no information has been given or
withheld that results in the information contained in the Information
Memorandum being untrue or misleading in any material respect.
(d) No fact(s), event(s) and/or circumstance(s) has/have arisen and/or
occurred which would reasonably be expected to have a material impact
on any of the written information supplied by an Obligor to any Finance
Party (other than any which have been disclosed in any 10K Document or
10Q Document or otherwise expressly disclosed to the Facility Agent,
together with a reasonably detailed written explanation of the
significance of such fact(s), event(s) and/or circumstance(s) within
the context of this proposed Facility).
(e) No Obligor is aware of any material fact(s), event(s) or
circumstance(s) that has/have not been disclosed to the Finance Parties
in writing which would reasonably be expected to, if disclosed,
adversely affect the decision of a prudent commercial bank considering
whether or not to provide finance to an Obligor.
18.11 Financial statements
(a) In respect of Hungarian Telephone and Cable Corp., its Original
Financial Statements were prepared in accordance with US GAAP
consistently applied.
(b) In respect of each member of the Group incorporated in Hungary, such
Obligor's Original Financial Statements were prepared in accordance
with HAS consistently applied.
(c) Each member of the Group's Original Financial Statements and, in the
case of Hungarian Telephone and Cable Corp., each 10K Document and 10Q
Document, fairly represent such Obligor's financial condition and
operations (consolidated in the case of Hungarian Telephone and Cable
Corp.) during the relevant financial year and properly reflect in all
material respects the tax position of such Obligor as at the respective
date of such Original Financial Statement.
(d) In the case of Hungarian Telephone and Cable Corp., each 10K Document,
10Q Document, Budget Comparison Certificate, Compliance Certificate,
Key Performance Indicators Certificate fairly and in all material
respects represents its consolidated financial condition and operations
during the relevant quarter.
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(e) Save as expressly disclosed to the Facility Agent in writing, no
fact(s), event(s) and/or circumstance(s) has/have occurred and/or
arisen, including without limitation in respect of an Obligor's
business or financial condition (or the business or consolidated
financial condition of Hungarian Telephone and Cable Corp.) since the
most recent 10K Document, 10Q Document, Budget Comparison Certificate,
Compliance Certificate, Key Performance Indicators Certificate was
delivered to the Facility Agent which gives rise to a Material Adverse
Effect.
18.12 Pari passu ranking
Each Obligor's payment obligations under the Finance Documents to which
such Obligor is a party rank at least pari passu with the claims of all
such Obligor's other unsecured and unsubordinated creditors, except for
obligations mandatorily preferred by operation of Applicable Law
applying to companies generally in its jurisdiction of incorporation,
in any jurisdiction in which it has significant assets and/or in any
jurisdiction in which it carries out any business activities.
18.13 No proceedings pending or threatened
Save as expressly disclosed to the Facility Agent in writing prior to
the date of this Agreement, including, inter alia, those matters set
out in the most recent 10K Document or 10Q Document as at the date of
this Agreement, no litigation, arbitration or administrative
proceedings of or before any court, arbitral body or agency which, if
adversely determined, would give rise to a Material Adverse Effect,
have (to the best of its knowledge and belief) been started or
threatened against an Obligor or any of such Obligor's Subsidiaries.
18.14 No material defaults
Save as expressly disclosed to the Facility Agent in writing,
including, inter alia, those matters set out in the most recent 10K
Document or 10Q Document, no Obligor is in breach of or in default
under any agreement to which it is a party or which is binding on it or
any of its respective assets to an extent or in a manner which gives
rise to a Material Adverse Effect.
18.15 Tax
Save as otherwise disclosed in the most recent 10K Document or 10Q
Document or otherwise expressly disclosed to the Facility Agent in
writing:
(a) the Original Financial Statements in respect of each of the
Obligors properly reflect in all material respects the tax
position of each Obligor as at the respective dates dated
thereof; and
(b) each Obligor has, to the best of its knowledge and belief,
complied in all material respects with all taxation laws in
all jurisdictions in which it is subject to taxation and has
paid all Taxes due and payable by it and no material claims
are being asserted against it with respect to Taxes.
18.16 Insolvency
Save as expressly disclosed to the Facility Agent in writing, no
Obligor has taken any formal corporate action nor to any Obligor's best
knowledge and belief, having made reasonable enquires thereto as at the
date of this Agreement, have any other formal steps been taken or legal
proceedings been started or threatened in accordance with the
procedures detailed in the Bankruptcy Act or in the Companies Act (or
in accordance with similar or analogous provisions or proceedings)
against it or against any other member of the Group (other than
PILISTAV Tavkozlesi, Epit es Szolgaltato Korlatolt Felel sseg
Tarsasag) for its or for any such other member of the Group's (other
than PILISTAV Tavkozlesi, Epit es Szolgaltato Korlatolt Felel sseg
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<PAGE>
Tarsasag) bankruptcy, liquidation, winding-up, dissolution,
administration or reorganisation or final accounting (in each case
pursuant to the Bankruptcy Act, the Companies Act or otherwise).
18.17 No undisclosed liabilities
Save as expressly disclosed to the Facility Agent in writing, as at the
date as of which the Original Financial Statements were prepared, no
Obligor or, to each Obligor's best knowledge and belief, no other
member of the Group had any material liabilities (contingent or
otherwise) which were not disclosed thereby (or by the notes thereto)
or reserved against therein or to each Obligor's best knowledge and
belief, having made all reasonable enquiries thereto, any material
unrealised or anticipated losses arising from commitments entered into
by such Obligor which were not so disclosed or reserved against in such
Original Financial Statements.
18.18 Encumbrances
Subject to any general principles of Applicable Law which are
specifically referred to in any legal opinion delivered pursuant to
Clause 4 (Conditions of Utilisation), other than an Encumbrance falling
into the scope of paragraph (c) of Clause 21.3 (Negative pledge) no
Encumbrance exists over all or any of the present or future assets of
an Obligor, nor to each Obligor's best knowledge and belief, those of
any other Obligor.
18.19 No obligation to create security
Each Obligor's execution of any of the Finance Documents to which such
Obligor is a party and the exercise of its respective rights and
performance of such Obligor's respective obligations under such Finance
Documents will not, as at the date of the Agreement, result in the
existence of nor oblige such Obligor to create any Encumbrance over all
or any of any Obligor's respective present or future assets, other than
as expressly provided for in and contemplated by the Finance Documents.
18.20 Compliance with laws and regulations
Each Obligor and, to the best of each Obligor's respective knowledge
and belief, having made all reasonable enquiries thereto, as at the
date of the Agreement, each member of the Group, in carrying out its
respective activities, business and operations is in all material and
substantial respects doing so in compliance with Applicable Law
governing the same.
18.21 Entire Agreement
No Obligor is and, in respect of any Obligor which, directly or
indirectly, legally or beneficially, owns any equity capital in any
member of the Group, to the best of such Obligor's knowledge and
belief, having made all reasonable enquiries thereto, no such member of
the Group is, as at the date of this Agreement, a party to any material
agreement or contract whatsoever (oral, written or otherwise) which is
or which would reasonably be expected to become material to the
Facility and/or the Encumbrances created and/or constituted by the
applicable Security Agreements, which is not expressly provided for in
any of the Finance Documents and/or which has not been disclosed in the
most recent 10K Document or 10Q Document or otherwise fully and
properly disclosed in writing prior to the date of this Agreement to
the Facility Agent.
18.22 Environment
Each Obligor and, in respect of any Obligor which, directly or
indirectly, legally or beneficially, owns any equity capital in any
member of the Group, to the best of such Obligor's knowledge and
belief, each such member of the Group is, as at the date of this
Agreement, in compliance with:
(a) all Applicable Law concerning the protection of the
environment and to the best of each Obligor's knowledge and
belief, having made reasonable enquires thereto, there are no
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<PAGE>
fact(s), event(s) and/or circumstance(s) which may prevent
that compliance in the future; and
(b) the terms of all permits and authorisation required by any
Applicable Law in respect of the environment for the ownership
and operation of each Obligor's businesses,
in each case, in a manner and to an extent required to procure and
ensure the avoidance of the occurrence of a Material Adverse Effect.
18.23 Management of business
Save for any Permitted Management Contracts, no Obligor has, nor has
any other member of the Group, entered into any management contract or
similar arrangement whereby a material part of its or the Group's
assets, business or operations are managed or are to be managed by any
other person. Save as expressly disclosed to the Facility Agent in
writing, each Obligor is managing its assets, business and operations
in accordance with Good Industry Practice.
18.24 Corporate chart
The chart prepared after consultation with the Obligors, detailed in
paragraph (f) of Clause 1 of Schedule 2 (Conditions precedent), and
delivered to the Facility Agent pursuant to Clause 4.1 (Initial
conditions precedent) showing the percentage ownership of each member
of the Group and the relationship of the Obligors is true and correct
in all respects as at the date of this Agreement and that no member of
the Group has any form of equity and/or ownership interest whatsoever
in any other person except as so disclosed in such chart.
18.25 Compliance with Finance Documents
Each Obligor is, as at the date of this Agreement, in compliance with
each of the covenants and each of the terms and conditions of each
Finance Document to which such Obligor is a party.
18.26 Subordinated Financial Indebtedness
(a) All indebtedness and encumbrances of each member of the Group as at the
date of this Agreement are set out and detailed in the Letter of
Borrowings and Encumbrances.
(b) Any payments with repayment obligations received by or loans provided
to any member of the Group from/by any other member of the Group are
and have been fully subordinated at all times and in all respects to
the obligations of such first member of the Group to the Finance
Parties under the Finance Documents, with such other member of the
Group being a party to the Subordination and Trust Deed.
(c) In respect of any Borrower which has entered into an Hedging Document
on or prior to the date of this Agreement, such Borrower has procured
and ensured that the other party to such Hedging Document has become a
party (in the capacity of Hedging Creditor) to the Subordination and
Trust Deed.
18.27 Bank accounts
No Obligor has opened or maintains any bank or similar account(s) with
any bank, financial institution or other person other than as provided
for in the definition of Income Accounts in Clause 1.1 (Definitions) as
amended from time to time in compliance with this Agreement and all
material financial services of whatever nature utilised by each Obligor
since the date of this Agreement have been or are being provided by one
or more of the Finance Parties and/or any Affiliate(s) of any Finance
Party.
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<PAGE>
18.28 Validity and extent of Encumbrances
Save as expressly disclosed in the Letter of Borrowings and
Encumbrances, or otherwise fully disclosed in writing to the Facility
Agent, or otherwise arising in accordance with and pursuant to Clause
21.3 (Negative pledge) and subject to any general principles of
Applicable Law which are specifically referred to in any legal opinion
delivered pursuant to Clause 4 (Conditions of Utilisation), as at the
date of this Agreement, Security Agreements create legal and valid
first ranking Encumbrances over all the assets of the members of the
Group (other than PILISTAV Tavkozlesi, Epit es Szolgaltato Korlatolt
Felel sseg Tarsasag), other than the Concession Contracts, and each
such Encumbrance is binding on and enforceable against the member of
the Group over whose assets such Encumbrance has been created.
18.29 Repetition
The representations and warranties set out in:
(a) Clause 18.1 (Status);
(b) paragraphs (b) and (c) of Clause 18.3 (Non-conflict with other
obligations);
(c) Clause 18.4 (Power and authority);
(d) Clause 18.5 (Validity and admissibility in evidence);
(e) Clause 18.7 (Deduction of tax);
(f) Clause 18.9 (No default);
(g) paragraphs (d) and (e) of Clause 18.10 (No misleading
information);
(h) Clause 18.11 (Financial statements);
(i) Clause 18.12 (Pari passu ranking);
(j) Clause 18.14 (No material defaults);
(k) Clause 18.15 (Tax);
(l) Clause 18.16 (Insolvency);
(m) Clause 18.17 (No undisclosed liabilities);
(n) Clause 18.18 (Encumbrances);
(o) Clause 18.23 (Management of business);
(p) paragraph (b) of clause 18.26 (Subordinated Financial
Indebtedness); and
(q) Clause 18.27 (Bank accounts),
collectively the "Repeating Representations", are deemed to be made by
each Obligor by reference to the facts and circumstances then existing
on the date of each Utilisation Request and the first day of each
Interest Period and if by such date any Obligor has delivered financial
statements to the Facility Agent in accordance with its obligations
under Clause 19.1 (Financial statements), references to the "Original
Financial Statements" in this Clause 18 shall be deemed to
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<PAGE>
be references to the then most recent financial statements delivered by
such Obligor(s) to the Facility Agent in accordance with its respective
obligations under Clause 19.1 (Financial statements).
19. INFORMATION UNDERTAKINGS
The undertakings in this Clause 19 remain in force from the date of
this Agreement for so long as any amount is outstanding under the
Finance Documents or any Commitment is in force.
19.1 Financial statements
(a) Hungarian Telephone and Cable Corp. shall supply to the Facility Agent
in sufficient copies for all the Lenders as soon as the same become
available, but in any event within:
(i) ninety (90) days of the end of each of its financial years,
its audited 10K Document for that financial year or if
Hungarian Telephone and Cable Corp. duly applies to the
Securities Exchange Commission of the Untied States of America
for an extension of the deadline for the filing of such a 10K
Document, up to a maximum of one hundred and five (105) days;
and
(ii) sixty (60) days of the end of each quarter of each of its
financial years, its (unaudited) 10Q Document for that quarter
financial year.
(b) Each Obligor (other than Hungarian Telephone and Cable Corp.) shall
supply to the Facility Agent in sufficient copies for all the Lenders
as soon as the same become available, but in any event within one
hundred and fifty (150) days of the end of each of its financial years,
its audited financial statements for that financial year.
19.2 Certificates
(a) Hungarian Telephone and Cable Corp. shall supply to the Facility Agent,
at the same time as the earlier of: (i) Hungarian Telephone and Cable
Corp.'s delivery of each 10K Document or 10Q Document, as appropriate
to the Facility Agent pursuant to Clause 19.1 (Financial Statements);
and (ii) Hungarian Telephone and Cable Corp.'s release of a 10K
Document or 10Q Document to the Securities and Exchange Commission of
the United States of America following the end of the relevant quarter
of its financial year:
(i) a Budget Comparison Certificate;
(ii) a Compliance Certificate setting out (in reasonable detail)
computations as to compliance with Clause 20 (Financial
covenants) as at the date as at which those financial
statements were drawn up; and
(iii) a Key Performance Indicators Certificate.
(b) Each Budget Comparison Certificate, Compliance Certificate and Key
Performance Indicators Certificate shall be signed by two officers of
Hungarian Telephone and Cable Corp. identified as such in the relevant
10K Document or 10Q Document, with one such officer being the chief
financial officer or similar officer of Hungarian Telephone and Cable
Corp.
19.3 Business Plan
The Obligors shall, as quickly as practicable, but in any event within
fourteen (14) days after the making of any amendment to the Business
Plan, deliver to the Facility Agent in sufficient copies for the
Lenders, such amended Business Plan for the period of up to and
including 31 December
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<PAGE>
2010, together with a written explanation of the rationale and effect
of such change(s) to the reasonable satisfaction of the Facility Agent.
19.4 Annual Operating Budget
The Obligors shall, as quickly as practicable, but in any event within
fourteen (14) days after the approval by Hungarian Telephone and Cable
Corp.'s board of directors (or analogous body) of the Annual Operating
Budget in respect of a financial year, or during the course of a
financial year, fourteen (14) days after the making of any amendments
or revisions to the Annual Operating Budget for such financial year,
deliver to the Facility Agent in sufficient copies for the Lenders of
such Annual Operating Budget, together with a written explanation of
such Annual Operating Budget(s).
19.5 Requirements as to financial statements
(a) Each set of financial statements delivered by the Obligors pursuant to
Clause 19.1 (Financial statements) shall be certified by an officer or
director, as applicable, of the relevant company as fairly representing
its financial condition as at the date as at which those financial
statements were drawn up.
(b) Each Obligor shall procure and ensure that each set of financial
statements of such Obligor delivered pursuant to Clause 19.1 (Financial
statements) and in the case of Hungarian Telephone and Cable Corp.,
pursuant to Clause 19.2 (Certificates), in the case of Hungarian
Telephone and Cable Corp., is prepared using and in accordance with US
GAAP and, in the case of each Obligor other than Hungarian Telephone
and Cable Corp., is prepared using and in accordance with HAS, in each
case using accounting practices and financial reference periods
consistent with those applied in the preparation of such Obligor's
Original Financial Statements unless, in relation to any set of
financial statements, such Obligor notifies the Facility Agent in
writing that there has been a change in HAS or US GAAP, as appropriate,
the accounting practices or reference periods and in each such case
such Obligor will procure and ensure that such Obligor's Auditors
promptly deliver to the Facility Agent:
(i) a description of any change(s) necessary for those financial
statements to reflect the HAS or US GAAP, as appropriate,
accounting practices and reference periods upon which such
Obligor's Original Financial Statements were prepared; and
(ii) sufficient information, in form and substance as may be
reasonably required by the Facility Agent, to enable the
Lenders to determine whether Clause 20 (Financial covenants)
has been complied with and make an accurate comparison between
the financial position indicated in those financial statements
and such Obligor's Original Financial Statements.
Any reference in this Agreement to those financial statements shall be
construed as a reference to those financial statements as adjusted to
reflect the basis upon which the Original Financial Statements were
prepared.
(c) In respect of the financial statements of the members of the Group
(other than Hungarian Telephone and Cable Corp.) to be delivered
pursuant to this Agreement, such financial statements may be delivered
prepared in the Hungarian language together with a "working"
translation into the English language, it being agreed by the Finance
Parties that, in the event of any discrepancy between the English and
Hungarian language versions, no Obligor will have any liability in
respect of such discrepancy towards any Finance Party pursuant to this
Agreement and the Hungarian language version shall prevail.
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19.6 Transactions with Affiliates
Each Obligor shall deliver statements in sufficient detail satisfactory
to the Facility Agent of all financial transactions, if any, entered
into with any other member of the Group during the previous quarter of
each of such Obligor's financial years, at the same time as the
financial statements are delivered to the Facility Agent pursuant to
paragraph (a) of Clause 19.1 (Financial statements).
19.7 Information: miscellaneous
Each Obligor shall supply to the Facility Agent (in sufficient copies
for all the Lenders, if the Facility Agent so requests):
(a) all documents dispatched by such Obligor to its shareholders
(or any class of them) or its creditors generally at the same
time as they are dispatched;
(b) promptly upon becoming aware of them, the details of any
litigation, arbitration or administrative proceedings which
are current, threatened or pending against any member of the
Group, and which, if it were to be adversely determined, gives
rise to a Material Adverse Effect; and
(c) promptly, such further information (including but not limited
to its extract of general ledger ("fokonyvi kivonat"))
regarding the financial condition, business and operations of
any member of the Group as any Finance Party (through the
Facility Agent) may reasonably request,
Provided that if such Obligor is able to immediately furnish such
information albeit in a format and/or presentational format then used
by the relevant internal functions of the relevant member of the Group,
such Obligor will immediately furnish such information to the Facility
Agent (or such Lender through the Facility Agent) in such format and/or
presentational format Provided Further that if such format and/or
presentational format is not acceptable to the Facility Agent or such
Lender, acting reasonably, such Obligor will as quickly as practicable
and in any event within twenty one (21) days, provide the Facility
Agent or such Lender, as applicable, such information in a format
and/or presentational format reasonably requested by the Facility Agent
or such Lender, as applicable.
19.8 Notification of default
(a) Each Obligor shall notify the Facility Agent in writing of any Default
(and the steps, if any, being taken to remedy it) promptly upon
becoming aware of its occurrence (unless that Obligor is aware that a
notification has already been provided by another Obligor).
(b) Promptly upon a request by the Facility Agent, each Obligor shall
supply to the Facility Agent a certificate signed by two of its
directors or officers (as identified in the then most recent 10K
Document, 10Q Document or other filing made to the Securities Exchange
Commission of the United States of America), as applicable, on its
behalf certifying that no Default is continuing (or if a Default is
continuing, specifying the Default and the steps, if any, being taken
to remedy it).
19.9 Accounting Terms
All accounting expressions which are not otherwise defined in this
Agreement shall be construed in accordance with US GAAP and/or HAS, as
appropriate, consistently applied in the United States of America
and/or Hungary, as applicable.
19.10 Access to Records
Each Obligor shall, upon the reasonable request of the Facility Agent:
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(a) permit the Facility Agent, the Security Agent and/or any
representatives of the Majority Lenders to visit such
Obligor's premises and to inspect such Obligor's books,
accounts and records and each Obligor shall provide the
Facility Agent, the Security Agent or such representative with
all necessary assistance and co-operation for such purpose;
(b) promptly provide the Facility Agent, the Security Agent and/or
any representative of the Majority Lenders with copies and/or
extracts of such Obligor's books, accounts and records as the
Facility Agent, the Security Agent and/or any representative
of the Majority Lenders may request.
19.11 Corporate records
Each Obligor undertakes to procure and ensure that it and each other of
the Group maintains such books, accounts and records require under
Applicable Law and in accordance with Good Industry Practice.
19.12 Ownership of Notes
(a) At the same time as it delivers 10K Document pursuant to paragraph (a)
of Clause 19.1 (Financial Statements), and promptly upon the written
request of the Facility Agent, Hungarian Telephone and Cable Corp.,
will provide the Facility Agent with a copy extract of the register of
Notes maintained by Hungarian Telephone and Cable Corp., showing the
holders (and numbers held) of the Notes, as at 31 December of the
financial year to which such 10K Document relates.
(b) As quickly as possible upon becoming aware of any change in ownership
of any Note(s), but in any event within three (3) Business days of
becoming so aware, Hungarian Telephone and Cable Corp. will confirm to
the Facility Agent in writing details of such change(s), including,
inter alia, details of the new holder of such Note(s).
19.13 Conversion of Preference Shares
As quickly as possible upon any conversion of a Preference Share into
common stock of Hungarian Telephone and Cable Corp., but in any event
within three (3) Business Days of such conversion, Hungarian Telephone
and Cable Corp. will confirm to the Facility Agent in writing details
of such conversion, including, inter alia, details of the holder of the
shares arising from such conversion.
19.14 Ownership of Shares
(a) At the same time as it delivers a 10K Document pursuant to paragraph
(a) of Clause 19.1 (Financial Statements), and promptly upon the
written request of the Facility Agent, Hungarian Telephone and Cable
Corp., will provide the Facility Agent with an analysis of the register
of shares maintained by Hungarian Telephone and Cable Corp., showing
the shareholdings (expressed as an absolute number of shares and as a
percentage of all Hungarian Telephone and Cable Corp.'s issues share
capital) of: (i) Citizens; (ii) IO Fund; (iii) Postabank es
Takarekpenztar Reszvenytarsasag; (iv) Tele Danmark A/S; (v) to the best
knowledge and belief of Hungarian Telephone and Cable Corp., any person
who, together with any Related Person to such person, holds five per
cent. (5%) of the issued share capital of Hungarian Telephone and Cable
Corp.; and (vi) the amount held by all other shareholders.
(b) Hungarian Telephone and Cable Corp. will promptly upon, and in any
event within five (5) Business Days of, becoming aware that any Lender
and/or any Affiliate(s) of any Lender has or have become(s) the owner
of five per cent. (5) or more of the issued share capital of Hungarian
Telephone and Cable Corp., notify the Facility Agent in writing
thereof.
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20. FINANCIAL COVENANTS
20.1 Financial condition of the Group
The financial condition of the Group, as evidenced by the consolidated
financial statements of Hungarian Telephone and Cable Corp. set out in
the Original Financial Statements or subsequently delivered to the
Facility Agent in accordance with the provisions of Clause 19.1
(Financial statements) shall be such that:
(a) the Group's Senior Debt to EBITDA Ratio shall not on any date
after this Agreement exceed the values applicable at such time
as set out in the table below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Date of determining the Group's Senior Debt to The Group's Senior Debt to EBITDA Ratio
EBITDA Ratio
------------------------------------------------------------------------------------------------------
<S> <C>
from the date of this Agreement to 30 December 2000 five point zero zero to one (5.00:1)
------------------------------------------------------------------------------------------------------
From 31 December 2000 to 29 June 2001 four point seven five to one (4.75:1)
------------------------------------------------------------------------------------------------------
From 30 June 2001 to 30 December 2001 four point two five to one (4.25:1)
------------------------------------------------------------------------------------------------------
From 31 December 2001 to 29 June 2002 three point seven five to one (3.75:1)
------------------------------------------------------------------------------------------------------
From 30 June 2002 to 30 December 2002 three point five zero to one (3.50:1)
------------------------------------------------------------------------------------------------------
From 31 December 2002 to 30 December 2003 three point zero zero to one (3.00:1)
------------------------------------------------------------------------------------------------------
From 31 December 2003 to 30 December 2004 two point five zero to one (2.50:1)
------------------------------------------------------------------------------------------------------
From 31 December 2004 to 31 December 2007 two point zero zero to one (2.00:1)
------------------------------------------------------------------------------------------------------
</TABLE>
The Group's Senior Debt to EBITDA Ratio shall be calculated on
a quarterly basis until the Trigger Date and, thereafter,
semi-annually as follows:
A = (B - C) / D
where:
A = the Group's Senior Debt to EBITDA Ratio;
B = the aggregate of all Financial Indebtedness of the
Group (as specified in the relevant 10K Document or 10Q
Document);
C = the aggregate amount of all Financial Indebtedness in
respect of the Notes (as specified in the relevant 10K
Document or 10Q Document);
D = EBITDA for the Group determined on the basis of the
preceding four (4) quarter financial years of Hungarian
Telephone and Cable Corp.;
(b) the Group's Senior Interest Cover Ratio in respect of any
quarter financial year, as determined as at the date up to
which such quarter financial year relates, shall not be less
than the value set out in the table below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Date for determining the Group's Senior Interest Cover The Group's Senior Interest Cover Ratio
Ratio
------------------------------------------------------------------------------------------------------
<S> <C>
From 31 December 2000 to 29 June 2001 one point five to one (1.5:1)
------------------------------------------------------------------------------------------------------
From 30 June 2001 to 30 September 2001 one point seven five to one (1.75:1)
------------------------------------------------------------------------------------------------------
</TABLE>
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The Group's Senior Interest Cover Ratio shall be calculated on
a quarterly basis until the Trigger Date and, thereafter,
semi-annually as follows:
A = B / (C - D)
where:
A = the Group's Senior Interest Cover Ratio;
B = EBITDA for the Group determined on a consolidated basis
with reference to the preceding four (4) quarter
financial years of Hungarian Telephone and Cable Corp.;
C = the aggregate amount of all gross cash interest payable
by and all hedging costs for the Group, on a consolidated
basis, during the preceding four (4) quarter financial
years of Hungarian Telephone and Cable Corp.;
D = the aggregate amount of all cash interest paid in
respect of the Notes during the preceding four (4)
quarter financial years of Hungarian Telephone and Cable
Corp.;
(c) the Group's Senior Debt Service Cover Ratio shall not in
respect of any quarter financial year, as determined as at the
date up to which such quarter financial year relates, at any
time from 30 June 2001 until 31 December 2007 be less than one
point one five to one (1.15:1). The Group's Senior Debt
Service Cover Ratio shall be calculated on a quarterly basis
until the Trigger Date and, thereafter, semi-annually as
follows:
A = (B - C) / D
where:
A = the Group's Senior Debt Service Cover Ratio;
B = EBITDA for the Group determined on the basis of the
preceding four (4) quarter financial years of Hungarian
Telephone and Cable Corp.;
C = the aggregate of an amount equal to all reductions in
working capital, capital expenditure and payments of Tax
by the Group, on a consolidated basis, during the
preceding four (4) quarter financial years of Hungarian
Telephone and Cable Corp.;
D = the aggregate of an amount equal to all net hedging
costs, gross interest and scheduled repayment of
indebtedness, including without limitation under this
Agreement, payable by the Group (other than by Hungarian
Telephone and Cable Corp. in respect of the Notes), on a
consolidated basis, during the preceding four (4) quarter
financial years of Hungarian Telephone and Cable Corp.;
and
(d) the EBITDA of the Group for the preceding four (4) quarter
financial years of Hungarian Telephone and Cable Corp. taken
in aggregate, expressed in forint, shall not, during the
period commencing on the date of this Agreement and ending on
and including the earlier of 31 December 2003 and the Trigger
Date, as at the last day of each of its quarter financial
years, be less than the value provided for at such time in the
column headed "Covenant-minimum EBITDA (HUF)" of Schedule 10
(EBITDA
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Variance Table), adjusted on the basis provided for in
Schedule 10 (EBITDA Variance Table).
21. GENERAL UNDERTAKINGS
The undertakings in this Clause 21 remain in force from the date of
this Agreement for so long as any amount is outstanding under the
Finance Documents or any Commitment is in force.
21.1 Authorisations
(a) Each Obligor shall promptly:
(i) obtain, comply with and do all that is necessary to maintain
in full force and effect; and
(ii) supply certified copies to the Facility Agent of,
any Authorisation required under any law or regulation of its
jurisdiction of incorporation to enable such Obligor to perform such
Obligor's obligations under the Finance Documents and to ensure the
legality, validity, enforceability or admissibility in evidence in such
Obligor's jurisdiction of incorporation, in any jurisdiction in which
such Obligor has any assets and/or in which such Obligor carries on any
business, of any Finance Document including, but not limited to, duly
notarising the Fixed Charge Agreements and the Floating Charge
Agreements before a Notary Public and duly registering the Mortgage
Agreement at the relevant Land Registry Provided that in respect of
those Finance Documents which are not already available as official
translations in the Hungarian language, such Obligor shall only be
obligated to have such Finance Documents officially translated into the
Hungarian language upon receipt of a written request from the Facility
Agent, acting reasonably and, on the receipt of such a written request,
the Borrower shall arrange for the prompt official translation into the
Hungarian language of such Finance Documents and the prompt delivery of
such translations to the Facility Agent.
(b) Each Obligor shall (and Hungarian Telephone and Cable Corp. shall
procure and ensure that each of its Subsidiaries other than PILISTAV
Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu Tarsasag shall)
take all actions and steps necessary to maintain such Obligor's
corporate existence.
21.2 Compliance with laws
Each Obligor shall comply in all respects with all Applicable Law, if
failure so to comply would materially impair such Obligor's ability to
perform its obligations under the Finance Documents.
21.3 Negative pledge
(a) Subject to paragraph (c) below, no Obligor shall (and Hungarian
Telephone and Cable Corp. shall procure and ensure that no other member
of the Group will) create or permit to subsist any Encumbrance over any
of its assets.
(b) Subject to paragraph (c) below, no Obligor shall (and Hungarian
Telephone and Cable Corp. shall procure and ensure that no other member
of the Group will):
(i) sell, transfer or otherwise dispose of any of its assets on
terms whereby they are or may be leased to or re-acquired by
an Obligor or any other member of the Group;
(ii) sell, transfer or otherwise dispose of any of its receivables
on recourse terms;
(iii) enter into any arrangement under which money or the benefit of
a bank or other account may be applied, set-off or made
subject to a combination of accounts; or
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(iv) enter into any other preferential arrangement having a similar
effect,
in circumstances where the arrangement or transaction is entered into
primarily as a method of raising Financial Indebtedness or of financing
the acquisition of an asset.
(c) Paragraphs (a) and (b) above do not apply to:
(i) any Encumbrance detailed in the Letter of Borrowings and
Encumbrances which is not to be eliminated, discharged or
released by Postabank es Takarekpenztar Reszvenytarsasag
pursuant to the releases provided for in paragraph 3(t) of
Schedule 2 (Conditions Precedent);
(ii) any Encumbrance arising in respect of any assets of an Obligor
by mandatory operation of Applicable Law which such Obligor
has, upon becoming aware of such an Encumbrance, confirmed in
writing to the Facility Agent;
(iii) any Encumbrance arising pursuant to the Security Agreements;
(iv) any lien arising by operation of law and in the ordinary
course of trading;
(v) any Encumbrance created with the prior written consent of the
Facility Agent acting on the instruction of the Majority
Lenders; or
(vi) any Encumbrance in respect of assets with an aggregate value
which does not exceed two million five hundred thousand euro
(EUR 2,500,000) securing indebtedness the principal amount of
which (when aggregated with the principal amount of any other
indebtedness which has the benefit of an Encumbrance other
than any permitted under paragraphs (i) to (v) above) does not
exceed two million five hundred thousand euro (EUR 2,500,000)
(or their equivalent in another currency or currencies).
21.4 Disposals
(a) Subject to paragraph (b) below, no Obligor shall (and Hungarian
Telephone and Cable Corp. shall procure and ensure that no other member
of the Group will), enter into a single transaction or a series of
transactions (whether related or not) and whether voluntary or
involuntary to sell, lease, transfer or otherwise dispose of any asset.
(b) Paragraph (a) above does not apply to any sale, lease, transfer or
other disposal:
(i) made in the ordinary course of business of the disposing
entity;
(ii) of assets on an arm's length and open market basis with the
prior written consent of the Facility Agent acting on the
instructions of the Majority Lenders;
(iii) of assets which are certified by an officer or director, as
applicable, of the relevant Obligor as being redundant or
obsolete;
(iv) of assets which are being exchanged for comparable or superior
assets and where the assets of the Obligor being exchanged are
not worth materially more than the value of the assets being
acquired or otherwise obtained; or
(v) where the higher of the market value or consideration
receivable (when aggregated with the higher of the market
value or consideration receivable for any other sale, lease,
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transfer or other disposal, other than any permitted under
paragraphs (i) to (iv) above) does not in any financial year
exceed the equivalent of two million, five hundred thousand
dollars (USD 2,500,000).
21.5 Merger and acquisition
No Obligor shall (and Hungarian Telephone and Cable Corp. shall procure
and ensure that no other member of the Group other than PILISTAV
Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu Tarsasag will,
without the prior written consent of the Facility Agent, acting on the
instructions of the Majority Lenders ):
(a) enter into any amalgamation, demerger, merger or corporate
reconstruction other than any such transaction in respect of
two (2) or more Obligors (other than Hungarian Telephone and
Cable Corp.) which has been notified to the Facility Agent in
writing no less than twenty one (21) Business Days prior to
the date on which any resolutions are passed by the founder,
general meeting or analogous body of any such Obligor and
which would not in all reasonable likelihood, save as
expressly approved in advance in writing by the Facility
Agent, acting on the instructions of the Majority Lenders,
taken as a whole adversely affect the interests of the Finance
Parties under the Finance Documents; or
(b) acquire or create any person which results or gives rise to
any loss, payment, cost, liability or other obligation
whatsoever (whether present or future, actual or contingent)
which in aggregate with all other such losses, payments, costs
and liabilities exceeds, in any financial year, an amount
equivalent to one million dollars (USD 1,000,000) and/or
during the period from the date of this Agreement up to and
including the Final Maturity Date, an amount equivalent to
five million dollars (USD 5,000,000).
21.6 Change of business
Each Obligor and Hungarian Telephone and Cable Corp. shall procure and
ensure that no substantial change is made to the general nature of the
business of Hungarian Telephone and Cable Corp. or the Group from that
carried on at the date of this Agreement. No Obligor shall, without the
prior written consent of the Facility Agent, acting on the instruction
of the Majority Lenders, create any subsidiaries and/or become a party
to a joint venture agreement or arrangement and/or enter or become
involved in areas or types of activities or business in each such case
that would fall outside the scope of activities and business
specifically provided for pursuant to the Concession Contracts or
activities and business related to the telecommunications business
which are specified in Government Decree Number 48 of 1997 of Hungary
which are significantly different to those currently being carried on
by the Obligors and as envisaged in the Finance Documents, the overall
effect of which would be reasonably expected to change the overall
nature of the credit risk of the Obligors, as determined by the
Facility Agent, acting on the instructions of the Majority Lenders.
21.7 Insurance
(a) Each Obligor shall take out and maintain insurances on and in relation
to its respective activities, business, operations and assets with
reputable underwriters or insurance companies against such risks and to
such extent as is usual and is available upon commercial terms, in
respect of Hungarian Telephone and Cable Corp., in the United States
and, in respect of the other Obligors, in Hungary for companies
carrying on similar activities, businesses and operations such as those
carried on by it and its subsidiaries whose practice is not to
self-insure.
(b) Each Obligor as quickly as practicable shall, upon it taking out any
such insurance pursuant to this Clause 21.7, notify the Facility Agent
in writing, providing sufficient information on such
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insurance as reasonably required by the Facility Agent and execute an
assignment of contractual rights agreement in respect of such material
insurance, substantially in the form of the Assignment of Contractual
Rights Agreements, as appropriate, if the Facility Agent (acting on the
instructions of the Majority Lenders, acting reasonably) so requires.
Each Obligor shall also not act or fail to act in any way which could
by such action or failure to act cause any material adverse effect on
the validity and enforceability of such insurances.
(c) In the event that fact(s), event(s) and/or circumstance(s) arise(s)
whereby an Obligor intends to make a material claim under such
insurance policies, such Obligor will promptly notify the Facility
Agent in writing of such fact(s), event(s) and/or circumstance(s),
together with an estimate of the amount of the damage or loss and an
estimate of the likely amount of such claim and, at any time when: (i)
a Default or Event of Default is continuing; and/or (ii) when the
amount of such claim, when aggregated with all other claims of the
Obligors which are outstanding at such time and with all other amounts
claimed and paid but not at such time already applied by the Obligors
towards repairs and/or reinstatement, as appropriate, exceeds an amount
equivalent to two hundred and fifty thousand euro (EUR 250,000), such
Obligor(s) will, as soon as reasonably practicable thereafter, enter
into negotiations in good faith with the Facility Agent in order to
determine an appropriate strategy for the use of any monies paid out as
a result of such a claim.
21.8 Untrue representations
After the delivery of any Utilisation Request and before the making of
the Loan(s) requested in such Utilisation Request, each Obligor shall
immediately notify the Facility Agent in writing of the existence or
occurrence of any fact(s), event(s) and/or circumstance(s) which
result(s) in or which would reasonably be expected to result in any of
the representations contained in Clause 18 (Representations) being
untrue at or before the time of the making of such Loan.
21.9 Notification of Events of Default Each Obligor shall, promptly
upon becoming aware of such occurrence, inform the Facility Agent of
the occurrence of any Default or Event of Default, howsoever described
under any of the Finance Documents, or of the receipt of any
correspondence from any person relating to the obligations of any
Borrower under the relevant Concession Contract which gives rise to a
Material Adverse Effect and, upon receipt of a written request to that
effect from the Facility Agent, confirm to the Facility Agent that,
save as previously notified to the Facility Agent or as notified in
such confirmation, no Default or Event of Default, howsoever described
under any of the Finance Documents, has, to the best of its knowledge
and belief, having made all reasonable enquiries thereto, occurred and
no such correspondence has been received by any Obligor.
21.10 Claims pari passu
Each Obligor shall, subject to any Encumbrances permitted pursuant to
Clause 21.3 (Negative Pledge), ensure that at all times the claims of
each Finance Party against such Obligor under the Finance Documents to
which it is a party rank at least pari passu with the claims of all its
other unsecured and unsubordinated creditors save those whose claims
are preferred by the operation of mandatory Applicable Law applying to
companies generally.
21.11 Auditors
No Obligor shall, without the prior written consent of the Facility
Agent (such consent not to be unreasonably withheld) change or propose
to/at such Obligor's founder, general meeting or analogous body, as
applicable, the changing of such Obligor's Auditors except as provided
for in the definition of Auditors in Clause 1.1 (Definitions).
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21.12 Bank accounts
(a) No Obligor shall, without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders:
(i) open, have, maintain or otherwise operate at any time a bank
account (or similar account) with a bank, other financial
institution or person except for the Income Accounts; and
(ii) in the case of Hungarian Telephone and Cable Corp., open,
have, maintain or otherwise operate at any time a bank account
(or similar account) with a bank, other financial institution
or person which is a holder of any Note(s) at such time other
than for the Income Accounts of Hungarian Telephone and Cable
Corp. held with Postabank es Takarekpenztar Reszvenytarsasag
as at the date of this Agreement Provided that Hungarian
Telephone and Cable Corp. unconditionally and irrevocably
agrees and undertakes not to allow a payment into such Income
Account which on any day exceeds an amount equivalent to fifty
thousand euro (EUR 50,000) and in any calendar Month, exceed
in aggregate an amount equivalent to one hundred thousand euro
(EUR 100,000).
(b) Each Obligor shall procure and ensure that all of its respective Income
is paid into an Income Account.
(c) Each Obligor agrees and undertakes that if it opens any additional bank
or similar account(s) (having first received the prior written consent
of the Facility Agent, acting on the instructions of the Majority
Lenders), prior to or simultaneous with such account(s) becoming
operational, such Obligor will create an Encumbrance over such
account(s) in favour of the Security Agent, substantially in the form
of a Pledge Over Bank Accounts Agreement, with such amendments as the
Security Agent shall require to reflect the circumstances at such time
and any changes in Applicable Law.
(d) In the event that Hungarian Telephone and Cable Corp. receives any
Income from any person whatsoever who is at such time exercising any
call options, warrants or similar rights that such person holds in the
equity capital of Hungarian Telephone and Cable Corp., other than in
respect of any stock options awarded to employees (and former
employees) of Hungarian Telephone and Cable Corp., Hungarian Telephone
and Cable Corp. agrees and undertakes to open the Escrow Account and
either:
(i) to deposit such moneys in the Escrow Account; or
(ii) to open a bank account with an Affiliate of the Escrow Bank in
the United States of America and deposit such moneys in such
bank account with such bank account being subject to an
unconditional and irrevocable instruction from Hungarian
Telephone and Cable Corp. to transfer immediately such moneys
to the Escrow Account,
and to hold such moneys in the Escrow Account until such time as the
Facility Agent, acting on the instructions of the Majority Lenders,
determines, without undue delay, that no Event of Default under Clause
22.22 (Ownership of Hungarian Telephone and Cable Corp.) has arisen and
is continuing as a result of the exercise of such call options,
warrants or rights, including those in respect of any stock options
awarded to employees (and former employees) of Hungarian Telephone and
Cable Corp. (and for the purposes of this paragraph (d) the term
"employees" shall be construed so as to include directors, officers and
employees).
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21.13 Loans and guarantees
(a) Save as expressly permitted pursuant to this paragraph (a), no Borrower
shall at any time, without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders, make any
loans, grant any credit or give any guarantee or indemnity whatsoever
(except as required or provided for under any Finance Document) to or
for the benefit of any person whatsoever or otherwise voluntarily
assume any liability whatsoever, whether actual or contingent, in
respect of any obligation of any other person. Each Borrower may from
time to time extend a Permitted Inter-company Loan, being a loan or
loans to other Borrower(s) and/or to HTCC Tanacsado Reszvenytarsasag
for the purposes of, but not limited to, short-term working capital
requirements of the recipient Borrower or HTCC Tanacsado
Reszvenytarsasag, as applicable, the outstanding amount(s) of which in
aggregate do(es) not at any time exceed an amount equivalent to two
million dollars (USD 2,000,000). No Borrower (being a recipient
Borrower), to which a loan has been extended by another Borrower, may
itself extend a loan to any other Borrower(s) until such time as such
recipient Borrower has repaid all amounts outstanding to each other
Borrower prior to such time. The aggregate amount of all indebtedness
arising pursuant to this paragraph (a) shall not at any time exceed an
amount equivalent to six million dollars (USD 6,000,000).
(b) Neither Hungarian Telephone and Cable Corp. nor HTCC Tanacsado
Reszvenytarsasag shall, without the prior written consent of the
Facility Agent, acting on the instructions of the Majority Lenders,
make any loans, grant any credit or give any guarantee or indemnity
whatsoever (except as required or provided for under any Finance
Document) to or for the benefit of any person whatsoever or otherwise
voluntarily assume any liability whatsoever, whether actual or
contingent, in respect of any obligation of any other person, other
than such loans granted to the Borrowers as are disclosed in the Letter
of Borrowings and Encumbrances.
(c) Each of Hungarian Telephone and Cable Corp. and HTCC Tanacsado
Reszvenytarsasag will take such steps and actions as are necessary and
appropriate and procure and ensure that within two (2) years of the
date of this Agreement, the loans provided for in paragraph (b) above
(other than such loans which arose directly from the funds resulting
from the issue of the Notes) which are outstanding at such time are
duly converted into registered paid-up share capital in the Borrowers,
and such other member of the Group will provide Hungarian Telephone and
Cable Corp. and HTCC Tanacsado Reszvenytarsasag with all assistance
necessary to procure and complete such conversion.
(d) Subject to paragraph (e) below, each of the Obligors shall, at all
times, procure and ensure that any and all indebtedness of each
Borrower owed to Hungarian Telephone and Cable Corp. and/or HTCC
Tanacsado Reszvenytarsasag is at all times and in all respects fully
subordinated to any indebtedness and/or other obligations of each such
Borrower owing or expressed to be in favour of any Finance Party. Each
Obligor will enter into the Subordination and Trust Deed and any other
agreement, contract or arrangement deemed necessary or desirable by the
Facility Agent, acting on the instructions of the Majority Lenders, to
give full effect to such subordination.
(e) Subject to there being no Default or Event of Default which is
continuing at such time, the Borrowers shall, notwithstanding paragraph
(d) above, be entitled to pay interest on the loans provided for in
paragraph (c) above which arose directly from the funds resulting from
the issue of the Notes (including, to the extent that such Borrower is
able to do so from Net Cumulative Excess Cash Flow, represented by
cash-at-bank, any such interest accruing during any period in which an
Event of Default or Default is continuing, with such payment to be made
only following receipt by such Borrower of a written waiver in respect
of such Event of Default or Default from the Facility Agent, acting on
the instructions of the Majority Lenders), with such rate of interest
to be no higher than the rate of interest accruing pursuant to the
Notes. Other
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than as provided for in this paragraph (e), no Borrower shall, without
the prior written consent of the Facility Agent, acting on the
instructions of the Majority Lenders, make any payment of any interest
on any indebtedness owed to another member of the Group (save, where
such interest is at an arm's length open-market rate, in respect of
inter-Borrower loans expressly permitted pursuant to paragraph (a)
above).
21.14 Shares
No Obligor shall, without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders, alter any
rights attaching to its issued ordinary shares, Preference Shares
and/or Warrants in existence at the date of this Agreement. No Obligor
shall, without the prior written consent of the Facility Agent, acting
on the instructions of the Majority Lenders, issue any share or other
equity instrument whatsoever which is redeemable at the option of the
holder or which, does not expressly provide for, at all times up to the
full discharge of all obligations and liabilities in favour of the
Finance Parties under the Finance Documents, the obtaining, at the
time(s) of any redemption(s), of the prior written consent of the
Facility Agent, acting on the instructions of the Majority Lenders.
21.15 Distributions
(a) Subject to paragraphs (b), (c) and (d) below, no member of the Group
(other than PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt
Felelossegu Tarsasag) shall make any Distribution which is not a
payment of amounts due and payable under any Permitted Management
Contract, in respect of or on account of any due and payable Related
Party Payment, in respect of or on account of any due and payable
Permitted Fee Distribution or in respect of or on account of a due and
payable Distribution arising under the Preference Shares or a repayment
of any amount outstanding pursuant to and arising under a Permitted
Inter-company Loan.
(b) No member of the Group shall, without the prior written consent of the
Facility Agent, acting on the instructions of the Majority Lenders,
make any Distribution at a time when an Event of Default is continuing
or would arise if such Distribution were made.
(c) Subject to paragraph (b) above, prior to the later of the Trigger Date
and 1 January 2003, no Borrower shall, without the prior written
consent of the Facility Agent, acting on the instructions of the
Majority Lenders make any Distribution to Hungarian Telephone and Cable
Corp. and/or HTCC Tanacsado Reszvenytarsasag, other than any such
Distribution being used to make the payments of interest arising under
the Notes Provided that, in any event, a condition of any such consent
for any other Distribution would include, but not be limited to, an
amount equivalent to or more than the proposed amount of such
Distribution being applied to prepay the Facility A Loan, such
prepayment to be applied in inverse order of maturity.
(d) Following the later of the Trigger Date and 1 January 2003, a Borrower
may make a Distribution to Hungarian Telephone and Cable Corp. of an
amount equivalent to the amount of Net Cumulative Excess Cashflow up to
the date of such proposed Distribution, with the full amount of such
Distribution being used to make the payments of interest and/or to
prepay and redeem one or more of the Notes Provided that it is agreed
that if the Trigger Date occurs on or before 30 September 2003, the
Obligors will, in respect of the 2003 financial year of the Obligors,
be entitled to calculate and determine the amount of Net Cumulative
Excess Cashflow for the first three (3) quarters of such financial
year, as evidenced by the relevant 10Q Document, and apply such amount,
together with any other Net Cumulative Excess Cashflow towards the
prepayment of Notes and any directly related payment then due and
payable in respect of the relevant cancellation of Warrants on or after
15 December 2003.
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21.16 Reduction of capital
Save as may be required to comply with mandatory Applicable Law, no
Obligor shall, without the prior written consent of the Facility Agent,
acting on the instructions of the Majority Lenders, propose to/at any
Obligor's founder or general meeting, as applicable, the reduction of
such Obligor's registered and paid-up share capital or pass such
resolution and each Obligor agrees that it shall not take any action or
steps whatsoever to facilitate the reduction of its registered and
paid-up share capital without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders. Each Obligor
shall not without the prior written consent of the Facility Agent,
acting on the instructions of the Majority Lenders, agree, permit or
otherwise allow or fail to take steps to prevent any person from
withdrawing funds from an Obligor's assets and/or business save as
provided for and permitted in the Finance Documents.
21.17 Material contracts
No Obligor shall, without the prior written consent of the Facility
Agent, acting reasonably, enter into any material agreement(s) and
material contract(s) which is entered into on business terms that are
worse than at arm's-length and/or which gives rise to a Material
Adverse Effect.
21.18 Revocation
No Obligor shall, without the prior written consent of the Facility
Agent, take any formal action or fail to perform any duty or obligation
which is likely to lead to the revocation of any Finance Document to
which such Obligor is a party or to the cancellation or suspension of
the rights of such Obligor included in any such agreement.
21.19 Articles of Association
No Obligor shall, without the prior written consent of the Facility
Agent, acting on the instruction of the Majority Lenders, propose to/at
any Obligor's founder or general meeting, as applicable, an amendment
to its Articles of Association which gives rise to a Material Adverse
Effect.
21.20 Hedging Strategy
(a) Each Borrower shall ensure that at all times it has devised a Hedging
Strategy appropriate at such time and that such Hedging Strategy is
duly being implemented pursuant to the Hedging Documents.
(b) Each Borrower will notify the Facility Agent in writing of the Hedging
Strategy and promptly of any changes to such Hedging Strategy.
(c) No Obligor shall, without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders, enter into
any agreement, arrangement or contract whatsoever which might have a
material adverse effect on the Hedging Strategy or on the
implementation of the Hedging Strategy and/or which might amount to
speculation, gambling or risk taking in respect of any fluctuation in
any rate or price.
(d) Each Borrower will promptly notify the Facility Agent and the Security
Agent of the execution of any Hedging Document and take all steps and
actions to procure and ensure that the benefit of each such Hedging
Document is assigned as quickly as practicable in favour of the
Security Agent (acting on behalf of the Finance Parties) on terms and
conditions required by the Security Agent (in consultation with the
other Finance Parties) at such time.
(e) Each Borrower shall procure and ensure that:
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(i) in respect of any Hedging Document entered into on or prior to
the date of this Agreement, on the date of this Agreement, the
other party to such Hedging Document becomes a party to the
Subordination and Trust Deed (in the capacity of Hedging
Director); and
(ii) in respect of any Hedging Document entered into after the date
of this Agreement, the other party to such Hedging Document
becomes a party to the Subordination and Trust Deed (in the
capacity of Hedging Director) within five (5) Business Days of
entering into such Hedging Document.
21.21 Alteration or amendment of Finance Documents
No Obligor shall alter or amend, or cause to be altered or amended, any
of the Finance Documents to which it is a party, without the prior
written consent of the Facility Agent acting on the instructions of the
Majority Lenders or, if expressly provided for in such a Finance
Document, all of the Lenders Provided that each Obligor will promptly
take any actions or other steps required or desirable under Applicable
Law to give full force and effect to the Finance Documents (and to the
rights, security interests and Encumbrances created in such Finance
Documents) to which it is a party.
21.22 Filing of tax returns
Each Obligor shall file or cause to be filed all tax returns required
to be filed in all jurisdictions in which it and/or any of its
subsidiaries is situated or carries on business or otherwise subject to
pay tax and will promptly pay all taxes which are due and payable on
such returns or any assessment made against it except to the extent
contested in good faith and by appropriate means and either adequate
reserves have been set aside with respect to the unpaid amount or the
Obligor has established to the satisfaction of the Facility Agent,
acting on the instructions of the Majority Lenders, that the setting
aside of adequate reserves is not necessary Provided that an Obligor
will notify the Facility Agent in writing as soon as practicable after
such Obligor decides to contest the amount of tax due and/or payable by
it.
21.23 Amount of Loan specified in the Utilisation Request
Each Obligor will ensure that the amounts specified in any issued
Utilisation Request is in full accordance with the amount(s) provided
for pursuant to this Agreement.
21.24 Environment Each Obligor shall comply with:
(a) all Applicable Law concerning the protection of the
environment; and
(b) the terms of all permits and authorisation required by any
Applicable Law in respect of the environment for the ownership
and operation of its business,
in the manner and to the extent required to procure and ensure the
avoidance of the occurrence of a Material Adverse Effect.
21.25 No new Financial Indebtedness
(a) Hungarian Telephone and Cable Corp. shall not without (subject to
paragraph (d) of Clause 34.2 (Exceptions)) the prior written consent of
the Facility Agent, acting on the instructions of the Majority Lenders,
make or enter into any agreement or arrangement whatsoever whereby any
additional Financial Indebtedness will be created, established or
incurred, by Hungarian Telephone and Cable Corp., or otherwise permit
to subsist any such additional Financial Indebtedness other than in
respect of the Notes Provided that, for the avoidance of doubt, any
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Financial Indebtedness arising pursuant to and/or in respect of
Hungarian Telephone and Cable Corp.'s obligations and liabilities
towards the Finance Parties under the Finance Documents to which
Hungarian Telephone and Cable Corp. is a party shall not fall within
the scope of the restriction expressly provided for in this paragraph
(a).
(b) HTCC Tanacsado Reszvenytarsasag shall not, without (subject to
paragraph (e) of Clause 34.2 (Exceptions)) the prior written consent of
the Facility Agent, acting on the instructions of the Majority Lenders,
make or enter into any agreement or arrangement whatsoever whereby any
additional Financial Indebtedness will be created, established or
incurred, by HTCC Tanacsado Reszvenytarsasag, or otherwise permit to
subsist any such additional Financial Indebtedness other than:
(i) in respect of any vendor finance provided to HTCC Tanacsado
Reszvenytarsasag by any telecommunications or civil works
contractor or telecommunications equipment supplier, in each
case with an initial maturity of up to one hundred and twenty
(120) days, as extended in the ordinary course of trade; or
(ii) indebtedness expressly contemplated and/or permitted pursuant
to paragraph (a) of Clause 21.13 (Loans and guarantees),
Provided that, for the avoidance of doubt, any Financial Indebtedness
arising pursuant to and/or in respect of HTCC Tanacsado
Reszvenytarsasag's obligations and liabilities towards the Finance
Parties under the Finance Documents to which HTCC Tanacsado
Reszvenytarsasag is a party shall not fall within the scope of the
restriction expressly provided for in this paragraph (b).
(c) No Borrower shall, without (subject to paragraph (f) of Clause 34.2
(Exceptions)) the prior written consent of the Facility Agent, acting
on the instructions of the Majority Lenders, make or enter into any
agreement or arrangement whatsoever whereby any additional Financial
Indebtedness will be created, established or incurred, by such Borrower
or any of them, or otherwise permit to subsist any such additional
Financial Indebtedness other than:
(i) in respect of the Loans utilised pursuant to this Agreement;
(ii) in respect of the Hedging Documents;
(iii) in respect of any vendor finance provided to any Borrower by
any telecommunications or civil works contractor or
telecommunications equipment supplier, in each case with an
initial maturity of up to one hundred and twenty (120) days,
as extended in the ordinary course of trade,
(iv) indebtedness expressly contemplated and/or permitted pursuant
to paragraph (a) of Clause 21.13 (Loans and guarantees); or
(v) in respect of any indebtedness not already falling into the
scope of paragraphs (i) to (iv) inclusive above, is in
aggregate for an amount not more than the equivalent of five
million euro (EUR 5,000,000),
Provided that, for the avoidance of doubt, any Financial Indebtedness
arising pursuant to and/or in respect of any of the Borrower's
obligations and liabilities towards the Finance Parties under the
Finance Documents to which such Borrower(s) is/are a party shall not
fall within the scope of the restriction expressly provided for in this
paragraph (c).
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21.26 Stamp Taxes
Each Obligor shall as quickly as practicable upon becoming aware of any
requirement to do so (including following the receipt of written
notification by the Facility Agent in respect thereof) take and/or
procure the taking of all actions required to be done, fulfilled or
performed in order to pay any stamp, registration or similar Tax or
charges arising under any of the Finance Documents.
21.27 Litigation
Each Obligor shall, promptly upon becoming aware of the same, notify
the Facility Agent in writing of any material litigation, arbitration,
administrative proceedings or other actions, whatsoever, of or before
any court, arbitral body, agency or similar body whatsoever, involving
any Obligor not previously disclosed to each Finance Party pursuant to
this Agreement including, inter alia, in each 10K Document and 10Q
Document, which, if adversely determined, would give rise to a Material
Adverse Effect and will continue to provide written updates of any
material developments in respect of any such material litigation,
arbitration, administrative proceedings or other actions to the
Facility Agent.
21.28 Purpose of the Loans
Each of the Borrowers shall apply each Facility A Loan and each
Facility B Loan to its intended purpose as specified in Clause 3.1
(Purpose).
21.29 Additional security
Each Obligor except Hungarian Telephone and Cable Corp. shall:
(a) maintain an inventory ("Leltar") of each of its assets which
are of a type and/or class capable of being the subject of a
fixed charge pursuant to a Fixed Charge Agreement which exceed
a value of ten million forints (HUF 10,000,000), a copy of
which shall from time to time at the request of the Facility
Agent acting reasonably and in any event within thirty (30)
days of the acquisition of any such asset and within ninety
(90) days of the end of each financial year be delivered to
the Facility Agent;
(b) once the aggregate value of assets detailed in the Inventory
of Business Assets, which are not already subject to a fixed
charge pursuant to a Fixed Charge Agreement, equals or exceeds
an amount equivalent to two hundred and fifty thousand euro
(EUR 250,000), such Obligor shall promptly and in any event
within ten (10) days of a request in writing by the Facility
Agent, acting reasonably, execute a Fixed Charge Agreement in
favour of the Security Agent acting on behalf of all of the
Finance Parties over such assets as identified to it by the
Facility Agent; and
(c) promptly upon the written request of the Facility Agent,
acting reasonably, execute further assignment of contractual
agreements in favour of the Security Agent in respect of new
contracts and agreements which give rise to interests, rights
and benefits in favour of such Obligor which are capable of
being assigned with such further assignment of contractual
rights agreements to be substantially in the form of an
Assignment of Contractual Rights Agreement, with such
amendments as the Security Agent shall require to reflect the
circumstances at such time and any changes in Applicable Law.
21.30 Notes
(a) Hungarian Telephone and Cable Corp. shall not alter the terms and
conditions of the Notes without the prior written consent of the
Facility Agent, acting on the instructions of the Majority Lenders.
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(b) Prior to the occurrence of a Default or Event of Default which is
continuing, Hungarian Telephone and Cable Corp. will duly pay all
interest arising under the Notes on the dates such interest falls due
and payable.
(c) Following the occurrence of a Default or Event of Default, Hungarian
Telephone and Cable Corp. will not, without the prior written consent
of the Facility Agent, acting on the instructions of the Lenders, pay
any interest or other amounts whatsoever arising under the Notes until
the Obligors have duly performed and discharged in full their
respective obligations and liabilities to the Finance Parties under the
Finance Documents.
21.31 Preference Shares
If Citizens at any time exercises its conversion rights under all or
any of the Preference Shares, Hungarian Telephone and Cable Corp. shall
inform the Facility Agent of such exercise with three (3) Business Days
of becoming aware of such occurrence.
21.32 Minority shareholders
If any minority shareholder of a Borrower at any time converts, swaps
or in any way exchanges its shareholding in such Borrower for issued
and fully paid-up shares in Hungarian Telephone and Cable Corp.,
Hungarian Telephone and Cable Corp. shall promptly thereafter grant an
Encumbrance over such issued and fully paid-up shares in such Borrower
in favour of the Security Agent acting on behalf of the Lenders. Such
Encumbrance(s) are to be created by and constituted in a security
deposit agreement in all material respects in the form of Security
Deposit Agreements, with such changes as the Security Agent may require
to reflect changes in Applicable Law.
21.33 Further assurance
Each Obligor shall, at its own expense, execute and do all such
assurances, acts and things as the Facility Agent and/or the Security
Agent may reasonably require for perfecting, or protecting the
interests of the Finance Parties under, the security and subordination
constituted or evidenced or purported to be constituted or evidenced by
any of the Finance Documents.
21.34 Concession Contracts
(a) Each Borrower will take all best efforts to maintain in full force and
effect and to comply in all material respects with the Concession
Contracts to which such Borrower is a party.
(b) Each Borrower will promptly copy to the Facility Agent any material
correspondence in respect of the Concession Contracts received from any
other party to and/or in connection with such Concession Contracts
and/or the Telecommunications Authority.
21.35 Related Party Payments
No Obligor shall, without the prior written consent of the Facility
Agent, acting on the instructions of the Majority Lenders, make any
prepayment or otherwise accelerate any payment of, on account of or
otherwise in respect of any Related Party Payment.
22. EVENTS OF DEFAULT
Each of the facts, events or circumstances set out in Clause 22 is an
Event of Default.
22.1 Non-payment
An Obligor does not pay on the due date any amount payable pursuant to
any Finance Document at the place at and in the currency in which it is
expressed to be payable unless:
(i) its failure to pay is caused by administrative or technical
error; and
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(ii) payment is made within three (3) Business Days of its due
date.
22.2 Financial covenants
Any requirement of Clause 20 (Financial Covenants) is not satisfied
Provided that it shall not be an Event of Default under this Clause
22.2 if, between the last day of the financial accounting period to
which a 10K Document or 10Q Document relates and the delivery of such
10K Document or 10Q Document to the Facility Agent in compliance with
the requirements under this Agreement, one or more shareholders of
Hungarian Telephone and Cable Corp. provide funds to Hungarian
Telephone and Cable Corp., in the form of non-redeemable paid-up share
capital and/or Financial Indebtedness fully subordinated to the Senior
Credit (as defined in the Subordination Trust Deed), with such
shareholder(s) becoming a party (or parties, as applicable) to the
Subordination and Trust Deed, as a Subordinated Creditor (as defined in
the Subordination and Trust Deed), in a minimum amount of five million
dollars (USD 5,000,000) or such greater amount as would have ensured
that, if Hungarian Telephone and Cable Corp. had received such funds
during the relevant financial accounting period, there would have been
no breach of or failure to comply with the requirements of Clause 20
(Financial Covenants).
22.3 Other obligations
(a) An Obligor does not comply with any provision of the Finance Documents
(other than those referred to in Clause 22.1 (Non-payment) and Clause
22.2 (Financial covenants)).
(b) No Event of Default under paragraph (a) above will occur:
(i) in relation to Clause 21 (General Undertakings) if the failure
to comply is capable of remedy and is remedied within ten (10)
Business Days or, if in order to effect such remedy, an
application must be made to an organ, agency or other
administrative or regulatory body of Hungary, then such period
shall be extended by a further twenty (20) Business Days; or
(ii) any other obligation which is deemed to be material by the
Facility Agent, expressed to be assumed by any Obligor in any
of the Finance Documents to which such Obligor is a party and
such failure, if capable of remedy, is remedied within twenty
five (25) Business Days or, if in order to effect such remedy,
an application must be made to an organ, agency or other
administrative or regulatory body of Hungary, then such period
shall be extended by a further fifteen (15) Business Days.
22.4 Misrepresentation
Any representation or statement made or deemed to be made by an Obligor
in the Finance Documents or any other document delivered by or on
behalf of any Obligor under or in connection with any Finance Document
is or proves to have been incorrect or misleading in any material
respect when made or deemed to be made and, if the circumstance(s)
giving rise to or causing such misrepresentation are, in the opinion of
the Facility Agent, acting on the instructions of the Majority Lenders,
capable of remedy, the Obligor has failed to remedy such
circumstance(s) within ten (10) Business Days of the making or deemed
making of such incorrect or misleading representation or statement.
22.5 Cross default
(a) Any Financial Indebtedness (other than any Financial Indebtedness which
is owed to any other member of Group and which is subject to the
Subordination and Trust Deed) of any member of the Group (other than
PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu
Tarsasag) is not paid when due or within any originally applicable
grace period.
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(b) Any Financial Indebtedness (other than any Financial Indebtedness which
is owed to any other member of Group and which is subject to the
Subordination and Trust Deed) of any member of the Group (other than
PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu
Tarsasag) is or is capable of being declared to be or otherwise becomes
due and payable prior to its specified maturity as a result of an event
of default (however described or provided for).
(c) Any commitment for any Financial Indebtedness of any member of the
Group (other than PILISTAV Tavkozlesi, Epito es Szolgaltato Korlatolt
Felelossegu Tarsasag) is cancelled or suspended by a creditor of any
member of the Group as a result of an event of default (however
described or provided for).
(d) Any creditor of any member of the Group (other than PILISTAV
Tavkozlesi, Epito es Szolgaltato Korlatolt Felelossegu Tarsasag)
becomes entitled to declare any Financial Indebtedness (other than any
Financial Indebtedness which is owed to any other member of Group and
which is subject to the Subordination and Trust Deed) of any member of
the Group (other than PILISTAV Tavkozlesi, Epito es Szolgaltato
Korlatolt Felelossegu Tarsasag) due and payable prior to its specified
maturity as a result of an event of default (however described or
provided for).
(e) Any Encumbrance securing Financial Indebtedness over any asset of any
of the Borrowers becomes enforceable as a result or by virtue of the
occurrence of an event of default (however described or provided for).
(f) No Event of Default will occur under this Clause 22.5 if the aggregate
amount of Financial Indebtedness or commitment for Financial
Indebtedness falling within paragraphs (a) to (e) above is less than
two hundred and fifty thousand euro (EUR 250,000) (or its equivalent in
any other currency or currencies aggregated with the anticipated
monetary value, cost or other expense of all then applicable claims
provided for in Clause 22.10 (Litigation)).
22.6 Insolvency
(a) A member of the Group is unable or admits inability to pay its debts as
they fall due, suspends making payments on any of its debts makes a
general assignment for the benefit of or a composition with its
creditors, or seeks any of the protections provided for in the
Bankruptcy Act or in its relevant jurisdiction, becomes subject to any
of the procedures provided for in the Bankruptcy Act or in its relevant
jurisdiction, and in the case of any such proceeding instituted against
it (but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of forty five (45) days, or any of
the actions sought in such proceeding (including the entry of an order
for relief against it or the appointment of a receiver, trustee,
custodian or other similar official for it or for any part of its
assets) shall occur or, by reason of actual or anticipated financial
difficulties, commences negotiations with one or more of its creditors
with a view to rescheduling any of its indebtedness Provided that a
mere claimant against an Obligor shall not be regarded as a creditor
until such claim is recognised by such Obligor pursuant to Applicable
Law or otherwise.
(b) To the extent that, at any time, the value of the assets of any
Borrower is less than its liabilities (taking into account contingent
and prospective liabilities) such Borrower fails at such time to take
all appropriate and applicable steps to procure and ensure full
compliance with mandatory Applicable Law and the requirements under the
Concession Contracts.
(c) A moratorium is declared in respect of any indebtedness of any member
of the Group.
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22.7 Insolvency proceedings
Any corporate action, legal proceedings or other procedure or step is
taken in relation to:
(a) the suspension of payments, a moratorium of any indebtedness,
winding-up, dissolution, administration or reorganisation (by
way of voluntary arrangement, scheme of arrangement or
otherwise) of any member of the Group other than a solvent
liquidation or reorganisation of any member of the Group which
is not an Obligor;
(b) a composition, assignment or arrangement with any creditor of
any member of the Group;
(c) the appointment of a liquidator (other than in respect of a
solvent liquidation of a member of the Group which is not an
Obligor), receiver, administrator, administrative receiver,
compulsory manager or other similar officer in respect of any
member of the Group or any of its assets; or
(d) enforcement of any Encumbrance over any assets of any member
of the Group.
22.8 Unlawfulness
(a) It is or becomes unlawful and/or in conflict with any Applicable Law
for an Obligor to comply, perform and/or discharge any of its payment
obligations under the Finance Documents which, in the opinion of the
Facility Agent, acting on the instructions of the Majority Lenders,
cannot be fully addressed and/or mitigated so as to leave the Finance
Parties in no worse a position than that prior to such unlawfulness.
(b) It is or becomes unlawful and/or in conflict with any Applicable Law
for an Obligor to comply, perform and/or discharge any or all of such
Obligor's material non-payment obligations and liabilities under the
Finance Documents which, in the opinion of the Facility Agent, acting
on the instructions of the Majority Lenders, gives rise to a Material
Adverse Effect.
22.9 Repudiation
An Obligor repudiates a Finance Document or clearly evidences an
intention to repudiate a Finance Document.
22.10 Litigation
Notwithstanding any notification to the Facility Agent pursuant to this
Agreement, any litigation, arbitration, administrative proceedings or
other actions whatsoever are commenced against any Obligor and/or any
other member(s) of the Group or the nature of any existing such
proceedings or other actions changes in any way whatsoever which, if it
were to be adversely determined, in the opinion of the Facility Agent,
acting on the instructions of the Majority Lenders, gives rise to a
Material Adverse Effect and which such Obligor and/or such other
member(s) of the Group fail(s) within a reasonable period of time (as
determined by the Facility Agent, acting on the instructions of the
Majority Lenders) to demonstrate, to the satisfaction of the Facility
Agent, acting on the instructions of the Majority Lenders, that such
Obligor and other member of the Group is contesting such proceedings or
actions in good faith and that such contesting has a reasonable
expectation of being successful and/or that the reasonably anticipated
monetary value, cost or other expense of such claim(s) individually
does not exceed the equivalent of one million euro (EUR 1,000,000) and
in aggregate do(es) not exceed the equivalent of one million five
hundred thousand euro (EUR 1,500,000) when aggregated with the amount,
if any, of Financial Indebtedness to which the operative provisions of
Clause 22.5 (Cross default) then applies.
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22.11 Execution or distress
Any execution or distress is levied against, or an encumbrancer takes
possession of, the whole or any part of, the property, undertaking or
assets of any Obligor which when aggregated with all other execution
and distress exceeds an amount equivalent to one hundred and twenty
five thousand euro (EUR 125,000) which such Obligor fails to
demonstrate within a reasonable period of time (as determined by the
Facility Agent, acting reasonably) to the satisfaction of the Facility
Agent, acting reasonably, are frivolous or vexatious and/or will be
paid out and/or duly discharged within thirty (30) Business Days, or
such later date as the Facility Agent, acting on the instructions of
the Majority Lenders, may agree.
22.12 Analogous events
Any event occurs in respect of an Obligor which under the laws of any
jurisdiction has a similar or analogous effect to any of those events
mentioned in Clause 22.6 (Insolvency), Clause 22.7 (Insolvency
proceedings) or Clause 22.11 (Execution or distress).
22.13 Governmental intervention
By or under the authority of any government any of the following events
occur or threaten to occur: (a) the management of any Obligor is wholly
or partially displaced or the authority of any Obligor in the conduct
of its business is wholly or partially curtailed; or (b) all or a
majority of the issued and paid-up shares of any Obligor or the whole
or any part of its respective revenues or assets is seized,
nationalised, expropriated or compulsorily acquired.
22.14 Control of Hungarian Telephone and Cable Corp.
Other than pursuant to any transaction made in compliance with
paragraph (c) of Clause 22.22 (Ownership of Hungarian Telephone and
Cable Corp.) or as expressly approved in advance in writing by the
Facility Agent, acting on the instructions of the Majority Lenders, any
person and/or Related Party of such person and/or any other person
acting in concert with such person gains control over Hungarian
Telephone and Cable Corp. and, for these purposes, control of Hungarian
Telephone and Cable Corp. shall include the ability to, directly or
indirectly, direct its affairs and/or direct and/or control the
composition of its board of directors or equivalent body as well as
ownership, beneficially and/or legally, directly and/or indirectly, of
more than half the issued share capital of Hungarian Telephone and
Cable Corp.
22.15 Ownership of the Borrowers
Other than as expressly approved in advance in writing by the Facility
Agent, acting on the instructions of the Majority Lenders, other than
for the purposes of consolidation with another Borrower or in
connection with an issue of shares on the Budapest Stock Exchange for
the purpose of meeting the Hungarian ownership requirements of the
relevant Concession Contract, Hungarian Telephone and Cable Corp.
sells, transfers or otherwise disposes of any of its issued share
capital of a Borrower or of HTCC Tanacsado Reszvenytarsasag.
22.16 The Obligors' business
Any Obligor ceases to carry on or changes in any material respect the
business it carries on at the date of this Agreement or enters into any
unrelated business which in the opinion of the Facility Agent, acting
on the instructions of the Majority Lenders, gives rise to a Material
Adverse Effect and such circumstance(s), if capable of remedy, is/are
not remedied within ten (10) Business Days.
22.17 Validity and admissibility
At any time any act, condition or thing required to be done, fulfilled
or performed in order: (a) to enable an Obligor lawfully to enter into,
exercise its rights under and perform the obligations expressed to be
assumed by it under any of the Finance Documents to which it is a
party; or (b) to ensure that the obligations expressed to be assumed by
an Obligor under any of the Finance
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Documents to which it is a party are legal, valid, in full force and
effect, binding on and enforceable against it; or (c) to make the
Finance Documents admissible in evidence in Hungary is not done,
fulfilled or performed and, if such failure to do, fulfil or perform is
capable of being remedied, the same is not so remedied within twenty
(20) Business Days of the date of any written notice given by the
Facility Agent to such Obligor in respect of such failure or, if in
order to effect such remedy, an application must be made to an organ,
agency or other administrative or regulatory body of any jurisdiction,
then such period shall be extended by a further twenty (20) Business
Days Provided that in respect of those Finance Documents which were not
executed in the Hungarian language and for which no official
translation is available in the Hungarian language, the Borrower shall
be only be obligated to have such Finance Documents officially
translated into the Hungarian language upon receipt of a written
request from the Facility Agent, acting reasonably, and on the receipt
of such a written request the Borrowers shall arrange for the prompt
translation into the Hungarian language of such Finance Documents and
the prompt delivery of such translations to the Facility Agent.
22.18 Performance of obligations
Any fact(s), event(s) or other circumstance(s) or series of the
foregoing arise(s) (other than any such fact(s), event(s) or other
circumstance(s) which already fall fully into the scope of any other
specific Event of Default expressly provided for in this Clause 22)
which in the opinion of the Facility Agent, acting on the instructions
of the Majority Lenders, gives rise to a Material Adverse Effect.
22.19 Failure to implement Hedging Strategy
An Obligor, at any time, fails to duly and properly comply with the
terms of Clause 21.20 (Hedging Strategy) and/or in the opinion of the
Facility Agent, acting on the instructions of the Majority Lenders, the
strategy (if any) adopted by the Obligors is inappropriate and/or
inadequate and gives rise to a Material Adverse Effect and such
circumstances, if capable of remedy are not remedied within ten (10)
Business Days.
22.20 Failure to comply with final judgment
Any Obligor fails to comply with or pay any sum due from it under any
material final judgment or any final order made or given by any court
of competent jurisdiction.
22.21 Concession Contracts
Any Borrower publicly announces that it is abandoning or intends to
abandon the activities which it carries out pursuant to a Concession
Contract or the decision of a Borrower to abandon such activities
becomes public or a Borrower fails or is unable to comply with any of
the terms of a Concession Contract or any other contract which is
material to such Borrower's ability to carry on its business or
revocation, cancellation or surrender of a Concession Contract occurs.
22.22 Ownership of Hungarian Telephone and Cable Corp.
Prior to the later of: (i) 31 December 2001; and (ii) the Trigger Date:
(a) Tele Danmark A/S and/or any person which at all times and in
all respects is a wholly owned Subsidiary of Tele Danmark A/S
and the IO Fund, together or individually, fail to maintain
ownership of a minimum of thirty point one per cent. (30.1%)
of the issued and paid-up share capital of Hungarian Telephone
and Cable Corp.; or
(b) Tele Danmark A/S and/or any person which at all times and in
all respects is a wholly owned Subsidiary of Tele Danmark A/S
fails to maintain ownership of the issued and paid-up share
capital of Hungarian Telephone and Cable Corp. which Tele
Danmark A/S holds at the date of this Agreement; or
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following the Trigger Date,
(c) Tele Danmark A/S and/or any person which at all times and in
all respects is a wholly owned Subsidiary of Tele Danmark A/S
sells, transfers or otherwise disposes of any or all of its
issued and paid-up shares in Hungarian Telephone and Cable
Corp. without the prior written consent of the Majority
Lenders Provided that such consent shall be based on the
determination by the Majority Lenders, acting reasonably, that
the proposed new shareholder in Hungarian Telephone and Cable
Corp. is an internationally recognised telecommunications
operator of similar standing to Tele Danmark A/S and has a
minimum long-term credit rating of A2 or better from Moody's
Investor Services or A or better from Standard and Poor's
Investor Services.
22.23 Technical and Management Support
Tele Danmark A/S fails duly to provide any of the Obligors with
technical and management support as such support is required by such
Obligor from time to time until the later of: (i) 31 December 2001; and
(ii) the Trigger Date.
22.24 Authorisations
Any Authorisation of any Competent Authority required for the
execution, delivery or performance of any Finance Document is modified
in any material respect, revoked or withdrawn or ceases to remain in
full force and effect and, in any such case, in the opinion of the
Facility Agent, acting on the instructions of the Majority Lenders, it
gives rise to a Material Adverse Effect and such circumstance is not
remedied within twenty five (25) Business Days, or if in order to
effect such remedy, an application must be made to an organ, agency or
other administrative or regulatory body of Hungary, then such period
shall be extended by a further fifteen (15) Business Days.
22.25 Financial Indebtedness
Any Obligor wilfully enters into any agreement, arrangement or contract
whatsoever with the primary intention of directly and/or indirectly
causing and/or giving rise to a breach of the provisions of the Finance
Documents regarding Financial Indebtedness, and/or Permitted Financial
Indebtedness.
22.26 Enforceability
Any of the Finance Documents cease to be enforceable and valid under
any Applicable Law or any of the Encumbrances created by and
constituted in the Security Agreements ceases to constitute a valid
first ranking Encumbrance, in a manner and to an extent which in the
opinion of the Facility Agent, acting on the instructions of the
Majority Lenders, has or would in all reasonable likelihood have a more
than nominal adverse effect on the interests of any of the Finance
Parties.
22.27 The Notes
Hungarian Telephone and Cable Corp. fails to make full payment under
the Notes on the date such interest falls due and payable.
22.28 Acceleration and cancellation
On and at any time after the occurrence of an Event of Default which is
continuing and which has not been expressly waived in writing by the
Facility Agent, acting on the instructions of the Majority Lenders or
Lenders, as appropriate, the Facility Agent may, and shall if so
directed by the Majority Lenders, by notice (by the Facility Agent or
any person on the Facility Agent's behalf) to the Obligors:
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(a) cancel the Total Commitments whereupon they shall immediately
be cancelled;
(b) declare that all or part of the Loans, together with accrued
interest, and all other amounts accrued under the Finance
Documents be immediately due and payable, whereupon they shall
become immediately due and payable; and/or
(c) declare that all or part of the Loans be payable on demand,
whereupon they shall immediately become payable on demand by
the Facility Agent on the instructions of the Majority
Lenders.
22.29 Loans Due on demand
If, pursuant to Clause 22.28 (Acceleration and cancellation), the
Facility Agent declares the Loan(s) to be due and payable on demand of
the Facility Agent, then, and at any time thereafter, the Facility
Agent may (and, if so instructed by the Majority Lenders, shall) by
written notice (by the Facility Agent or any person on the Facility
Agent's behalf) to the Borrowers:
(a) require repayment of the Loan(s) on such date as it may
specify in such notice (whereupon the same shall become due
and payable on such date together with accrued interest
thereon and any other sums then owed by the Borrowers under
this Agreement) or withdraw its declaration with effect from
such date as it may specify in such notice; and/or
(b) select as the duration of any Interest Period which begins
whilst such declaration remains in effect a period of three
(3) Months or less; and/or
(c) without prejudice to the provisions of any other Finance
Documents, declare that the Security Agreements (or any of
them) shall have become enforceable and enforce any or all of
the same.
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SECTION 8 - CHANGES TO PARTIES
23. CHANGES TO THE LENDERS
23.1 Assignments and transfers by the Lenders
Subject to this Clause 23, a Lender (the "Existing Lender") may:
(a) assign any of its rights; or
(b) transfer by novation any of its rights and obligations,
to another bank or financial institution (the "New Lender").
23.2 Conditions of assignment or transfer
(a) The consent of the Obligors is required for an assignment or transfer
by a Lender, unless the assignment or transfer is to another Lender or
an Affiliate of a Lender and/or an Event of Default at such time is
continuing.
(b) The consent of the Obligors to an assignment or transfer must not be
unreasonably withheld or delayed. The Obligors will be deemed to have
given their consent five (5) Business Days after the Lender has
requested it unless consent is expressly refused by the Obligors within
that time.
(c) The consent of the Obligors to an assignment or transfer must not be
withheld solely because the assignment or transfer may result in an
increase to the Associated Costs.
(d) An assignment will only be effective on receipt by the Facility Agent
of written confirmation from the New Lender (in form and substance
satisfactory to the Facility Agent) that the New Lender will assume the
same obligations to the other Finance Parties as it would have been
under if it was an Original Lender.
(e) A transfer will only be effective if the procedure set out in Clause
23.5 (Procedure for transfer) is complied with.
(f) Any assignment or transfer by an Existing Lender to a New Lender shall
only be effective if it transfers or assigns the Existing Lender's
share of each Facility pro rata.
(g) If:
(i) a Lender assigns or transfers any of its rights or obligations
under the Finance Documents or changes its Facility Office;
and
(ii) as a result of circumstances existing at the date the
assignment, transfer or change occurs, an Obligor would be
obliged to make a payment to the New Lender or Lender acting
through its new Facility Office under Clause 13 (Tax Gross-up
and Indemnities) or Clause 14 (Increased Costs),
then the New Lender or Lender acting through its new Facility Office is
only entitled to receive payment under those Clauses to the same extent
as the Existing Lender or Lender acting through its previous Facility
Office would have been if the assignment, transfer or change had not
occurred.
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23.3 Assignment or transfer fee
In respect of any assignment or transfer which takes place after the
period commencing on the date of this Agreement and ending on the
earlier of date on which the Arrangers notify the Facility Agent in
writing that the syndication of the Facility has been completed and the
date falling thirty (30)] days after the date of this Agreement, the
New Lender shall, on the date upon which an assignment or transfer
takes effect, pay to the Facility Agent (for the Facility Agent's own
account) a fee of one thousand euro (EUR 1,000).
23.4 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes no
representation or warranty and assumes no responsibility to a New
Lender for:
(i) the legality, validity, effectiveness, adequacy or
enforceability of the Finance Documents or any other
documents;
(ii) the financial condition of any Obligor;
(iii) the performance and observance by any Obligor of such
Obligor's obligations under the Finance Documents or any other
documents; or
(iv) the accuracy of any statements (whether written or oral) made
in or in connection with any Finance Document or any other
document,
and any representations or warranties implied by Applicable Law are
excluded.
(b) Each New Lender confirms to the Existing Lender and the other Finance
Parties that such New Lender:
(i) has made (and shall continue to make) such New Lender's own
independent investigation and assessment of the financial
condition and affairs of each Obligor and such Obligor's
related entities in connection with such New Lender's
participation in this Agreement and has not relied exclusively
on any information provided to such New Lender by the Existing
Lender in connection with any Finance Document; and
(ii) will continue to make such New Lender's own independent
appraisal of the creditworthiness of each Obligor and such
Obligor's related entities whilst any amount is or may be
outstanding under the Finance Documents or any Commitment is
in force.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re-transfer from a New Lender of any of the rights
and obligations assigned or transferred under this Clause 23;
or
(ii) support any losses directly or indirectly incurred by the New
Lender by reason of the non-performance by any Obligor of such
Obligor's obligations under the Finance Documents or
otherwise.
23.5 Procedure for transfer
(a) Subject to the conditions set out in Clause 23.2 (Conditions of
assignment or transfer) a transfer is effected in accordance with
paragraph (b) below when the Facility Agent executes an otherwise duly
completed Transfer Certificate delivered to the Facility Agent by the
Existing Lender and the New Lender. The Facility Agent shall, as soon
as reasonably practicable after receipt by the Facility Agent of a duly
completed Transfer Certificate appearing on such Transfer Certificate's
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face to comply with the terms of this Agreement and delivered in
accordance with the terms of this Agreement, execute that Transfer
Certificate.
(b) On the Transfer Date:
(i) to the extent that in the Transfer Certificate the Existing
Lender seeks to transfer by novation such Existing Lender's
rights and obligations under the Finance Documents each of the
Obligors and the Existing Lender shall be released from
further obligations towards one another under the Finance
Documents and their respective rights against one another
shall be cancelled (being the "Discharged Rights and
Obligations");
(ii) each of the Obligors and the New Lender shall assume
obligations towards one another and/or acquire rights against
one another which differ from the Discharged Rights and
Obligations only insofar as that Obligor and the New Lender
have assumed and/or acquired the same in place of that Obligor
and the Existing Lender;
(iii) each Agent, each Arranger, the New Lender and other Lenders
shall acquire the same rights and assume the same obligations
between themselves as they would have acquired and assumed had
the New Lender been an Original Lender with the rights and/or
obligations acquired or assumed by such New Lender as a result
of the transfer and to that extent each Agent, each Arranger
and the Existing Lender shall each be released from further
obligations to each other under this Agreement; and
(iv) the New Lender shall become a Party as a "Lender".
(c) At the same time as any Transfer Certificate is delivered to the
Facility Agent in accordance with this Agreement, the New Lender will
simultaneously deliver or procure the delivery of a duly completed
power of attorney in favour of the Security Agent in respect of the
Security Agreements, such power of attorney to be substantially in the
form set out in Part II (Form of the power of attorney to be provided
by the New Lender in favour of the Security Agent) of Schedule 4 (Form
of Transfer Certificate).
23.6 Disclosure of information
Any Lender may disclose to any of its Affiliates and any other person
(subject to such other person agreeing to enter into a Confidentiality
Agreement):
(a) to (or through) whom that Lender assigns or transfers (or may
potentially assign or transfer) all or any of such Lender's
rights and obligations under this Agreement;
(b) with (or through) whom that Lender enters into (or may
potentially enter into) any sub-participation in relation to,
or any other transaction under which payments are to be made
by reference to, this Agreement or any Obligor;
(c) to whom, and to the extent that, information is required to be
disclosed by any applicable law or regulation,
(d) with whom it does share data, information and similar matters;
any information about any Obligor, the Group and the Finance Documents
as that Lender shall consider appropriate.
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24. CHANGES TO THE OBLIGORS
24.1 Assignments and transfer by Obligors
No Obligor may assign any of its rights or transfer any of its rights
or obligations under the Finance Documents to which it is a party save
in the case of any such transfer to a legal successor arising pursuant
to a transaction contemplated by and in accordance with paragraph (a)
of Clause 21.5 (Merger and acquisition).
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SECTION 9 - THE FINANCE PARTIES
25 ROLE OF THE AGENTS AND THE ARRANGERS
25.1 Appointment of the Agents
(a) Each Arranger and each Lender appoints each of the Facility Agent and
the Security Agent to act as its agent under and in connection with the
Finance Documents.
(b) Each Arranger and each Lender authorises each Agent to exercise the
rights, powers, authorities and discretions specifically given to such
Agent under or in connection with the Finance Documents together with
any other incidental rights, powers, authorities and discretions.
25.2 Duties of the Agents
(a) Each Agent shall promptly forward to a Party the original or a copy of
any document which is delivered to such Agent for that Party by any
other Party. Without prejudice to Clause 30.1 (Communications in
writing), an Agent may discharge its duty to forward a copy of any
document supplied to it pursuant to Clause 19 (Information
Undertakings) by sending such document to a relevant Party by e-mail
where such relevant Party has informed such Agent of an e-mail address
pursuant to Clause 30.2 (Addresses) or by reference to a web site where
such Agent has previously informed a relevant Party of the address of
such web site and the location of the relevant document on such web
site pursuant to Clause 30.2 (Addresses).
(b) If an Agent receives notice from a Party referring to this Agreement,
describing a Default and stating that the fact(s), event(s) and/or
circumstance(s) described in such notice is/are a Default, it shall
promptly notify the Lenders in writing.
(c) Each Agent shall promptly notify the Lenders in writing of any Default
arising under Clause 22.1 (Non-payment).
(d) Each Agent's duties under the Finance Documents are solely mechanical
and administrative in nature.
(e) Upon any request from the Facility Agent, or as otherwise contemplated
and/or required pursuant to this Agreement, the Security Agent will in
good time notify the Facility Agent of the relevant Security Agent's
Spot Rate of Exchange required pursuant to this Agreement.
25.3 Role of the Arrangers
Except as specifically provided in the Finance Documents, no Arranger
has any obligations of any kind to any other Party under or in
connection with any Finance Document.
25.4 No fiduciary duties
(a) Nothing in this Agreement constitutes any Agent or any Arranger as a
trustee or fiduciary of any other person.
(b) Neither any Agent nor any Arranger shall be bound to account to any
Lender for any sum or the profit element of any sum received by such
Agent or Arranger, as applicable, for its own account.
25.5 Business with the Group
Each Agent and each Arranger may accept deposits from, lend money to
and generally engage in any kind of banking or other business with any
member of the Group.
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25.6 Rights and discretions of the Agent
(a) Each Agent may rely on:
(i) any representation, notice or document believed by it to be
genuine, correct and appropriately authorised; and
(ii) any statement made by a director, authorised signatory or
employee of any person regarding any matters which may
reasonably be assumed to be within his knowledge or within his
power to verify.
(b) Each Agent may assume (unless it has received notice to the contrary in
its capacity as agent for the Lenders) that:
(i) no Default has occurred (unless it has actual knowledge of a
Default arising under Clause 22.1 (Non-payment));
(ii) any right, power, authority or discretion vested in any Party
or the Majority Lenders has not been exercised; and
(iii) any notice or request made by an Obligor is made on behalf of
and with the consent and knowledge of all the Obligors.
(c) Each Agent may engage, pay for and rely on the advice or services of
any lawyers, accountants, surveyors or other experts.
(d) Each Agent may act in relation to the Finance Documents through its
personnel and agents.
25.7 Majority Lenders' instructions
(a) Unless a contrary indication appears in a Finance Document, each Agent
shall: (a) act in accordance with any instructions given to it by the
Majority Lenders (or, if so instructed by the Majority Lenders, refrain
from acting or exercising any right, power, authority or discretion
vested in it as Agent); and (b) not be liable for any act (or omission)
if such Agent acts (or refrains from taking any action) in accordance
with such an instruction of the Majority Lenders.
(b) Unless a contrary indication appears in a Finance Document, any
instructions given by the Majority Lenders will be binding on all the
Lenders and all the Arrangers.
(c) Each Agent may refrain from acting in accordance with the instructions
of the Majority Lenders (or, if appropriate, the Lenders) until such
Agent has received such security as such Agent may require for any
cost, loss or liability (together with any associated VAT) which such
Agent may incur in complying with the instructions.
(d) In the absence of instructions from the Majority Lenders, (or, if
appropriate, the Lenders) each Agent may act (or refrain from taking
action) as such Agent considers to be in the best interest of the
Lenders.
(e) Each Agent is not authorised to act on behalf of a Lender (without
first obtaining that Lender's consent) in any legal or arbitration
proceedings relating to any Finance Document.
25.8 Responsibility for documentation
No Agent nor any Arranger:
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(a) is responsible for the adequacy, accuracy and/or completeness
of any information (whether oral or written) supplied by any
Agent, any Arranger, any Obligor or any other person given in
or in connection with any Finance Document or the Information
Memorandum; or
(b) is responsible for the legality, validity, effectiveness,
adequacy or enforceability of any Finance Document or any
other agreement, arrangement or document entered into, made or
executed in anticipation of or in connection with any Finance
Document.
25.9 Exclusion of liability
(a) Without limiting paragraph (b) below, no Agent will be liable for any
action taken by such Agent under or in connection with any Finance
Document, unless directly caused by such Agent's gross negligence or
wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or
agent of any Agent in respect of any claim such Party might have
against such Agent or in respect of any act or omission of any kind by
that officer, employee or agent in relation to any Finance Document and
any officer, employee or agent of an Agent may rely on this Clause 25.
(c) An Agent will not be liable for any delay (or any related consequences)
in crediting an account with an amount required under the Finance
Documents to be paid by an Agent if such Agent has taken all necessary
steps as soon as reasonably practicable to comply with the regulations
or operating procedures of any recognised clearing or settlement system
used by such Agent for that purpose.
25.10 Lenders' indemnity to each Agent
Each Lender shall (in proportion to its share of the Total Commitments
or, if the Total Commitments are then zero (0), to such Lender's share
of the Total Commitments immediately prior to their reduction to zero
(0)) indemnify each Agent, within three (3) Business Days of demand,
against any cost, loss or liability incurred by such Agent (otherwise
than by reason of such Agent's gross negligence or wilful misconduct)
in acting as Agent under the Finance Documents (unless such Agent has
been reimbursed by an Obligor pursuant to a Finance Document).
25.11 Resignation of the Agents
(a) Each Agent may resign and appoint one of its Affiliates located in: (i)
any jurisdiction in which a Lender is situated; (ii) Hungary; (iii) any
jurisdiction in the European Union; and/or (iv) any jurisdiction which
is a party to a double taxation agreement in force on the date of such
appointment the effect of which is to provide for all payments made (by
the relevant Obligor) under the Finance Documents to be made (subject
to the completion of any necessary procedural formalities) without a
Tax Deduction, as successor by giving notice to the Lenders and the
Obligors.
(b) Alternatively an Agent may resign by giving notice to the Lenders and
the Obligors, in which case the Majority Lenders (after consultation
with the Obligors) may appoint a successor Agent located in: (i) any
jurisdiction in which a Lender is situated; (ii) Hungary; (iii) any
jurisdiction in the European Union; and/or (iv) any jurisdiction which
is a party to a double taxation agreement in force on the date of such
appointment the effect of which is to provide for all payments made (by
the relevant Obligor) under the Finance Documents to be made (subject
to the completion of any necessary procedural formalities) without a
Tax Deduction.
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(c) If the Majority Lenders have not appointed a successor Agent in
accordance with paragraph (b) above within thirty (30) days after
notice of resignation was given, the relevant Agent (after consultation
with the Obligors) may appoint a successor Agent located in: (i) any
jurisdiction in which a Lender is situated; (ii) Hungary; (iii) any
jurisdiction in the European Union; and/or (iv) any jurisdiction which
is a party to a double taxation agreement in force on the date of such
appointment the effect of which is to provide for all payments made (by
the relevant Obligor) under the Finance Documents to be made (subject
to the completion of any necessary procedural formalities) without a
Tax Deduction.
(d) A retiring Agent shall, at its own cost, make available to the
successor Agent such documents and records and provide such assistance
as the successor Agent may reasonably request for the purposes of
performing its functions as Agent under the Finance Documents.
(e) An Agent's resignation notice shall only take effect upon the
appointment of a successor.
(f) Upon the appointment of a successor, the retiring Agent shall be
discharged from any further obligation in respect of the Finance
Documents but shall remain entitled to the benefit of this Clause 25.
Its successor and each of the other Parties shall have the same rights
and obligations amongst themselves as they would have had if such
successor had been an original Party.
(g) After consultation with the Obligors, the Majority Lenders may, by
notice to an Agent, require such Agent to resign in accordance with
paragraph (b) above. In this event, such Agent shall resign in
accordance with paragraph (b) above.
25.12 Confidentiality
(a) In acting as agent for the Finance Parties, each Agent shall be
regarded as acting through its agency division which shall be treated
as a separate entity from any other of its divisions or departments.
(b) If information is received by another division or department of an
Agent, such information may be treated as confidential to that division
or department and such Agent shall not be deemed to have notice of such
information.
(c) Notwithstanding any other provision of any Finance Document to the
contrary, neither the Agent nor the Arranger are obliged to disclose to
any other person (i) any confidential information or (ii) any other
information if the disclosure would or might in its reasonable opinion
constitute a breach of any law or a breach of a fiduciary duty.
25.13 Relationship with the Lenders
(a) Each Agent may treat each Lender as a Lender, entitled to payments
under this Agreement and acting through its Facility Office unless it
has received not less than five (5) Business Days prior notice from
that Lender to the contrary in accordance with the terms of this
Agreement.
(b) Each Lender shall supply the Agent with any information required by the
Agent in order to calculate the Associated Costs.
25.14 Credit appraisal by the Lenders
Without affecting the responsibility of any Obligor for information
supplied by such Obligor or on such Obligor's behalf in connection with
any Finance Document, each Lender confirms to each Agent and each
Arranger that such Finance Party has been, and will continue to be,
solely responsible for making such Finance Party's own independent
appraisal and investigation of all risks arising under or in connection
with any Finance Document including, but not limited to:
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(a) the financial condition, status and nature of each member of
the Group;
(b) the legality, validity, effectiveness, adequacy or
enforceability of any Finance Document and any other
agreement, arrangement or document entered into, made or
executed in anticipation of, under or in connection with any
Finance Document;
(c) whether that Lender has recourse, and the nature and extent of
that recourse, against any Party or any of its respective
assets under or in connection with any Finance Document, the
transactions contemplated by the Finance Documents or any
other agreement, arrangement or document entered into, made or
executed in anticipation of, under or in connection with any
Finance Document; and
(d) the adequacy, accuracy and/or completeness of the Information
Memorandum and any other information provided by any Agent,
any Party or by any other person under or in connection with
any Finance Document, the transactions contemplated by the
Finance Documents or any other agreement, arrangement or
document entered into, made or executed in anticipation of,
under or in connection with any Finance Document.
25.15 Lenders' tax status confirmation
(a) Each Original Lender confirms in favour of the Facility Agent on the
date of this Agreement that either:
(i) it is not resident for tax purposes in the United Kingdom and
is beneficially entitled to its share of the Loan and
associated interest; or
(ii) it is a bank as defined for the purposes of section 349 of the
Taxes Act and is beneficially entitled to its share of the
Loan and associated interest,
and each Lender shall promptly notify the Facility Agent in writing if
there is any change in its position from that set out above.
(b) Each Lender which becomes a Party pursuant to a transfer or assignment
shall, in the case of a transfer, confirm in favour of the Facility
Agent in the relevant Transfer Certificate, or otherwise, confirm by
written notice to the Facility Agent, as to whether or not such Lender
is:
(i) resident for tax purposes in the United Kingdom and is
beneficially entitled to its share of the Loan and associated
interest;
(ii) a bank as defined for the purposes of section 349 of the Taxes
Act and is beneficially entitled to its share of the Loan and
associated interest; and/or
(iii) a Qualifying lender,
and each lender shall promptly notify the Facility Agent in writing if
there is any change in its position from that set out in the relevant
Transfer Certificate of written notice to the Facility Agent.
25.16 Relevant Reference Banks
If a Relevant Reference Bank (or, if a Relevant Reference Bank is not a
Lender, the Lender of which it is an Affiliate) ceases to be a Lender,
the Facility Agent shall (in consultation with the
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Obligors) appoint another Lender or an Affiliate of a Lender to replace
that Relevant Reference Bank.
25.17 Agent's management time
In the event that any Agent, acting reasonably, determines that, as a
result of the occurrence or existence, as appropriate, of any event(s),
fact(s) and/or circumstance(s), the scope and/or extent of such Agent's
management time or other resources necessary and/or desirable to enable
and facilitate such Agent to properly discharge and perform such
Agent's obligations under the Finance Documents is significantly
greater than that originally contemplated (in the context of the
relevant Fee Letter(s)), such Agent shall confirm such determination in
writing to the Obligors and the Lenders, following which any amount
payable to an Agent under Clause 15.3 (Indemnity to each Agent), Clause
17 (Costs and expenses) and Clause 25.10 (Lenders' indemnity to each
Agent) shall include the cost of utilising such Agent's management time
or other resources and will be calculated on the basis of such
reasonable daily or hourly rates as such Agent may notify to the
Obligors and the Lenders in writing, and is in addition to any fee paid
or payable to such Agent under Clause 12 (Fees).
26. CONDUCT OF BUSINESS BY THE FINANCE PARTIES
No provision of this Agreement will:
(a) interfere with the right of any Finance Party to arrange its
affairs (tax or otherwise) in whatever manner such Finance
Party thinks fit;
(b) oblige any Finance Party to investigate or claim any credit,
relief, remission or repayment available to such Finance Party
or the extent, order and manner of any claim; or
(c) oblige any Finance Party to disclose any information relating
to its affairs (tax or otherwise) or any computations in
respect of Tax.
27. SHARING AMONG THE LENDERS
27.1 Payments to Lenders
If a Lender (a "Recovering Lender") receives or recovers any amount
from an Obligor other than in accordance with Clause 28 (Payment
Mechanics) and applies that amount to a payment due under the Finance
Documents then:
(a) the Recovering Lender shall, within three (3) Business Days,
notify details of the receipt or recovery, to the Facility
Agent;
(b) the Facility Agent shall determine whether the receipt or
recovery is in excess of the amount the Recovering Lender
would have been paid had the receipt or recovery been received
or made by the Facility Agent and distributed in accordance
with Clause 28 (Payment Mechanics), without taking account of
any Tax which would be imposed on such Facility Agent in
relation to the receipt, recovery or distribution; and
(c) the Recovering Lender shall, within three (3) Business Days of
demand by the Facility Agent, pay to the Facility Agent an
amount (the "Sharing Payment") equal to such receipt or
recovery less any amount which the Facility Agent determines
may be retained by the Recovering Lender as such Recovering
Bank's share of any payment to be made, in accordance with
Clause 28.5 (Partial payments).
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27.2 Redistribution of payments
The Facility Agent shall treat the Sharing Payment as if it had been
paid by the relevant Obligor and distribute such Sharing Payment
between the Finance Parties (other than the Recovering Lender) in
accordance with Clause 28.5 (Partial payments).
27.3 Recovering Lender's rights
(a) On a distribution by the Facility Agent under Clause 27.2
(Redistribution of payments), the Recovering Lender will be subrogated
to the rights of the Finance Parties which have shared in the
redistribution.
(b) If and to the extent that the Recovering Lender is not able to rely on
its rights under paragraph (a) above, the relevant Obligor shall be
liable to the Recovering Lender for a debt equal to the Sharing Payment
which is immediately due and payable.
27.4 Reversal of redistribution
If any part of the Sharing Payment received or recovered by a
Recovering Lender becomes repayable and is repaid by that Recovering
Lender, then:
(a) each Lender which has received a share of the relevant Sharing Payment
pursuant to Clause 27.2 (Redistribution of payments) shall, upon
request of the Facility Agent, pay to the Facility Agent for account of
that Recovering Lender an amount equal to its share of the Sharing
Payment (together with an amount as is necessary to reimburse that
Recovering Lender for its proportion of any interest on the Sharing
Payment which that Recovering Lender is required to pay); and
(b) that Recovering Lender's rights of subrogation in respect of any
reimbursement shall be cancelled and the relevant Obligor will be
liable to the reimbursing Lender for the amount so reimbursed.
27.5 Exceptions
(a) This Clause 27 shall not apply to the extent that the Recovering Lender
would not, after making any payment pursuant to this Clause, have a
valid and enforceable claim against the relevant Obligor.
(b) A Recovering Lender is not obliged to share with any other Lender any
amount which the Recovering Lender has received or recovered as a
result of taking legal or arbitration proceedings, if:
(i) it notified the other Lenders of the legal or arbitration
proceedings; and
(ii) the other Lender had an opportunity to participate in those
legal or arbitration proceedings but did not do so as soon as
reasonably practicable having received notice or did not take
separate legal or arbitration proceedings.
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SECTION 10 - ADMINISTRATION
28. PAYMENT MECHANICS
28.1 Payments to the Facility Agent
(a) On each date on which an Obligor or a Lender is required to make a
payment under a Finance Document, that Obligor or Lender shall make the
same available to the Facility Agent (unless a contrary indication
appears in a Finance Document) for value on the due date at the time
and in such funds specified by the Facility Agent as being customary at
the time for settlement of transactions in the relevant currency in the
place of payment.
(b) Payment shall be made to such account in the principal financial centre
of the country of that currency (or, in relation to euro, in a
principal financial centre in a Participating Member State or London)
with such bank as the Facility Agent specifies.
28.2 Distributions by the Facility Agent
Each payment received by the Facility Agent under the Finance Documents
for another Party shall, subject to Clause 28.3 (Distributions to an
Obligor) and Clause 28.4 (Clawback) be made available by the Facility
Agent as soon as practicable after receipt to the Party entitled to
receive payment in accordance with this Agreement (in the case of a
Lender, for the account of its Facility Office), to such account as
that Party may notify to the Facility Agent by not less than five (5)
Business Days' written notice with a bank in the principal financial
centre of the country of that currency (or, in relation to euro, in the
principal financial centre of a Participating Member State or London).
28.3 Distributions to an Obligor
The Facility Agent may (with the consent of an Obligor or in accordance
with Clause 29 (Set-Off)) apply any amount received by it for that
Obligor in or towards payment (on the date and in the currency and
funds of receipt) of any amount due from that Obligor under the Finance
Documents or in or towards purchase of any amount of any currency to be
so applied.
28.4 Clawback
(a) Where a sum is to be paid to the Facility Agent under the Finance
Documents for another Party, the Facility Agent is not obliged to pay
that sum to that other Party (or to enter into or perform any related
exchange contract) until it has been able to establish to its
satisfaction that it has actually received that sum.
(b) If the Facility Agent pays an amount to another Party and it proves to
be the case that the Facility Agent had not actually received that
amount, then the Party to whom that amount (or the proceeds of any
related exchange contract) was paid by the Facility Agent shall on
demand refund the same to the Facility Agent together with interest on
that amount from the date of payment to the date of receipt by the
Facility Agent, calculated by the Facility Agent to reflect its cost of
funds.
28.5 Partial payments
(a) If the Facility Agent receives a payment that is insufficient to
discharge all the amounts then due and payable by an Obligor under the
Finance Documents, the Facility Agent shall apply that payment towards
the obligations of that Obligor under the Finance Documents in the
following order:
(i) first, in or towards payment pro rata of any unpaid fees,
costs and expenses of the Agents under the Finance Documents;
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(ii) secondly, in or towards payment pro rata of any accrued
interest or commission due but unpaid under this Agreement;
(iii) thirdly, in or towards payment pro rata of any principal due
but unpaid under this Agreement; and
(iv) fourthly, in or towards payment pro rata of any other sum due
but unpaid under the Finance Documents.
(b) The Facility Agent shall, if so directed by the Majority Lenders, vary
the order set out in paragraphs (a)(ii) to (iv) above.
(c) Paragraphs (a) and (b) above will override any appropriation made by an
Obligor.
28.6 No set-off by Obligors
All payments to be made by an Obligor under the Finance Documents shall
be calculated and be made without (and free and clear of any deduction
for) set-off or counterclaim.
28.7 Business Days
(a) Any payment which is due to be made on a day that is not a Business Day
shall, subject to the terms of this Agreement be made on the preceding
Business Day.
(b) During any extension of the due date for payment of any principal or an
Unpaid Sum under this Agreement interest is payable on the principal at
the rate payable on the original due date.
28.8 Currency of account
(a) Subject to paragraphs (b) to (e) below, the Base Currency is the
currency of account and payment for any sum due from an Obligor under
any Finance Document.
(b) A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum
shall be made in the currency in which that Loan or Unpaid Sum is
denominated on its due date.
(c) Each payment of interest shall be made in the currency in which the sum
in respect of which the interest is payable was denominated when that
interest accrued.
(d) Each payment in respect of costs, expenses or Taxes shall be made in
the currency in which the costs, expenses or Taxes are incurred.
(e) Any amount expressed to be payable in a currency other than the Base
Currency shall be paid in that other currency.
28.9 Change of currency
(a) Unless otherwise prohibited by Applicable Law, if more than one
currency or currency unit are at the same time recognised by the
central bank of any country as the lawful currency of that country,
then:
(i) any reference in the Finance Documents to, and any obligations
arising under the Finance Documents in, the currency of that
country shall be translated into, or paid in, the currency or
currency unit of that country designated by the Facility Agent
(after consultation with the Obligors); and
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(ii) any translation from one currency or currency unit to another
shall be at the official rate of exchange recognised by the
central bank for the conversion of that currency or currency
unit into the other, rounded up or down by the Facility Agent
(acting reasonably).
(b) If a change in any currency of a country occurs, this Agreement will,
to the extent the Facility Agent (acting reasonably and after
consultation with the Obligors) specifies to be necessary, be amended
to comply with any generally accepted conventions and market practice
in the Relevant Interbank Market and otherwise to reflect the change in
currency.
29. SET-OFF
A Finance Party may set off any matured obligation due from an Obligor
under the Finance Documents (to the extent beneficially owned by that
Finance Party) against any matured obligation owed by that Finance
Party to that Obligor, regardless of the place of payment, booking
branch or currency of either obligation. If the obligations are in
different currencies, the Finance Party may convert either obligation
at a market rate of exchange in its usual course of business for the
purpose of the set-off.
30. NOTICES
30.1 Communications in writing
Any communication to be made under or in connection with the Finance
Documents shall (subject to the appropriate prior written agreement of
the Obligors and Finance Parties, as appropriate, as contemplated by
and provided for pursuant to Clause 9.4 (Notification of rates of
interest), be made in writing and, unless otherwise stated, may be made
by telex, fax, e-mail or letter to the extent that the relevant Party
has specified such address pursuant to Clause 30.2 (Addresses) or, in
addition to the foregoing and in the case of rates of interest to be
notified by the Facility Agent pursuant to Clause 9.4 (Notification of
rates of interest) and in the case of any document to be forwarded by
an Agent pursuant to paragraph (a) of Clause 25.2 (Duties of the
Agents) where such document has been supplied to such Agent pursuant to
Clause 19 (Information Undertakings), the relevant Agent may refer the
relevant Party or Parties to a web site and to the location of the
relevant information on such web site.
30.2 Addresses
The address, fax number, e-mail address, telex number and, where
appropriate, web site (and the department or officer, if any, for whose
attention the communication is to be made) of each Party for any
communication or document to be made or delivered under or in
connection with the Finance Documents is:
(a) in the case of each Obligor, that identified with its name
below;
(b) in the case of each Lender, that notified in writing to the
Facility Agent on or prior to the date on which it becomes a
Party; and
(c) in the case of each Agent, that identified with its name
below,
or any substitute address, fax number, e-mail address, telex number,
web site, department or officer as the Party may notify to the Facility
Agent (or the Facility Agent may notify to the other Parties, if a
change is made by the Facility Agent or a web site carrying relevant
information has been set up by an Agent) by not less than five (5)
Business Days' written notice.
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30.3 Delivery
(a) Any communication or document made or delivered by one person to
another under or in connection with the Finance Documents will only be
effective:
(i) if by way of fax, e-mail or telex when a valid receipt has
been obtained by the sender and it has been received in
legible form;
(ii) if by way of letter, when it has been left at the relevant
address or five (5) Business Days after being deposited in the
post postage prepaid in an envelope addressed to it at that
address; or
(iii) if by way of posting such communication or document on a web
site, when such web site may be accessed and read;
and, in the case of (i) and (ii) above, if a particular department or
officer is specified as part of its address details provided under
Clause 30.2 (Addresses), if addressed to that department or officer.
(b) Any communication or document to be made or delivered to an Agent will
be effective only when actually received by such Agent and then only if
it is expressly marked for the attention of the department or officer
identified with such Agent's signature below (or any substitute
department or officer such Agent shall specify for this purpose).
(c) All notices from or to an Obligor shall be sent through the Facility
Agent.
(d) Any communication or document made or delivered to any Obligor in
accordance with this Clause 30 will be deemed to have been made or
delivered to each of the Obligors.
30.4 Notification of address, fax number and telex number
Upon receipt of notification of an address, fax number and telex number
or change of address, fax number or telex number pursuant to Clause
30.2 (Addresses) or changing its own address, fax number or telex
number, the Facility Agent shall notify the other Parties accordingly
in writing.
30.5 English language
(a) Any notice given under or in connection with any Finance Document must
be in English.
(b) All other documents provided under or in connection with any Finance
Document must be:
(i) in English; or
(ii) if not in English, and if so required by an Agent, accompanied
by a certified English translation and, in this case, the
English translation will prevail unless the document is a
constitutional, statutory or other official document.
30.6 Communications Through the Facility Agent
The Facility Agent will act as facility agent with the intent of
administering the Facility and centralising all communications between
the Obligors and the Finance Parties and such communications will
normally only be made through the Facility Agent and all communications
from any of the Finance Parties to any Obligor will also only normally
be made through the Facility Agent Provided that any Finance Party may
in exceptional circumstances be entitled to communicate directly with
any Obligor(s).
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31. CALCULATIONS AND CERTIFICATES
31.1 Accounts
In any litigation or arbitration proceedings arising out of or in
connection with a Finance Document, the entries made in the accounts
maintained by a Finance Party are, in the absence of manifest error,
prima facie evidence of the matters to which they relate.
31.2 Certificates and Determinations
(a) Any certification or determination by a Finance Party of a rate or
amount under any Finance Document is, in the absence of manifest error,
conclusive evidence of the matters to which it relates.
(b) A certificate of a Finance Party to the Facility Agent and/or any
Obligor(s) as to: (a) the amount by which a sum payable to such Finance
Party under this Agreement is to be increased under Clause 13.2 (Tax
gross-up) or Clause 14.1 (Increased costs); or (b) the amount for the
time being required to indemnify such Finance Party against any loss,
cost, payment or liability under Clause 13.3 (Tax indemnity), Clause
13.5 (Stamp taxes), Clause 13.6 (Value added tax), Clause 15.1
(Currency indemnity) and Clause 15.2 (Other indemnities), shall set out
in reasonable details the basis of any such claim and the workings of
such amount Provided that nothing in this Agreement shall require any
Finance Party to disclose any confidential information in respect of
such Finance Party Provided Further that the Facility Agent shall not
have any obligation or incur any liability whatsoever to any person in
respect of any such certification provided pursuant to this Agreement.
31.3 Day count convention
Any interest, commission or fee accruing under a Finance Document will
accrue from day to day and is calculated on the basis of the actual
number of days elapsed and a year of three hundred and sixty (360) days
or, in any case where the practice in the Relevant Interbank Market
differs, in accordance with that market practice.
32. PARTIAL INVALIDITY
If, at any time, any provision of the Finance Documents is or becomes
illegal, invalid or unenforceable in any respect under any Applicable
Law of any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions nor the legality, validity
or enforceability of such provision under the Applicable Law of any
other jurisdiction will in any way be affected or impaired.
33. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any
Finance Party, any right or remedy under the Finance Documents shall
operate as a waiver, nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise or the exercise
of any other right or remedy. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
34. AMENDMENTS AND WAIVERS
34.1 Required consents
(a) Subject to Clause 34.2 (Exceptions) any term of the Finance Documents
may be amended or waived only with the consent of the Majority Lenders
and the Obligors and any such amendment or waiver will be binding on
all Parties.
(b) The Facility Agent may effect, on behalf of any Finance Party, any
amendment or waiver permitted by this Clause 34.
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34.2 Exceptions
(a) An amendment or waiver that has the effect of changing or which relates
to:
(i) the definition of "Majority Lenders" in Clause 1.1
(Definitions);
(ii) an extension to the date of payment of any amount under the
Finance Documents;
(iii) a reduction in the Applicable Margin or the amount of any
payment of principal, interest, fees or commission payable;
(iv) an increase in Commitment;
(v) any provision which expressly requires the consent of all the
Lenders; or
(vi) Clause 2.2 (Lenders' rights and obligations), Clause 23
(Changes to the Lenders) or this Clause 34,
shall not be made without the prior consent of all the Lenders.
(b) Any amendment or waiver that has the effect of changing or which
relates to any releases or any of the Encumbrances created by and
constituted in the Security Agreements, except for any release required
to give effect to a disposal expressly permitted pursuant to Clause
21.4 (Disposals), shall not be made without the prior written consent
of all the Lenders, other than any Lender(s) which at such time hold(s)
five per cent. (5%) or more of the equity share capital of Hungarian
Telephone and Cable Corp.
(c) An amendment or waiver which relates to the rights or obligations of
any Agent or any Arranger may not be effected without the consent of
such Agent or Arranger, as applicable.
(d) Any amendment that relates to this paragraph (d) or any amendment or
express waiver that relates to the restriction contained in paragraph
(a) of Clause 21.25 (No new Financial Indebtedness) on the ability of
Hungarian Telephone and Cable Corp. to incur additional Financial
Indebtedness, shall, to the extent that at such time Postabank es
Takarekpenztar Reszvenytarsasag is the legal and beneficial owner of
any of the Notes, require the prior written consent of Postabank es
Takarekpenztar Reszvenytarsasag, with Postabank es Takarekpenztar
Reszvenytarsasag to confirm such approval or otherwise by written
notice within fourteen (14) days of any request for such consent,
failing which written notice (confirming or refusing such consent),
Postabank es Takarekpenztar Reszvenytarsasag will be deemed to have
given its consent.
(e) Any amendment that relates to this paragraph (e) or any amendment or
express waiver that relates to the restriction contained in paragraph
(b) of Clause 21.25 (No new Financial Indebtedness) on the ability of
HTCC Tanacsado Reszvenytarsasag to incur additional Financial
Indebtedness which, when aggregated with any other amendment or express
waiver in respect of the restriction contained in paragraph (c) (v) of
Clause 21.25 (No new Financial Indebtedness) on the ability of the
Borrowers to incur additional Financial Indebtedness, would result in
the aggregate of any such additional Financial Indebtedness of the
Group (other than any Financial Indebtedness owing to any another
member(s) of the Group provided in accordance with the provisions of
this Agreement) exceeding the equivalent of sixteen million euro (EUR
16,000,000), shall, to the extent that at such time Postabank es
Takarekpenztar Reszvenytarsasag is the legal and beneficial owner of
any of the Notes, require the prior written consent of Postabank es
Takarekpenztar Reszvenytarsasag, with Postabank es Takarekpenztar
Reszvenytarsasag to
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confirm such approval or otherwise by written notice within fourteen
(14) days of any request for such consent, failing which written notice
(confirming or refusing such consent), Postabank es Takarekpenztar
Reszvenytarsasag will be deemed to have given its consent.
(f) Any amendment that relates to this paragraph (f) or any amendment or
express waiver that relates to the restriction contained in paragraph
(c) (v) of Clause 21.25 (No new Financial Indebtedness) on the ability
of the Borrowers to incur additional Financial Indebtedness which, when
aggregated with any other amendment or express waiver in respect of the
restriction contained in paragraph (b) of Clause 21.25 (No new
Financial Indebtedness) on the ability of HTCC Tanacsado
Reszvenytarsasag to incur additional Financial Indebtedness, would
result in the aggregate of any such additional Financial Indebtedness
of the Group (other than any Financial Indebtedness owing to any
another member(s) of the Group provided in accordance with the
provisions of this Agreement) exceeding the equivalent of sixteen
million euro (EUR 16,000,000), shall, to the extent that at such time
Postabank es Takarekpenztar Reszvenytarsasag is the legal and
beneficial owner of any of the Notes, require the prior written consent
of Postabank es Takarekpenztar Reszvenytarsasag, with Postabank es
Takarekpenztar Reszvenytarsasag to confirm such approval or otherwise
by written notice within fourteen (14) days of any request for such
consent, failing which written notice (confirming or refusing such
consent), Postabank es Takarekpenztar Reszvenytarsasag will be deemed
to have given its consent.
35. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts,
and this has the same effect as if the signatures on the counterparts
were on a single copy of the Finance Document.
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SECTION 11 - GOVERNING LAW AND ENFORCEMENT
36. GOVERNING LAW
This Agreement is governed by and shall be construed in accordance with
English law.
37. ENFORCEMENT
37.1 English courts
Subject to Clause 37.7 (Facility Agent's option to refer disputes to
arbitration) and Clause 37.3 (Non-exclusive jurisdiction), each of the
Parties irrevocably agrees for the benefit of each of the Finance
Parties that the courts of England shall have exclusive jurisdiction to
hear and determine any suit, action or proceeding, and to settle any
disputes, which may arise out of or in connection with this Agreement
and, for such purposes, irrevocably submits to the jurisdiction of such
courts.
37.2 Convenient forum
Each Obligor irrevocably waives any objection which it might now or
hereafter have to the courts referred to in Clause 37.1 (English
courts) above being nominated as the forum to hear and determine any
suit, action or proceeding, and to settle any disputes, which may arise
out of or in connection with this Agreement and agrees not to claim
that any such court is not a convenient or appropriate forum.
37.3 Non-exclusive jurisdiction
This Clause 37.3 and Clause 37.1 (English courts) are for the benefit
of the Finance Parties and nothing in Clause 37.1 (English courts)
shall prevent any Finance Party from taking proceedings relating to a
Dispute in any other courts with jurisdiction. To the extent allowed by
law, the Finance Parties may take concurrent proceedings in any number
of jurisdictions.
37.4 Service of process
Each Obligor agrees that the documents which start any court
proceedings ("Proceedings") and any other documents required to be
served in relation to those Proceedings may be served on it at the
offices of Clifford Chance Secretaries Limited, 200 Aldersgate Street,
London EC1A 4JJ, England, United Kingdom. If the appointment of the
person mentioned in this Clause 37.4 ceases to be effective, each
Obligor shall immediately appoint another person in England to accept
service of process on its behalf in England. If any Obligor fails to do
so (and such failure continues for a period of not less than fourteen
(14) days), the Facility Agent shall be entitled to appoint on behalf
of such Obligor(s) such a person to accept service of proceedings by
notice to the relevant Obligor(s). Nothing contained in this Agreement
shall restrict the right of the Finance Parties to serve process in any
other manner allowed by law. This Clause 37.4 applies to Proceedings in
England and to Proceedings elsewhere. Each Obligor agrees that failure
by a process agent to notify such Obligor of the process will not
invalidate the proceedings concerned.
37.5 Waiver of immunity
To the extent that any Obligor may in any jurisdiction claim for itself
or its assets immunity from suit, execution, attachment (whether in
respect of execution, before judgment or otherwise) or other legal
process and to the extent that in any such jurisdiction there may be
attributed to such Obligor or its assets such immunity (whether or not
claimed), such Obligor hereby unconditionally and irrevocably agrees
not to claim and hereby irrevocably waives such immunity to the full
extent permitted by the Applicable Law of such jurisdiction.
37.6 Obligors' consent to ancillary measures
The Obligors hereby consent generally in respect of any legal action or
proceeding arising out of or in connection with this Agreement to the
giving of any relief or the issue of any process in
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connection with such action or proceeding including, without
limitation, the making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any order or
judgment whether final, interim or otherwise, which may be made or
given in such action or proceeding.
37.7 Facility Agent's option to refer disputes to arbitration
Notwithstanding the provisions of Clause 37.1 (English courts), if any
dispute or difference arises out of or in connection with this
Agreement, including any question as to its existence, validity or
termination (a "Dispute"), and on condition that the Facility Agent,
acting on the instructions of the Majority Lenders, shall have elected
by giving notice in writing to each of the other Parties, such Dispute
shall be referred to and finally settled by arbitration in accordance
with the UNCITRAL Arbitration Rules as at present in force (the
"UNCITRAL Rules"), which are deemed to be incorporated by reference
into this Clause 37.
37.8 Appointment of the arbitral tribunal
(a) Any arbitral tribunal appointed pursuant to Clause 37.7 (Facility
Agent's option to refer disputes to arbitration) shall be composed of
three (3) arbitrators one of whom shall be the presiding arbitrator.
The appointing authority shall be the London Court of International
Arbitration (the "LCIA") The LCIA shall appoint all three (3) members
of the arbitral tribunal and shall nominate which of them shall act as
the presiding arbitrator.
(b) In all matters relating to the appointment of arbitrators under this
Agreement or under any other Finance Document, the Parties agree that
the LCIA shall be free to appoint whomsoever the LCIA considers
appropriate in the LCIA's sole discretion, save that the LCIA shall
take account of the views of the Parties and shall give effect to any
agreement of the Parties in relation to the appointment of the
arbitrators unless the LCIA determines in the LCIA's absolute
discretion that it is not appropriate to do so.
37.9 Initiation of arbitration proceedings
Subject to Clause 37.7 (Facility Agent's option to refer disputes to
arbitrators), any of the Parties which wishes to initiate an
arbitration shall simultaneously:
(a) give a notice of arbitration to the other Parties in
accordance with Article 3 of the UNCITRAL Rules; and
(b) request in writing the LCIA to appoint the three (3)
arbitrators and to nominate the presiding arbitrator and give
a copy of such request to all the other parties to this
agreement. Each party may make its own representations to the
LCIA concerning the appointment of arbitrators within twenty
one (21) days of receipt of such notice of arbitration. For
the avoidance of doubt, the Parties agree that the LCIA may
take note of any such representations, but shall otherwise be
free in the LCIA's discretion to appoint whomsoever the LCIA
consider appropriate as the three (3) arbitrators.
37.10 Place and language of the proceedings
The place and seat of the arbitration shall be London and language of
the arbitral proceedings shall be English.
37.11 The award
All and any awards of the arbitral tribunal shall be made in accordance
with the UNCITRAL Rules in writing and shall be final and binding on
the relevant Parties. All and any awards shall be made by majority
decision. If there be no majority, the award shall be made by the
presiding arbitrator alone. The final award shall be made within six
(6) months from the appointment of
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the third arbitrator, but insofar as this is impractical it shall be
made as soon as possible thereafter.
37.12 Notice of arbitration
In relation to any arbitration proceedings, the provisions of Clause 30
(Notices) of this Agreement shall apply in respect of this Clause 37 in
addition to the notification provisions of the UNCITRAL Rules.
37.13 Expedition of arbitration
The appointed arbitrators shall conduct the arbitration in accordance
with the UNCITRAL Rules and at all times in such a manner as to ensure
a speedy resolution of the Dispute.
AND EACH OBLIGOR expressly agrees and consents to each of the provisions of this
Clause 37.
This Agreement has been entered into on the date stated at the beginning of this
Agreement.
102
Exhibit 10.33
No.__ of Twenty-Five Notes
- --------------------------------------------------------------------------------
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE'S
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY PORTION THEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR OFFERED FOR SALE
UNLESS AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE WHICH IS ACCOMPANIED BY AN OPINION OF ISSUER COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED. THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS
SUBORDINATE TO THE SENIOR OBLIGATIONS, AS DEFINED HEREIN
- --------------------------------------------------------------------------------
AMENDED & RESTATED
U.S.$ 1,000,000 UNSECURED SUBORDINATED NOTE
OF
HUNGARIAN TELEPHONE AND CABLE CORP.
(Amending and Restating a Promissory Note dated
May 12, 1999)
Principal Amount: U.S. $1,000,000
Issue Date: May 12, 1999 and Expiration Date: March 31, 2007
amended and restated April __, 2000
For value received, Hungarian Telephone and Cable Corp., a company formed under
the laws of the State of Delaware, U.S.A. (the "Issuer"), hereby promises to pay
to Postabank es Takarekpenztar Reszvenytarsasag the principal amount of this
Note on the dates and in the amounts specified in the Conditions (as defined
below). The Issuer promises to pay interest on the unpaid principal amount of
this Note until the principal amount is paid in full, at such interest rates and
payable at such times, as specified in the Conditions.
This Note is one of a series of twenty-five Notes (collectively, the "Notes")
dated the Issue Date and amended and restated on April __, 2000 which have been
issued by the Issuer in favor of Postabank es Takarekpenztar Reszvenytarsasag
("Postabank") to amend and restate certain notes issued by the Issuer in favor
of Postabank pursuant to a securities purchase agreement (as amended, the
"Securities Purchase Agreement") dated May 10, 1999 between the Issuer and
Postabank. Each of the Notes is subject to the additional terms and conditions
which are set forth in the annex attached hereto (the "Conditions") and are
incorporated herein by reference in their entirety.
<PAGE>
Upon any redemption of less than the entire principal amount outstanding of this
Note in accordance with the Conditions, the amount so redeemed shall be recorded
by the Issuer in the register maintained by the Issuer (the "Register") and the
principal amount outstanding of this Note from time to time shall be as recorded
in the Register. The Issuer will promptly upon written request from a Noteholder
provide free of charge to such Noteholder a certified copy of the Register
indicating the aggregate principal amount of the Notes redeemed on or prior to
the date of such copy.
This Note is issued in registered form and is not transferable in part.
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<PAGE>
AS WITNESS the signature of a duly authorized officer on behalf of the Issuer:
HUNGARIAN TELEPHONE AND CABLE CORP., as Issuer
By: _______________________________
Name: Kaj Ole Bertram
Title: President and Chief Executive Officer
duly authorized signatory
EXECUTED as of April __, 2000
3
<PAGE>
FORM OF TRANSFER
BETWEEN:
(1) [Transferor] (the "Transferor"); and
(2) [Transferee] (the "Transferee").
DATE: [____________]
For value received the Transferor hereby transfers [*] Note[s] issued by
Hungarian Telephone and Cable Corp. (the "Note[s]") in the original principal
amount of U.S.$ [*] to the Transferee in accordance with the Conditions (as
defined in the Note) and instructs the Issuer to register the Transferee as
owner of the Note[s].
SIGNED:
...................................... ...............................
duly authorized signatory duly authorized signatory
for and on behalf of for and on behalf of
[Transferor] as Transferor [Transferee] as Transferee
4
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Terms and Conditions of the Amended and Restated Unsecured Subordinated Notes
The issue (the "Note Issue") of the Notes (the "Notes") of Hungarian Telephone
and Cable Corp. (the "Issuer") are subject to these terms and conditions (the
"Conditions"). The Noteholders (as defined below) are bound by, and are deemed
to have notice of, all the Conditions contained herein applicable to them.
1. Defined Terms and Interpretations
As used in the Securities Purchase Agreement (including the attached
Exhibits) and in respect of the certificates for and terms and
conditions of the Notes, the following terms shall have the specified
meanings (unless otherwise defined therein):
"Arrangers" means Citibank, N.A. and Westdeutsche Landesbank
Girozentrale, each in its capacity as Arranger under the Senior Secured
Credit Agreement;
"Banks" means the Arrangers and the other financial institutions from
time to time party to the Senior Secured Credit Agreement;
"Business Day" means any day (other than a Saturday or Sunday) on which
banks are not required or authorized to close in New York City and
Budapest;
"Clause" means, subject to any contrary indication, a reference to a
Clause hereof;
"Condition" and "Conditions" shall have the meanings ascribed thereto
herein;
"Dispute" shall mean any dispute or difference arising out of or in
connection with this Note, including any question as to its existence,
validity or termination;
"Expiration Date" means March 31, 2007, or if such day is not a
Business Day, the next succeeding day which is a Business Day;
"Facility Agent" means, at any time, the facility agent for the Banks
under the Senior Secured Credit Agreement at such time, being as at the
date of the amendment and restatement of the Notes, Citibank
International plc;
"Finance Documents" means, at any time, each of the Securities Purchase
Agreement, the Warrant Agreement and any other document, notice,
instrument or agreement entered into or delivered pursuant to any of
the foregoing, and "Finance Document" shall mean any or each such
document, notice, instrument or agreement;
"Finance Parties" has the meaning ascribed to such term in the Senior
Secured Credit Agreement;
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<PAGE>
"Fixed Margin" means in relation to each Interest Period or other
relevant period six per cent (6%) per annum; provided that if the
interest on the Notes is duly paid on the Interest Payment Date for an
Interest Period when due, then the Fixed Margin for such Interest
Period shall be three and one-half per cent (31/2%) per annum;
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government;
"HTCC Consulting" means HTCC Tanacsado Reszvenytarsasag;
"HTCC Group" means the Issuer and each of its subsidiaries;
"holder" has the meaning ascribed to such term in Clause 5.2;
"Hungary" means the Republic of Hungary;
"Interbank Rate" means in relation to any Interest Period or other
period, the arithmetic mean (rounded upward to the nearest four decimal
places) of the offered quotations for U.S. dollar deposits for such
period which appear on the relevant Telerate Page of the Telerate
Service which displays a British Bankers Association Interest
Settlement Rate for U.S. dollars (or such other page or such other
service as may replace such page and/or service, as appropriate, for
the purpose of displaying London Interbank Offered Rates of leading
banks) at or about 11:00 a.m. (London time) on the applicable Quotation
Day; provided that if there is one only or no such offered quotations
on the relevant Telerate Page of the Telerate Service or there is no
relevant Telerate Page, the applicable interest rate shall be the
arithmetic mean (rounded upwards, if not already such a multiple of
one-sixteenth of one per cent (0.0625%)) of the rates at which each of
the Reference Banks was offering to prime banks in the Budapest
Interbank market deposits in U.S. dollars at or about 11:00 a.m.
(Budapest time) on the applicable Quotation Day for a period equal to
such period and in an amount comparable with the amount to be
outstanding during such period;
"Interest Payment Date" has the meaning ascribed to it in Clause 14.2;
"Interest Payment Default" means any interest payment when due on the
Interest Payment Date therefor shall fail to be made and such failure
shall continue for at least 365 consecutive days after such Interest
Payment Date; provided, however that no Interest Payment Default shall
be deemed to have occurred hereunder if, within 10 days after the end
of such 365-day period, the Noteholder shall have received all interest
accrued (including, without limitation, interest accruing pursuant to
Clause 15.1) from such Interest Payment Date to the date the interest
payment is made;
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"Interest Period" means, subject as provided below, in relation to any
Note, a period of six (6) months provided that:
(a) if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would
be to carry such Interest Period over into another calendar month
in which event such Interest Period shall end on the last
preceding Business Day; and
(b) any Interest Period which commences on the last day of a calendar
month and any Interest Period which commences on a day for which
there is no numerically corresponding day in the calendar month
which is the relevant number of months after the commencement of
such Interest Period shall end on the last Business Day of the
calendar month which is the relevant number of calendar months
after the commencement of such Interest Period;
"Issue Date" means, as to any Note, the date(s) specified as such in
such Note;
"Issuer" means Hungarian Telephone and Cable Corp., a corporation
formed under the laws of the State of Delaware;
"Majority Lenders" has the meaning ascribed to such term in the Senior
Secured Credit Agreement;
"Mandatory Prepayment Event" means any of the following:
(a) while any Senior Obligations shall remain unpaid or
any commitment under the Senior Secured Credit Agreement shall
be in force, the occurrence of (i) any Senior Default or (ii)
an Interest Payment Default; or
(b) at any time after the Senior Obligations shall have
been paid in full and the commitments under the Senior Secured
Credit Agreement shall have been terminated, (i) the
occurrence of any "Event of Default" (as defined in the Senior
Secured Credit Agreement as in effect immediately prior to
such payment and termination) or (ii) the Issuer shall fail to
make any payment (whether of principal, interest or otherwise)
when due under this Note;
"month" is a reference to a period starting on one day in a calendar
month and ending on the numerically corresponding day in the next
succeeding calendar month save that, where any such period would
otherwise end on a day which is not a Business Day, it shall end on the
next succeeding Business Day, unless that day falls in the calendar
month succeeding that in which it would otherwise have
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ended, in which case it shall end on the immediately preceding Business
Day if a period starts on the last Business Day in a calendar month or
if there is no numerically corresponding day in the month in which that
period ends, that period shall end on the last business day in that
later month;
"Noteholder" has the meaning ascribed to such term in Clause 5.2;
"Notes" means the notes issued in accordance with the Securities
Purchase Agreement, as such notes have been amended and restated on
April __, 2000, and to which the Conditions contained herein are
applicable;
"Person" means an individual, partnership, corporation (including a
business trust), joint stock issuer, estate, trust, limited liability
issuer, unincorporated association, joint venture or other entity, or a
Governmental Authority;
"Post-Petition Interest" means interest at the contract rate accruing
subsequent to the filing of a petition initiating any proceeding in
bankruptcy, insolvency or like proceeding whether or not such interest
is an allowed claim enforceable against the debtor in any proceeding
under any applicable bankruptcy law;
"Quotation Day" means in relation to any Interest Period or other
period, the day on which interest rate quotations are ordinarily given
by prime banks in the London Interbank Market for deposits in U.S.
dollars for delivery on the first day of the Interest Period or other
such period; provided that, if, for any such period, quotations would
ordinarily be given on more than one day, the Quotation Day for such
period will be the last of those days;
"Reference Banks" means the principal London offices of ABN AMRO Bank
N.V., Citibank N.A. and ING Bank N.V., or such other bank or banks as
may from time to time be agreed between the Issuer and the Noteholders,
such agreement not to be unreasonably withheld or delayed;
"Register" means the register to be kept by the Issuer in which the
Noteholders from time to time of the Notes are registered;
"Schedule" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
"Senior Default" means, while any Senior Obligations shall remain
unpaid or any commitment under the Senior Secured Credit Agreement
shall be in force, the occurrence of "Event of Default" (as defined in
the Senior Secured Credit Agreement) and the acceleration of the
maturity of the Senior Obligations in accordance with the terms
thereof, if such acceleration shall continue for at least 365
consecutive days after the Facility Agent has so elected such
acceleration;
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"Senior Guaranty" means the Deed of Guarantee No. 6 dated as of April
__, 2000 among the Issuer, as guarantor, Citibank International plc, as
Facility Agent and beneficiary, Citibank Rt., as Security Agent and
beneficiary and Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag,
RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag, Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag, and KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag, as countersignors;
"Senior Indebtedness" means all indebtedness and other obligations of
any member of the HTCC Group to the Finance Parties under or in
connection with the Senior Loan Agreements;
"Senior Loan Agreements" means the Senior Secured Credit Agreement, the
Senior Guaranty, the Senior Security Deposit Agreement, the Senior
Security Agreement, and each "Senior Finance Document" (as defined in
the Senior Secured Credit Agreement) and, in each case, any other
agreement relating to the obligations thereunder;
"Senior Obligations" means the principal, premium, if any, interest
(including Post-Petition Interest), penalties, fees, expenses, claims,
charges, indemnity obligations, attorneys' fees and expenses, and other
liabilities with respect to the Senior Indebtedness;
"Senior Secured Credit Agreement" means the EUR 130,000,000 Secured
Senior Debt Facility Agreement dated as of April __, 2000 among
Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag, RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag, Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag, and KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag, as Borrowers; the Issuer and HTCC Consulting, as
Guarantors; Citibank, N.A. and Westdeutsche Landesbank Girozentrale, as
Arrangers; the Facility Agent; Citibank Rt., as Security Agent; and the
financial institutions party to the Senior Secured Credit Agreement in
their capacity as lenders;
"Senior Security Agreement" means the Pledge and Security Agreement
dated as of April __, 2000 by the Issuer in favor of Citibank Rt., as
Security Agent;
"Senior Security Deposit Agreement" means the Security Deposit No. 1
Agreement dated as of April __, 2000 among the Issuer, as depositor,
Citibank Rt., as Security Agent and depositee, and Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag, RABA-COM Tavkozlesi
Koncesszios Reszvenytarsasag, Papa es Tersege Tavkozlesi Koncesszios
Reszvenytarsasag, and KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag, as countersignors;
"Standstill Termination Date" means the earlier of (a) the repayment in
full in cash of the Senior Obligations and (b) March 31, 2007;
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"Subordinated Debt" has the meaning ascribed to such term in Clause 19;
"Subordination Event" means the occurrence of any "Event of Default" as
defined in the Senior Secured Credit Agreement;
"Tax" means any tax, levy, impost, duty or other charge of a similar
nature (including, without limitation, any penalty or interest payable
in connection with any failure to pay or any delay in paying any of the
same);
"U.S. dollar", "dollars", "USD", "$" and "U.S.$" means the lawful
currency of the United States of America;
"Warrants" means the warrants to purchase common stock of the Issuer,
set out as Exhibit B to the Securities Purchase Agreement; and
"winding up", "dissolution", "administration or "re-organization" of
the Issuer or corporation shall be construed so as to include any
equivalent or analogous proceedings under the law of the jurisdiction
in which the Issuer or corporation is incorporated or any jurisdiction
in which the Issuer or corporation carries on business, including the
seeking of liquidation, winding up, re-organization, dissolution,
administration, arrangement, adjustment, protection or relief of
debtors.
1.2 Save where the contrary is indicated, any reference herein to:
(a) the Securities Purchase Agreement or any other agreement or
document shall be construed as a reference to the Securities
Purchase Agreement or, as the case may be, such other agreement or
document as the same may have been, or may from time to time be,
amended, varied, novated or supplemented to the extent expressly
permitted by the terms of the Senior Loan Agreements;
(b) a reference to any Person includes its successors and permitted
transferees and permitted assigns;
(c) a statute shall be construed as a reference to such statute as the
same may have been, or may from time to time be, amended or
re-enacted; and
(d) a reference to the Senior Secured Credit Agreement, the Senior
Guaranty, the Senior Security Deposit Agreement and any other
Senior Loan Agreement, shall be construed as a reference to any
such agreement as any such agreement may be amended, restated,
renewed, replaced, refinanced, supplemented or otherwise modified
from time to time, and to any agreement extending the maturity of,
refinancing or otherwise restructuring all or any portion of the
obligations under such agreements or any successor thereto;
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1.3 Clause and Schedule headings are for ease of reference only. Unless the
context otherwise requires, words denoting the singular shall include
the plural and vice versa.
2. The Notes
The Notes having an aggregate principal amount of twenty-five million
U.S. dollars (U.S.$ 25,000,000) have been issued in twenty-five (25)
Notes of equal value.
3. Purpose
3.1 The proceeds of the Notes have been used by the Issuer for the making
of various loans to members of the HTCC Group.
4. Constitution of the Notes
4.1 The Issuer hereby covenants in favor of the Noteholders and each
Noteholder that it will duly perform and comply with the obligations
expressed to be undertaken by it in the Conditions (and for this
purpose any reference in the Conditions to any obligation or payment
under or in respect of any Note shall be construed to include a
reference to any obligation or payment under or pursuant to this
provision). The Issuer hereby unconditionally and irrevocably
acknowledges the right of every Noteholder to the prompt production of
a copy of the Securities Purchase Agreement.
4.2 The covenant set out in Clause 4.1 shall inure to the benefit of the
Noteholders and each Noteholder and its/their (and any subsequent)
successors and permitted transferees, each of which shall be entitled
severally to enforce the covenant set out in Clause 4.1.
4.3 Each Noteholder shall be entitled to transfer or assign all or any of
its rights, benefits and obligations in respect of this Clause 4 solely
in accordance with Clause 6 (Transfers of Notes).
5. Form and Title
5.1 The Notes are issued in registered form. The Issuer will maintain a
register (the "Register") in respect of the Notes.
5.2 In these Conditions, the "holder" of a Note means the person in whose
name such Note is for the time being registered in the Register (or, in
the case of a joint holding, the first named thereof) and "Noteholder"
shall be construed accordingly. The holder of a Note shall (except as
otherwise required by law) be treated as the absolute owner of such
Note for all purposes (whether or not it is overdue and regardless of
any notice of ownership, trust or any other interest therein, any
writing on any Note (other than the endorsed form of transfer) or any
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notice of any previous loss or theft of such Note) and no person shall
be liable for so treating such holder.
6. Transfers of Notes
6.1 Subject to Article XI of the Securities Purchase Agreement, Clause 6.3
and Clause 19, a Note may be transferred in whole (but not in part)
upon surrender of such Note, with the endorsed form of transfer duly
completed, at the office of the Issuer specified in Clause 21.1,
together with such evidence as the Issuer may reasonably require to
prove:
(a) the title of the transferor; and
(b) the authority of the individuals who have executed the form of
transfer.
The transfer of a Note will be effected without charge.
6.2 Within five (5) Business Days of the surrender of a Note in accordance
with Clause 6.1 above, the Issuer will register the transfer in
question and deliver a new Note to the relevant holder at its specified
office or (at the request and risk of such relevant holder) by
uninsured first class mail (airmail if overseas) to the address
specified for the purpose by such relevant holder.
6.3 No Noteholder may require transfers to be registered during the period
of five (5) Business Days prior to the due date for any payment of
principal in respect of any Note.
7. Status
The Notes constitute direct, general and unconditional obligations of
the Issuer which will at all times rank subordinated to the Senior
Obligations and pari passu with all other present and future unsecured
obligations of the Issuer.
8. Conditions Precedent to Issuance of the Notes
The conditions precedent for the issuance of the Notes have been duly
satisfied.
9. Representations and Warranties of the Issuer
The Issuer hereby repeats and on the Issue Date of any Note is deemed
to repeat, in favor of the Noteholders and each Noteholder, each of the
representations and warranties set out in Article III (Representations
and Warranties of the Company) of the Securities Purchase Agreement, as
if each such representation and warranty were set out herein, by
reference to the then existing facts and circumstances.
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10. Covenants of the Issuer
10.1 The Issuer covenants with the Noteholders and each Noteholder that it
shall provide them with such financial and other information regarding
the Issuer, its business and assets as any Noteholder may from time to
time reasonably require.
10.2 The Issuer covenants with and undertakes to the Noteholders and to each
Noteholder:
(a) to inform each Noteholder promptly upon any of the representations
and warranties given or to be given by the Issuer in Article III
of the Securities Purchase Agreement becoming materially untrue or
inaccurate, by reference to the then existing facts and
circumstances;
(b) that it shall not issue or incur any bond, note, indebtedness,
debenture or debenture stock, except (i) pursuant to, or permitted
under the terms of, the Securities Purchase Agreement or the
Senior Loan Agreements, and (ii) for the purpose of redeeming any
Note issued hereunder;
(c) to supply the Noteholders and each Noteholder with the financial
information as set out in Article VI (Affirmative Covenants of the
Issuer) of the Securities Purchase Agreement; and
(d) to promptly notify the Noteholders and each Noteholder of the
occurrence of a Mandatory Prepayment Event or a potential
Mandatory Prepayment Event.
11. Redemption
11.1 Subject to the subordination provisions set forth in Clause 19, each
Note will be redeemed at its face amount on the Expiration Date,
together with all accrued interest and any other amount payable under
the Notes. Redeemed Notes will be cancelled and may not be reissued or
resold.
11.2 The Issuer may redeem the Notes, in whole or in part, prior to the
Expiration Date
Provided that:
(a) the Issuer shall give to the Noteholders not less than ten (10)
Business Days prior written notice of its intention to make any
such prepayment;
(b) on the redemption of the whole of the Notes, the Issuer shall pay
to the Noteholders the face amount of the Notes, together with all
accrued interest and any other amount payable under the Notes;
(c) the Issuer shall pay to the Noteholder on demand a sum equal to
the reasonable breakage costs incurred by the Noteholder as a
result of
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redemption of the Note prior to the end of the applicable Interest
Period (as determined by the Noteholder);
(d) any redemption of part of the Notes will be subject to the minimum
prepayment of five million U.S. dollars (U.S.$ 5,000,000) and
integral multiples of one million U.S. dollars (U.S.$ 1,000,000),
and any such prepayment shall be applied by the Issuer pro rata
towards the prepayment of the amounts of principal of each of the
Notes then outstanding; and
(e) such redemption is expressly permitted by the terms of the Senior
Secured Credit Agreement and Clause 19 hereof.
12. Payments
12.1 On each date on which these Conditions require an amount to be paid by
the Issuer, the Issuer shall make the same available to Noteholders at
the opening of business on the due date for such payment by payment in
U.S. dollars and in immediately available cleared funds to a bank
account of each Noteholder in New York City or Budapest specified from
time to time to the Issuer by such Noteholder for this purpose.
12.2 If the date on which any payment is to be made under the Conditions is
not a Business Day then the Noteholders shall not be entitled to
payment of such amount until the next following Business Day and shall
not be entitled to any further interest or other payment in respect of
any such delay.
12.3 All payments required to be made by the Issuer hereunder shall be made
in U.S. dollars and shall be calculated without reference to any
set-off or counterclaim and shall be made free and clear of any without
any deduction for or on account of any set-off or counterdown save as
required by mandatory provisions of law.
13. Taxes and Tax Credits
13.1 All sums payable in respect of the Notes shall be made free and clear
of and without withholding or deduction for or on account of any tax
unless the Issuer is required by law to make such a payment subject to
the withholding or deduction of tax, in which case to the extent that
the Noteholder is the Noteholder the sum payable by the Issuer in
respect of which such withholding or deduction is required to be made
shall be increased to the extent necessary to ensure that, after the
making of such withholding or deduction, each Noteholder receives and
retains (free from any liability in respect of any such withholding or
deduction) a net sum equal to the sum which it would have received and
so retained had no such withholding or deduction been made or required
to be made.
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13.2 If, at any time, the Issuer is required by law to make any withholding
or deduction from any sum payable by it hereunder (or if thereafter
there is any change in the rates at which or the manner in which such
withholdings or deductions are calculated), the Issuer shall promptly
notify the Noteholder.
13.3 If, following the making of any increased payment by the Issuer
pursuant to Clause 13.1, a Noteholder receives or is granted a credit
against, remission for or repayment of any tax payable or suffered by
it which is referable to such deduction or withholding or such
increased payment and which confers a genuine benefit on such
Noteholder, such Noteholder shall, to the extent that the auditors of
such Noteholder (acting as experts and not as arbitrators) are
reasonably satisfied that it can do so without prejudice to the
retention of such credit, remission or repayment, promptly reimburse
the Issuer with such amount as the auditors of such Noteholder (acting
as experts and not as arbitrators) shall reasonably determine and
certify (substantiating in reasonably sufficient detail the amount
concerned but not including any matters which such Noteholder fairly
regards as confidential) to the Issuer to be such proportion of such
credit, remission or repayment as will leave such Noteholder (after
such reimbursement) in no better position (after tax) than would have
been the case had no such deduction or withholding been required to be
made.
13.4 Reimbursement shall be made under Clause 13.3 above within seven (7)
days after a Noteholder has actually received the benefit of such
exemption, credit, emission or repayment, but any reimbursement shall
include an amount in respect of interest or repayment supplement on or
in respect of tax actually received or credited to such Noteholder in
respect of such exemption, credit, remission or repayment and such
Noteholder shall not unreasonably delay the obtaining of such benefit.
13.5 If a Noteholder is obliged to pay to the Issuer any sum under a Note
and:
(a) any such exemption, credit, remission or repayment as is referred
to in Clause 13.3 is subsequently withdrawn in whole or in part;
or
(b) such sum is paid on the basis that it would be allowed to such
Noteholder as a deduction or offset for taxation purposes in the
accounting period of such Noteholder and such assumption
subsequently proves to be incorrect,
then the Issuer shall repay to such Noteholder promptly on demand such
amount as the auditors of such Noteholder (acting as experts and not as
arbitrators) shall reasonably determine and certify (substantiating in
reasonably sufficient detail the amount concerned and not including any
matters which such Noteholder fairly regards as confidential) to the
Issuer to be such amount as will leave such Noteholder (after such
repayment) in no better position (after tax) than would have been the
case had no such circumstances mentioned in paragraphs (a) and (b)
above existed.
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14. Interest
14.1 The rate of interest on the Notes for each Interest Period shall be the
aggregate of the applicable:
(a) Fixed Margin; and
(b) Interbank Rate.
14.2 Except as otherwise provided herein in Clause 19 or otherwise, interest
shall be payable by the Issuer in U.S. dollars in advance on the first
day of each Interest Period (each such day, an "Interest Payment
Date").
14.3 The first Interest Period in respect of the Notes will commence on May
12, 2000 with the next Interest Payment Date being six (6) months
thereafter.
14.4 Interest shall accrue from day to day from and including the last day
of the immediately preceding Interest Period to but excluding the last
day of the current Interest Period and shall be calculated at the rate
specified in Clause 14.1.
15. Default Interest and Indemnity
15.1 If interest in respect of any Note which is due and payable by the
Issuer hereunder is not paid on the due date therefor or if any sum due
and payable by the Issuer under any judgment of any court in connection
herewith is not paid on the date of such judgment, such sum (the
balance thereof for the time being unpaid being herein referred to as
an "unpaid sum") shall bear interest at the rate specified in Clause
14.1 beginning on such due date or, as the case may be, the date of
such judgment and ending on the date upon which the obligation of the
Issuer to pay is discharged.
15.2 Any interest which shall have accrued under Clause 15.1 in respect of
an unpaid sum shall be due and payable and shall be paid by the Issuer
to the relevant Noteholder(s) at the end of the period by reference to
which it is calculated or on such other date or dates as such
Noteholder(s) may specify by written notice to the Issuer, provided,
however that any such interest which shall have accrued as a result of
an event which, but for the payment of such accrued interest as
provided in the proviso set forth in the definition of "Interest
Payment Default", would become an Interest Payment Default, shall be
payable on the date upon which the obligation of the Issuer to pay such
accrued interest is discharged, whether in accordance with the
definition of "Interest Payment Default" or as otherwise provided
herein.
15.3 The Issuer undertakes to indemnify each Noteholder against any cost,
claim, loss, expense (including legal fees) or liability, which it may
sustain or incur as a
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consequence of the occurrence of any default by the Issuer in the
performance of any of the obligations expressed to be assumed by it in
respect of the Notes.
16. Mandatory Prepayment Event
Upon the occurrence of any Mandatory Payment Event, the Issuer will,
subject to the provisions of Clause 19, immediately prepay to the
Noteholders all the outstanding principal and all interest and all
other amounts payable under the Notes.
17. Replacement of Note
Subject to Article X of the Securities Purchase Agreement, if any Note
is lost, stolen, mutilated, defaced or destroyed, it may be replaced at
the specified office of the Issuer, subject to all applicable laws,
upon payment by the claimant of the expenses incurred in connection
with such replacement and on such terms as to evidence, security,
indemnity and otherwise as the Issuer may reasonably require. Mutilated
or defaced Notes must be surrendered before replacements will be
issued.
18. Modification and Noteholders' Resolutions
18.1 Any modification to these Conditions shall be agreed in writing between
the Issuer and Noteholders holding at least eighty per cent (80%) of
the face amount of the Notes and any such modifications so agreed shall
be binding on all further Noteholders, provided that no amendment,
supplement or modification to, or waiver of, any provision set forth in
this Clause 18, Clause 16, Clause 19, Clause 22 or Clause 23 may be
effected without the prior written consent of the Facility Agent (with
the consent of the "Majority Lenders", as defined in the Senior Secured
Credit Agreement), and any such amendment, supplement, modification or
waiver entered into without the prior written consent of the Facility
Agent shall be null and void and without any force and effect
whatsoever.
18.2 Any resolution of Noteholders in relation to these Conditions may be
made in writing signed by or on behalf such Noteholders holding the
relevant face amount of Notes upon delivery to the Issuer by each such
Noteholder of such evidence as to its identity and its capacity as
Noteholder as the Issuer may reasonably require.
19. Subordination
19.1 The Issuer covenants and agrees, and the Noteholder by its acceptance
hereof likewise covenants and agrees, that all payments of the
principal of and interest and premium, if any, on the Notes and all
other obligations of the Issuer now or hereafter existing under or in
respect of the Notes (including, without limitation, amounts payable on
account of the redemption provisions set forth herein) (collectively,
the "Subordinated Debt") shall be subordinated in accordance with
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the provisions of this Clause 19 to the prior payment in full of all
Senior Obligations. For purposes hereof, the Senior Obligations shall
not be deemed to have been paid in full until the Finance Parties shall
have received payment of the Senior Obligations in full in cash. In
furtherance of the foregoing, the Issuer and the Noteholder, by its
acceptance hereof, agrees as follows:
19.2 Upon payment or distribution of assets or securities of the Issuer of
any kind or character, whether in cash, property or securities, upon
any dissolution or winding up or total or partial liquidation or
reorganization of the Issuer, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of the Issuer, all Senior Obligations shall
first be paid in full in cash, or payment provided for in cash or cash
equivalents in a manner satisfactory to the Finance Parties, before any
direct or indirect payment or distribution, including, without
limitation, by exercise of set-off, of any cash, property or securities
on account of principal of (or premium, if any) or interest or any
other amounts on or in respect of the Notes and to that end the Finance
Parties shall be entitled to receive directly, for application to the
payment of the Senior Obligations (to the extent necessary to pay all
Senior Obligations in full after giving effect to any substantially
concurrent payment or distribution to or provision for payment to the
Finance Parties), any payment or distribution of any kind or character,
whether in cash, property or securities, in respect of the Subordinated
Debt. The Facility Agent is hereby irrevocably authorized and empowered
(in its own name or in the name of the Noteholders or otherwise), but
shall have no obligation, to demand, sue for, collect and receive
payment or distribution referred to herein and to file a claim and
proofs of claim and take such other action (including without
limitation, voting the Subordinated Debt) as it may deem necessary or
advisable for the exercise or enforcement of any of the rights or
interests of the Noteholders hereunder.
19.3 No direct or indirect payment by or on behalf of the Issuer of
principal of (premium, if any), or interest on, or any other amount
with respect to, the Subordinated Debt, and no repurchase, redemption
or other retirement of any Note, whether pursuant to the terms of the
Note, upon acceleration or otherwise, shall be made if at the time of
such payment, repurchase, redemption or retirement, a Subordination
Event has occurred for so long as such Subordination Event shall not
have been cured or waived in writing by all applicable parties;
provided, that the payment of accrued interest specified in the proviso
in the definition of "Interest Payment Default" may be paid in
accordance with such proviso; and provided, further, that on and after
the Standstill Termination Date, the Issuer may resume payments on
account of the principal of (premium, if any), and interest (including
interest pursuant to Clause 15.1) and any other amounts on the Note,
subject to the provisions of Clause 19.1 and Clause 19.2 hereof;
19.4 (a) In the event that, notwithstanding the foregoing provisions
prohibiting such payment or distribution, the Noteholders shall have
received any payment on
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account of the Subordinated Debt at a time when such payment is
prohibited by such provisions before the Senior Obligations are paid in
full, then and in such event, such payment or distribution shall be
received and held in trust by the Noteholders apart from their other
assets and forthwith paid over or delivered to the Facility Agent in
the same form as so received (with any necessary indorsement) to be
applied (in the case of cash) to, or held as collateral (in the case of
non-cash property or securities) for, the payment or prepayment of the
Senior Obligations in accordance with the terms of the Senior Loan
Agreements.
(b) Nothing contained in this Clause 19 will limit the right of the
Noteholders to take any action provided herein with respect to the
Subordinated Debt; provided that all Senior Obligations then due or
thereafter declared to be due shall first be paid in full before the
Noteholders are entitled to receive any payment from the Issuer of
principal of, or interest on, or any other amounts under any Note.
(c) Upon any payment or distribution of assets or securities referred
to in this Clause 19, the Noteholders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are
pending, and upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making any such payment or
distribution, delivered to the Noteholders for the purpose of
ascertaining the Persons entitled to participate in such distribution,
the holders of the Senior Obligations and other indebtedness of the
Issuer, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to
this Clause 19.
(d) No right of any present or future holder of any Senior Obligations
to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act by any such
holder, or by any noncompliance by the Issuer or any Noteholder with
the terms and provisions and covenants herein regardless of any
knowledge thereof such holder may have or otherwise be charged with.
(e) The provisions of this Clause 19 are intended to be for the benefit
of, and shall be enforceable directly by, the holders of the Senior
Obligations. The Issuer and each Noteholder, by its acceptance hereof,
each acknowledge that the Finance Parties are relying upon the
provisions of this Clause 19 in extending such Senior Obligations.
19.5 Any payment or distribution to the Facility Agent, on behalf of the
holders of the Senior Obligations, pursuant to the provisions of this
Clause 19 shall entitle the Noteholder to a right of subrogation in
respect thereof; provided, however that all such subrogation rights are
not exercisable until the Senior Obligations shall have been paid in
full.
19
<PAGE>
19.6 Nothing contained in this Clause 19 or elsewhere in this Note is
intended to or shall impair, as between the Issuer and the Noteholder,
the obligations of the Issuer, which are absolute and unconditional, to
pay to the Noteholder the principal of (premium, if any), and interest
on, the Note as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the
relative rights of the Noteholder and creditors of the Issuer other
than the holders of the Senior Obligations nor shall anything herein or
therein prevent any Noteholder from exercising all remedies otherwise
permitted by applicable law upon the occurrence of a Mandatory
Prepayment Event under this Note, subject to the rights, if any, under
this Clause 19 of the holders of the Senior Obligations in respect of
cash, property or securities of the Issuer received upon the exercise
of any such remedy.
19.7 As long as the Senior Obligations shall not have been paid in full, no
Noteholder will commence, or join with any creditor other than the
holders of the Senior Obligations in commencing, or directly or
indirectly cause the Issuer to commence or assist the Issuer in
commencing, any proceeding referred to in Clause 19.2.
19.8 All rights and interests hereunder of the holders of the Senior
Obligations, and all agreements and obligations of the Noteholders and
the Issuer under this Clause 19, shall remain in full force and effect
irrespective of:
(a) the lack of validity or enforceability of any provision under any
Senior Loan Agreement or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Obligations, or any other
amendment or waiver of or any consent to any departure from the Senior
Loan Agreements, including, without limitation, any increase in the
Senior Obligations resulting from the extension of additional credit to
the Issuer or any of its subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent
to departure from any guaranty, for all or any of the Senior
Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Senior Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Senior Obligations
or any other assets of the Issuer or any of its subsidiaries;
(e) any change, restructuring or termination of the corporate structure
or existence of the Issuer or any of its subsidiaries; or
(f) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Issuer or a subordinated creditor.
20
<PAGE>
Each Noteholder and the Issuer hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the
Senior Obligations and this Clause 19 and any requirement that the
Facility Agent or any holder of the Senior Obligations protect, secure,
perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against the Issuer or
any other person or entity or any collateral.
19.9 (a) The provisions of this Clause 19 shall continue to be effective or
be reinstated, and the Senior Obligations shall not be deemed to be
paid in full, as the case may be, if at any time any payment of any of
the Senior Obligations is rescinded or must otherwise be returned by
the Facility Agent or any holder of the Senior Obligations upon the
insolvency, bankruptcy or reorganization of the Issuer or otherwise,
all as though such payment had not been made.
(b) The provisions of this Clause 19 shall (i) remain in full force and
effect until the payment in full of the Senior Obligations, (ii) be
binding upon the Issuer and each Noteholder and their respective
successors, assigns and transferees and (iii) inure to the benefit of,
and be enforceable by, each Finance Party and its successors, assigns
and transferees.
20. Miscellaneous
20.1 No failure by any Noteholder to exercise, nor any delay by such
Noteholder in exercising, any right or remedy in respect of any of the
Notes shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy prevent any further or other
exercise thereof or the exercise of any other right or remedy. The
rights and remedies herein provided are cumulative and not exclusive of
any other rights or remedies (whether provided by law or otherwise).
20.2 Subject to Section 12.9 (Expenses) of the Securities Purchase
Agreement, the Issuer will pay all costs associated with the issuance
of the Notes.
21. Notices
21.1 Any notice required to be issued or delivered by any party hereto to
any other party hereto shall be issued or delivered, unless otherwise
provided herein, by letter, telephone or facsimile to, in the case of
the Issuer, the Issuer's other representative as set out below and, in
the case of any Noteholder, to its representative specified on the
Register (or to such other representative or to such other address as
such Noteholder may hereafter specify in writing to the other parties
hereto):
ISSUER
Address: Terez Krt, Budapest, Hungary
Tel: + 36 1 474-7732
21
<PAGE>
Facsimile: + 36 1 474-0350
Attention of: Kaj Ole Bertram
Copies to:
Legal Counsel
(Dr. Peter Lakatos - Koves & Partners Clifford Chance
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Fax: +36 1 268 1610
Tel: +36 1 268 1600)
and
Legal Counsel
Hungarian Telephone and Cable Corp.
100 First Stamford Place
Stamford, CT 06902
Fax: 203-348-9128
Tel: 203-348-9069
21.2 Any notice delivered by hand to the notice address of the addressee
shall be deemed to be served at the time of delivery, notices sent by
facsimile shall be deemed to be served upon completion of transmission
and notices sent by first class post or pre-paid recorded delivery
shall be deemed to be served forty-eight (48) hours after time of
posting.
21.3 The Noteholder, by its acceptance hereof, understands and agrees that
it may receive a request pursuant to Section 34.2 (Exceptions) of the
Senior Secured Credit Agreement and that the response to such request
shall be required to be provided to the Person indicated therein within
fourteen (14) after delivery thereof or the Noteholder shall be deemed
to have consented to such request.
22. Law
The Notes are governed by, and shall be construed in accordance with,
the laws of the State of New York.
23. Arbitration
23.1 New York Courts. Subject to Clause 23.2 below (Option to Refer Disputes
to Arbitration), each of the Issuer and the Noteholder irrevocably
agrees for the benefit of each of the Finance Parties that the courts
of New York shall have exclusive jurisdiction to hear and determine any
suit, action or proceeding, and to
22
<PAGE>
settle any disputes, which may arise out of or in connection with this
Note and, for such purposes, irrevocably submits to the jurisdiction of
such courts.
23.2 Option to Refer Disputes to Arbitration. Notwithstanding the provisions
of Clause 23.1 above (New York Courts), (a) in the event that the
Facility Agent deems it appropriate to assert its rights relating to
this Note, or (b) at the option of either the Issuer or the Noteholder
in the event the Facility Agent has not asserted its rights related
hereto or at any time after the Senior Obligations shall have been paid
in full, such Person may, in its sole discretion assert such rights in
an arbitration proceeding under the UNCITRAL Arbitration Rules as more
particularly outlined in the Securities Purchase Agreement which is
incorporated herein by reference in its entirety.
23.3 Non-Exclusive Jurisdiction. This Clause 23.3 is for the benefit of the
Finance Parties and nothing in Clause 23.1 shall prevent the Facility
Agent from taking proceedings relating to a Dispute involving a holder
of any Note in any other courts with jurisdiction in the jurisdiction
in which such holder of such Note has its place of incorporation,
principal place of business and/or substantial assets. To the extent
allowed by law, the Facility Agent may take concurrent proceedings in
any number of jurisdictions.
23.4 Service of Process for Arbitration Proceedings. Each party hereunder
agrees that the process by which any arbitration proceedings are begun
may be served on it by being delivered to the address identified in
Clause 21 (Notices) or other its registered office for the time being.
If the appointment of the person(s) mentioned in this Clause 23.4
ceases to be effective, such party shall immediately appoint a further
person to act on its behalf as agent for the commencement of
arbitration proceedings and, failing such appointment within fifteen
(15) days, any other party or the Facility Agent shall be entitled to
appoint such a person by notice to the other parties. Nothing contained
in these Conditions shall affect the right to serve process in any
other manner permitted by law.
23.5 Consent to Enforcement. Each party hereby consents generally in respect
of any proceedings to the giving of any relief or the issue of any
process in connection with such proceedings including the making,
enforcement or execution against any property whatsoever (irrespective
of its use or intended use) of any order or judgement which may be made
or given in such proceedings.
24. Language
The Notes shall be executed in the English language. The Notes may be
translated into the Hungarian language. In the event that any dispute
or question of interpretation arises, the English language version
shall prevail.
23
<PAGE>
25. Waiver of Jury Trial
Each of the parties hereto irrevocably waives trial by jury in any
action, proceeding or Dispute with respect to this Note.
26. Amendment and Restatement
This Note amends and restates and is a substitute for, but is not in
payment or satisfaction of, the Unsecured Note no. __ dated May 12,
1999 in the principal amount of U.S. $1,000,000 from the Issuer to the
Noteholder.
24
<PAGE>
EXECUTION
The Issuer
Executed and delivered ) Director
by Kaj Ole Bertram, President and )
Chief Executive Officer )
HUNGARIAN TELEPHONE AND ) Director/Secretary
CABLE CORP. )
The Noteholder
signed by ) Director/Secretary
for and on behalf of )
POSTABANK ES TAKAREKPENZTAR )
RESZVENYTARSASAG )
25
Exhibit 10.34
SECURITY DEPOSIT NO. 1 AGREEMENT
dated April 11, 2000
between
HUNGARIAN TELEPHONE AND CABLE CORP.
as Depositor
and
CITIBANK RT.
as Depositee and Security Agent
and
HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
KNC KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS
RESZVENYTARSASAG
Ormai es Tarsai
CMS Cameron McKenna CMS Cameron McKenna
Citibank Tower, 4th Floor Mitre House
Bank Center 160 Aldersgate Street
Szabadsag ter 7 London
H-1944 Budapest EC1A 4DD
Hungary England
Tel: +36 1 302 9302 Tel: +44 171 367 3000
Fax: +36 1 302 9300 Fax: +44 171 367 2000
<PAGE>
HTCC TANACSADO RESZVENYTARSASAG
as Countersignors
<PAGE>
THIS SECURITY DEPOSIT NO. 1 AGREEMENT (the "Agreement") is made on 11 April 2000
BETWEEN:
(1) HUNGARIAN TELEPHONE AND CABLE CORP. as depositor (the "Depositor");
(2) CITIBANK RT. as depositee (the "Depositee"), acting on its own behalf
and in its capacity as Security Agent (acting on behalf of each Finance
Party);
AND IS COUNTERSIGNED BY:
(3) HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as countersignor;
(4) RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as countersignor;
(5) PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as
countersignor;
(6) KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as
countersignor; and
(7) HTCC TANACSADO RESZVENYTARSASAG RESZVENYTARSASAG as countersignor.
(the parties detailed at (3) to (7) inclusive above each a "Countersignor" and
together, the "Countersignors")
(the parties detailed at (1) to (7) inclusive above each a "Contracting Party"
and together, the "Contracting Parties").
The Depositee is acting on its own behalf and in its capacity as Security Agent
(acting on behalf of each Finance Party) by way of a power of attorney, each
substantially in the form set out in the Schedule 1 (Form of the power of
attorney from each Finance Party to the Security Agent).
IT IS HEREBY AGREED as followed:
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<PAGE>
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
"Cancelled Shares" means the share certificates being serial numbers
0007013-0007412, 0008018-0010749, 0023769-0026396 and 0072109-0096108
of the ordinary share capital of KNC Kelet-Nograd COM Tavkozlesi
Koncesszios Reszvenytarsasag.
"Depositee's Declaration" means the written declaration made by the
Depositee and delivered to the Depositor and to each of the
Countersignors as required to terminate the Security Deposit and to
delete the notation from the share registry of each of the
Countersignors, substantially in the form set out in the Schedule 3
(Form of the Depositee's Declaration regarding the termination of the
Security Deposit).
"Deposit Period" means the period commencing on the date of this
Agreement and terminating on the date on which the Secured Liabilities
have been finally and duly paid, duly performed and/or duly discharged
(as appropriate) in full.
"Deposited Shares" means the registered shares of each of the
Countersignors identified and listed in Schedule 2 (List of the
Deposited Shares).
"Dispute" shall have the meaning ascribed to it in Clause 18.3
(Arbitration).
"Loan" means, at any time, the amount of principal outstanding under
the Senior Secured Debt Facility Agreement at such time, which can be
in the aggregate for an amount of up to one hundred and thirty million
euros (EUR 130,000,000).
"Material Adverse Effect" means the occurrence of any material adverse
change in the value of the Deposited Shares and/or in the ability of
the Depositee to enforce any or all of its rights arising under this
Agreement.
"Permitted Encumbrance" means any Encumbrance falling within the scope
of paragraph (c) of Clause 21.3 (Negative pledge) of the Senior Secured
Debt Facility Agreement.
"Power of Attorney" means the power of attorney to be provided by the
Depositor to the Depositee on the date of this Agreement and every
twelve (12) months thereafter, substantially in the form set out in
Schedule 5 (Form of the Power of Attorney from a Depositor to the
Depositee to exercise shareholders' rights).
2
<PAGE>
"Re-issued Shares" means the new ordinary shares of KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag which will be issued in
replacement of the Cancelled Shares.
"Rules" shall have the meaning ascribed to it in Clause 18.3
(Arbitration).
"Secured Liabilities" mean collectively, all moneys, obligations and
liabilities whatsoever (in the same currency in which such moneys,
obligations and liabilities are, as appropriate, expressed to be
payable), which are now or which may at any time after the date of this
Agreement be due, owing, incurred and/or outstanding from any of the
Countersignors to the Depositee or any Finance Party or any transferee
or assignee or replacement or successor of the Depositee or such
Finance Party under any of the Senior Finance Documents to which any of
the Countersignors and such person is a party and which arise under
such Senior Finance Documents, the principal details of which are set
out in Clause 2 (The Secured Liabilities).
"Security Deposit" means the deposit ("zarolt letet") created and
granted over the Deposited Shares by the Depositors in favour of the
Depositee pursuant to Clause 3.1. (Security Deposit).
"Senior Secured Debt Facility Agreement" means the EUR 130,000,000
senior secured debt facility agreement dated on or about the date of
this Agreement made between: (1) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as Borrower; (2) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as Borrower; (3) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as Borrower; (4) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as Borrower; (5) Hungarian
Telephone and Cable Corp. as Guarantor; (6) HTCC Tanacsado
Reszvenytarsasag as Guarantor; (7) Citibank, N.A. and Westdeutsche
Landesbank Girozentrale as Arrangers; (8) Citibank International plc.
as Facility Agent; (9) Citibank Rt. as Security Agent; and (10) the
financial institutions defined in such senior secured debt facility
agreement as the Original Lenders.
"Valuation Price" has the meaning provided for in Clause 10.2
(Procedure).
2.1 Defined terms in the Senior Secured Debt Facility Agreement
In this Agreement all terms and expressions shall, in the absence of
contrary intention or unless otherwise defined, have the meanings
attributed to such terms and expressions in the Senior Secured Debt
Facility Agreement (including by reference to any other document),
mutatis mutandis. Clause 1.2 (Construction) of the Senior Secured Debt
Facility Agreement shall be deemed to be incorporated in this
Agreement, mutatis mutandis.
2. THE SECURED LIABILITIES
2.1 Liabilities arising under the Senior Finance Documents
The Contracting Parties hereby declare that under the terms and
conditions of the Senior Finance Documents:
3
<PAGE>
(a) the Depositor undertook, subject to the terms and conditions of
the Senior Finance Documents to which it is a party:
(i) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(ii) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (i) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(b) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of seventy nine million euro (EUR 79,000,000),
in accordance with the following repayment schedule (as
amended from time to time pursuant to the Senior Secured Debt
Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- -------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
4
<PAGE>
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.), subject to any reduction pursuant to Clause
9.6 (Adjustments to Margin) of the Senior Secured Debt
Facility Agreement; (B) in relation to any Loan denominated
in forint, BUBOR, or in relation to any Loan denominated in
euro, EURIBOR; and (C) the Associated Costs, if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(c) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of fourteen million euro (EUR 14,000,000), in
accordance with the following repayment schedule (as amended
from time to time pursuant to the Senior Secured Debt
Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
5
<PAGE>
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.), subject to any reduction pursuant to Clause
9.6 (Adjustments to Margin) of the Senior Secured Debt
Facility Agreement; (B) in relation to any Loan denominated
in forint, BUBOR, or in relation to any Loan
denominated in euro, EURIBOR; and (C) the Associated Costs,
if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(d) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of thirteen million euro (EUR 13,000,000), in
accordance with the following repayment schedule (as amended
from time to time pursuant to the Senior Secured Debt
Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
6
<PAGE>
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.) annum, subject to any reduction pursuant to
Clause 9.6 (Adjustments to Margin) of the Senior Secured
Debt Facility Agreement; (B) in relation to any Loan
denominated in forint, BUBOR, or in relation to any Loan
denominated in euro, EURIBOR; and (C) the Associated Costs,
if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(e) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag
undertook, subject to the terms and conditions of the Senior
Finance Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the
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<PAGE>
equivalent of twenty six million euro (EUR 26,000,000),
in accordance with the following repayment schedule (as
amended from time to time pursuant to the Senior Secured
Debt Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of: (A) such
interest shall be the percentage rate per annum which is the
aggregate of one point seven five per cent. per annum (1.75%
p.a.), subject to any reduction pursuant to Clause 9.6
(Adjustments to Margin) of the Senior Secured Debt Facility
Agreement; (B) in relation to any Loan denominated in
forint, BUBOR, or in relation to any Loan denominated in
euro, EURIBOR; and (C) the Associated Costs, if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
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Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(f) HTCC Tanacsado Reszvenytarsasag undertook, subject to the terms
and conditions of the Senior Finance Documents to which it is a
party:
(i) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(ii) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (i) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
2.2 Liabilities arising under this Agreement
The Contracting Parties hereby declare that, under the terms and
conditions of this Agreement, the Depositor undertakes, subject to such
terms and conditions:
(a) to pay the fees, costs and expenses arising in relation to this
Agreement; and
(b) to perform and/or comply with its obligations.
2.3 Secured Liabilities
Each of the Depositor and the Countersignors hereby unconditionally and
irrevocably acknowledges and agrees that the Secured Liabilities will
not be duly and fully discharged until each and every of their
respective obligations and/or liabilities whatsoever provided for in
Clause 2.1 (Liabilities arising under the Senior Finance Documents) and
Clause 2.2 (Liabilities arising under this Agreement) have been duly
and fully discharged.
3. THE SECURITY DEPOSIT
3.1 Security Deposit
For the purpose of securing the Secured Liabilities the Depositor
hereby irrevocably and unconditionally creates a Security Deposit over
each registered share comprising the Deposited Shares. The Deposited
Shares shall be blank endorsed. The Security Deposit is made in favour
of the Depositee acting on its own behalf and in its capacity as
Security Agent acting on behalf of each Finance Party and any
transferees or assignees or replacements or successors of the Depositee
or any such Finance Party, for the full amount of the Secured
Liabilities.
3.2 Joint and several security
The Security Deposit established by this Agreement is joint and
several. Each Deposited Share serves as Encumbrance for the whole of
the Secured Liabilities. The Depositee shall be entitled to select any
one or more of the
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Deposited Shares as the Depositee, in the Depositee's absolute
discretion sees fit, against which to enforce the Security Deposit.
3.3 Additional security
The rights constituted by this Agreement are in addition to and are not
in any way prejudiced or affected by any other Encumbrance, security,
guarantee, indemnity or other right whatsoever now or subsequently held
by the Depositee and/or any Finance Party for any of the Secured
Liabilities. The powers conferred on the Depositee by this Agreement in
relation to the Secured Liabilities and the Deposited Shares, shall be
in addition to and not in substitution for the rights conferred on
Depositee and the Finance Parties by laws and regulations of Hungary or
other Applicable Law except in so far as they are expressly excluded in
this Agreement and, where there is any ambiguity or conflict between
such rights contained in any such laws and regulations of Hungary or
other Applicable Law and those conferred by this Agreement, then the
terms of this Agreement shall, to the extent permitted by such laws and
regulations of Hungary or other Applicable Law, prevail.
3.4 Continuing security
(a) The Contracting Parties agree and confirm that any transferee becoming
a party to the Senior Secured Debt Facility Agreement pursuant to
Clause 23 (Changes to the Lenders) of such Senior Secured Debt Facility
Agreement as a Lender or any other person otherwise becoming a party to
the Senior Secured Debt Facility Agreement as an assignee or transferee
or replacement or successor of a Finance Party shall thereupon become
entitled to the benefit of the provisions contained in this Agreement
as if such transferee or person had originally been and had been named
as a party to this Agreement (subject to compliance with Clause 11
(Release notice)).
(b) The Security Deposit constituted by this Agreement shall:
(i) be a continuing Encumbrance for the due payment, satisfaction and
discharge in full of the Secured Liabilities and such Encumbrance
shall not be considered as satisfied or discharged or prejudiced
by any intermediate payment, satisfaction or settlement of any
part of the Secured Liabilities or any other matter or thing
whatsoever; and
(ii) not be prejudiced by any time or indulgence granted to any person,
or any abstention or delay by the Depositee or any Finance Party
in perfecting or enforcing any Encumbrance, securities,
guarantees, or rights or remedies whatsoever.
4. CONSTITUTION OF THE SECURITY DEPOSIT
The Security Deposit established by this Agreement shall be constituted
upon the execution of this Agreement.
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5. NOTATION IN THE SHARE REGISTRY
Each of the Countersignors hereby irrevocably and unconditionally
undertakes to enter and maintain in its share registry notations
reflecting the fact that the Deposited Shares have been deposited in
favour of the Depositee in its own capacity and in its capacity as
Security Agent, in form and substance acceptable to the Depositee. The
Depositor shall deliver to the Depositee a certified copy of each
Countersignor's share registry showing the notations referred to above
simultaneously with the execution of this Agreement.
Until the Secured Liabilities are duly paid, satisfied and discharged
in full, if each of the Countersignors shall: (i) make a bonus issue of
shares; or (ii) sub-divide its outstanding shares; or (iii) reclassify
any of its shares into other securities of the respective
Countersignor; or (iv) grant, issue or offer to shareholders of the
respective Countersignor options, rights or warrants entitling them to:
(1) subscribe for or purchase shares; or (2) subscribe for or purchase
securities convertible into or exchangeable for, or which carry rights
to subscribe or purchase shares; or (v) make or do any similar or
analogous action or deed, then any such shares or securities so granted
offered or issued to the Depositor shall become security in favour of
the Depositee, and shall immediately be deposited by the Depositor in
accordance with the terms and conditions of this Agreement.
6. PRIORITY OF THE SECURITY DEPOSIT
6.1 The priority of the Security Deposit
No other Encumbrance whatsoever shall be created over the Deposited
Shares where such Encumbrance would rank ahead of the Security Deposit
except as expressly provided for and permitted by operation of
mandatory provisions of laws and regulations of Hungary.
6.2 Delegation of rights
The Depositee may, at any time and from time to time, delegate to any
person all or any of the rights and benefits which are at such time,
being exercised or capable of being exercised by the Depositee under
this Agreement in relation to the Deposited Shares or any part thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR
The Depositor makes each of the representations and warranties set out
in this Clause 7 to the Depositee and acknowledges that the Depositee
has entered into this Agreement and that each Finance Party and the
Security Agent have entered into the Senior Secured Debt Facility
Agreement and the documents provided for therein, in reliance on these
representations and warranties.
7.1 The Deposited Shares
Save as expressly disclosed in writing to the Depositee prior to the
date of this Agreement or promptly upon the acquisition of any new
shares in any of the Countersignors by the Depositor, the Depositor
confirms that:
(a) it is the exclusive owner of the Deposited Shares and has not sold
or otherwise disposed of or agreed to sell or otherwise dispose of
the
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Deposited Shares or any of its rights or benefits in respect of
the Deposited Shares or any part thereof except in accordance with
this Agreement;
(b) it has all necessary power, has taken all necessary corporate
action, has obtained all necessary consents of all government
agencies and bodies and has taken all action necessary or required
by laws and regulations of Hungary or other Applicable Law to
enable it to duly execute this Agreement and to duly perform
and/or comply with its obligations arising under this Agreement;
(c) there subsists no fact(s), event(s) and/or circumstance(s) and/or
any breach of any law or regulation of Hungary or other Applicable
Law which may have a Material Adverse Effect;
(d) there are no third party rights whatsoever affecting the Deposited
Shares save for the Permitted Encumbrances;
(e) it has received no notice of any claims (adverse or otherwise) by
any person in respect of the ownership of the Deposited Shares or
claiming any interest whatsoever in such Deposited Shares, nor has
any acknowledgement whatsoever been given to any person in respect
of the Deposited Shares;
(f) this Agreement creates a valid and perfected first priority
Encumbrance over the Deposited Shares and each and every part
thereof, which secures the payment of the Secured Liabilities,
and which is enforceable as such against all creditors and
purchasers of the Depositor; and
(g) neither the making of this Agreement nor their compliance with
this Agreement will conflict with or result in a breach of any of
the terms, conditions or provisions of or constitute a default
(however described or provided for) under any other agreement to
which it is a party or by which it is bound, or violate any of the
terms and conditions of its constitutional documents or any
judgement, decree or order, rule or regulation applicable to it.
7.2 Security
This Agreement creates those Encumbrances it purports to create and may
not be avoided or otherwise set aside on the winding-up, liquidation or
bankruptcy of the Depositor or otherwise except by operation of
mandatory provisions of the laws and regulations of Hungary.
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8. UNDERTAKINGS OF EACH DEPOSITOR
8.1 Duration
The undertakings set out in this Clause 8 remain in force at all times
throughout the Deposit Period.
8.2 Prohibited use, disposals
Unless otherwise provided by this Agreement or the Senior Secured Debt
Facility Agreement, the Depositor may not, without the prior written
consent of the Depositee, save as expressly disclosed in writing to the
Depositee prior to the date of this Agreement or promptly after the
acquisition of new shares in any of the Countersignors following the
date of this Agreement:
(a) create or permit to subsist any Encumbrance whatsoever on any of
the Deposited Shares or any part thereof; or
(b) sell, transfer, grant, lease or otherwise dispose of any interest
whatsoever in the Deposited Shares (or any part of such Deposited
Shares); or
(c) waive its right(s) of ownership in the Deposited Shares, or
otherwise do or permit to be done any act or thing which might
jeopardise the interests and/or rights of the Depositee or any
Finance Party.
The Contracting Parties acknowledge that such restrictions of dealing
may not be registered in the share registers of the Countersignors and
may therefore not be binding on third parties.
8.3 Cancelled Shares and Re-issued Shares
The Depositor and KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag hereby jointly, unconditionally and irrevocably
undertake to facilitate the cancellation procedure in respect of the
Cancelled Shares. To the extent that the cancellation procedure
initiated by KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag is terminated because the Cancelled Shares are found
or for any other reason(s) whatsoever (other than the final and binding
cancellation of the Cancelled Shares), the Depositor shall as quickly
as practicable deposit such Cancelled Shares with Depositee. The
Depositor and KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag hereby jointly, unconditionally and irrevocably
undertake to procure, as quickly as practicable, the issue of the
Re-issued Shares, following which, the Depositor shall, as quickly as
practicable, deposit the Re-issued Shares with the Depositee.
9. PROTECTION OF ENCUMBRANCE
If the Depositor fails to do so and/or immediately after the occurrence
of emergency or extreme circumstance(s), the Depositee shall be
entitled at any time to take any such action as the Depositee, in its
reasonable discretion, thinks fit for the purpose of protecting the
Encumbrance constituted by this Agreement. The Depositor hereby
unconditionally and irrevocably agrees to
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<PAGE>
indemnify the Depositee on demand against any losses, liabilities,
fees, costs and expenses, properly and duly incurred or expended by the
Depositee in the protection or attempted protection of the Encumbrance
constituted by this Agreement.
10. DEPOSITEE'S RIGHT OF SATISFACTION
10.1 Sale
The Contracting Parties irrevocably and unconditionally agree that the
Depositee may exercise its right to satisfaction under this Agreement
by transfer, sale or other disposal of the Deposited Shares following
the occurrence of an Event of Default on its own behalf and on behalf
of each and every Finance Party.
10.2 Procedure
The Contracting Parties hereby irrevocably and unconditionally agree
that notwithstanding the provisions of Clause 10.1 (Sale), once the
right to seek satisfaction under this Agreement from the Security
Deposit or any part thereof has arisen, the Depositee shall be entitled
and the Depositor hereby unconditionally and irrevocably authorises the
Depositee, pursuant to the power of attorney, the form of which is set
out in Schedule 5 (Form of the Power of Attorney from a Depositor to
the Depositee to exercise shareholder's rights), until the earlier of:
(i) the Secured Liabilities being duly paid, satisfied and discharged
in full; and (ii) the transfer, sale or other disposal of the Deposited
Shares, to exercise for and on behalf of the Depositor and without any
limitation, all or any of their shareholders' rights, as shareholder of
the relevant Countersignor.
The Depositor hereby irrevocably and unconditionally agrees to renew
the power of attorney, issued on the date of this Agreement
substantially in the form of Schedule 5 (Form of the Power of Attorney
from a Depositor to the Depositee to exercise shareholders' rights)
every twelve (12) months after the date of this Agreement throughout
the Deposit Period.
In addition to the above, the Depositee shall be entitled to transfer,
sell or otherwise dispose for value the Deposited Shares. In the event
that the Depositee, in exercising its rights under this Agreement,
shall decide to transfer, sell or otherwise dispose of all or part of
the Deposited Shares, the Depositee shall use reasonable endeavours to
transfer, sell or otherwise dispose of the Deposited Shares through an
independent, internationally recognised auction house appointed by the
Depositee. The Deposited Shares shall be initially offered at the
market value as determined by an independent, internationally
recognised accounting firm appointed jointly by the Depositee, the
Depositor and the relevant Countersignor (the "Valuation Price").
Notwithstanding the foregoing, the Depositor may solicit potential
offers for the Deposited Shares, and the Depositee agrees to consider
any offers so solicited. In the event that no offers are received at or
above the Valuation Price within sixty (60) days of appointment of the
aforementioned accounting
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firm, then the Depositee shall be free to accept any third party
offer(s) made for the transfer, sale or other disposal of the Deposited
Shares.
10.3 Application of proceeds
Any moneys received by the Depositee after the Security Deposit created
by this Agreement has been enforced pursuant to this Agreement shall be
applied in the following order of priority (but without prejudice to
the right of any Finance Party to recover any and all shortfall(s)
arising under the Senior Finance Documents from the Depositor and/or
any Countersignor) by the Depositee:
(a) in satisfaction of, or provision, for all fees, costs and expenses
incurred by the Depositee in connection with the enforcement of
this Agreement;
(b) in or towards payment of the Secured Liabilities; and
(c) in payment of the surplus (if any) to the relevant Depositor.
11. RELEASE NOTICE
The Depositee undertakes at the end of the Deposit Period to issue to
the Depositor the Depositee's Declaration, which is required for the
deletion of the Security Deposit from the share registry of the
relevant Countersignor at the end of the Deposit Period.
12. FURTHER ASSURANCES
By executing this Agreement, the Depositor hereby unconditionally and
irrevocably consents to the Depositee taking whatever actions the
Depositee may reasonably and practicably require at the Depositor's own
expense, for:
(a) registering or protecting the rights created by this Agreement
over any of the Deposited Shares; and/or
(b) facilitating the enforcement against any Deposited Share or the
exercise of any right, power or discretion exercisable, by the
Depositee or any of its or their delegates or agents in respect of
any of the Deposited Shares; and/or
(c) the execution of any document or the giving of any notice, order
or direction and the making of any registration, which in any such
case, the Depositee may reasonably think expedient.
13. APPOINTMENT OF ATTORNEY
In order to maintain the perfection, enforce or realise the Security
Deposit constituted by this Agreement the Depositor and each of the
Countersignors hereby jointly unconditionally appoint:
(a) the Depositee; and
(b) each such delegate as is referred to in Clause 6.2 (Delegation of
rights),
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to be its attorney at any time to sign and do all such acts and things
which the Depositor and any of the Countersignors could do or ought to
do pursuant to the provisions contained in this Agreement in relation
to the Deposited Shares and generally in the name of the Depositor and
each of the Countersignors to maintain the perfection, enforce or
realise the Security Deposit.
14. AMENDMENTS
The Contracting Parties hereby agree that any provisions of this
Agreement may only be amended in writing with the consent of each
Contracting Party.
15. EXPENSES AND INDEMNITY
The Depositor and each of the Countersignors shall, on the basis of
joint and several liability, forthwith on demand pay to the Depositee
and each Finance Party, all properly documented fees, costs and
expenses (including, but not limited to, legal fees) properly incurred
by the Depositee or such Finance Party, as applicable, in connection
with this Agreement or in connection with the enforcement of or the
preservation of any rights under any of the Senior Finance Documents to
which the Depositor and/or any of the Countersignors are a party and
keep the Depositee and each Finance Party indemnified against any
failure or delay of the Depositor and/or any of the Countersignors
and/or any of its agents and representatives in paying the same.
16. ASSIGNS
Neither the Depositor nor any of the Countersignors shall be entitled
to assign or transfer all or any of their respective rights, benefits
and obligations under this Agreement. The Depositee and each Finance
Party may assign or transfer all or any of their rights, benefits and
obligations under this Agreement, in accordance with the provisions set
out in Section 8 (Changes to Parties) of the Senior Secured Debt
Facility Agreement.
17. NOTICES
17.1 Communications in writing
Each communication to be made under this Agreement shall be made in
writing and, unless otherwise stated, shall be made by fax or letter
provided that if any notice is delivered by fax, the written original
of such notice shall be sent to the Depositee by first class prepaid
letter.
17.2 Delivery Any communication or document to be made or delivered by
one person to another pursuant to this Agreement shall (unless that
other person has by fifteen (15) days' written notice to the Depositee
specified another address) be made or delivered to that other person at
the address set out in Clause 17.4 (Addresses for notices) below (or,
in the case of a Transferee, at the end of the Transfer Certificate to
which it is a party as a Transferee) and shall be deemed to have been
made or delivered in the case of any communication made:
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(a) by letter, when left at that address or (as the case may be) ten
(10) days after being deposited in the post postage prepaid in an
envelope addressed to it at that address;
(b) by facsimile, when dispatched Provided that: (a) a confirmation of
uninterrupted transmission by a transmission report is received;
and (b) there having been no telephonic communication by the
recipient to the sender (any such telephonic communication to be
confirmed in writing) that the facsimile has not been received in
legible form within 3 hours after sending, if sent on a Business
Day between the hours of 9:00 a.m. and 4:00 p.m. in the
recipient's time zone or if sent other than between the hours of
9:00 a.m. and 4:00 p.m. in the recipient's time zone on a Business
Day, by noon on the next following Business Day. For the purposes
of this sub-clause, a Business Day is a day (other than a Saturday
or Sunday) on which banks (generally) are open for business in the
places where both the sender and the recipient of the facsimile
are situated,
Provided that any communication or document to be made or delivered to
the Depositee shall be effective only when received by the Depositee
and then only if the same is expressly marked for the attention of the
department or officer identified in Clause 17.4 (Addresses for notices)
below (or such other department or officer as the Depositee shall from
time to time specify for this purpose).
17.3 Language
Each communication and document made or delivered by one Contracting
Party to another pursuant to this Agreement shall be in the English
language.
17.4 Addresses for notices
(a) The address, telephone number and facsimile number of the Depositor for
all notices under or in connection with this Agreement are:
Address: Hungarian Telephone and Cable Corp.
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositee and each of the
Countersignors by not less than fifteen (15) Business Days' prior
written notice;
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(b) the address, telephone number and facsimile number of the Depositee for
all notices under or in connection with this Agreement are:
Address: Citibank Rt.
Citibank Tower, Bank Center
Szabadsag ter 7.
H-1051 Budapest
Hungary
Attention: Corporate Bank Head (Mark T. Robinson)
Legal Department Head (Dr. Karoly Foti)
Telephone: +36 1 374 5000
Facsimile: +36 1 374 5115
or such other as it may notify to the Depositor, and each of the
Countersignors by not less than fifteen (15) Business Days' prior
written notice;
(c) the address, telephone number and facsimile number of Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice;
(d) the address, telephone number and facsimile number of RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
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<PAGE>
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee, and
each of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice;
(e) the address, telephone number and facsimile number of Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice; and
(f) the address, telephone number and facsimile number of KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
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or such other as it may notify to the Depositee, the Depositor and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice;
(g) the address, telephone number and facsimile number of HTCC Tanacsado
Reszvenytarsasag for all notices under or in connection with this
Agreement are:
Address: HTCC Tanacsado Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositee, the Depositor and each
of the Countersignors by not less than fifteen (15) Business Days'
prior written notice;
17.5 Representation
The Depositor, the Depositee and each of the Countersignors shall each
procure and ensure that for the duration of this Agreement, they shall
maintain a representative at the addresses specified above, duly
empowered to take receipt of any such notice or communication during
regular business hours.
18. MISCELLANEOUS
18.1 Language
This Agreement shall be executed in the English language.
18.2 Governing law
This Agreement shall be governed by, and shall be construed in
accordance with Hungarian law.
18.3 Arbitration
Any dispute (a "Dispute") arising out of or in connection with this
Agreement (including a Dispute regarding the existence, validity,
interpretation, breach or termination of this Agreement or the
consequences of its nullity) shall be referred to and finally settled
by arbitration under the Rules of Conciliation and Arbitration (the
"Rules") of the Arbitration Court of the Hungarian Chamber of Commerce
by three arbitrators appointed in accordance with the Rules. The
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place and seat of any arbitration proceedings commenced pursuant to
this Clause 18.3 shall be Budapest. The language in which such
arbitration shall be conducted shall be English or Hungarian, by
agreement of the parties to such proceedings, or failing such
agreement, as the Depositee may in its sole discretion elect. Any
judgement or determination rendered shall be final and binding on the
parties thereto and may be entered in any court having jurisdiction or
application may be made to such court for an order of enforcement as
the case may require. No failure or delay in exercising any rights of
any Finance Party under this Agreement shall operate as a waiver, or
preclude the further exercise of such rights.
18.4 Service of process for arbitration proceedings The Depositor and
each of the Countersignors agree that the process by which any
arbitration proceedings are begun may be served on it by being
delivered to the address identified in Clause 17.4 (Address for
notices) above or other its registered office for the time beings or on
the person duly appointed by the Depositor as its agent for service of
process in Hungary and so notified in writing to the Depositee. If the
appointment of the person(s) mentioned in this Clause 18.4 ceases to be
effective the Depositor and/or the relevant Countersignor shall
immediately appoint a further person in Hungary to act on its behalf in
Hungary as agent for the commencement of arbitration proceedings and,
failing such appointment within fifteen (15) days, the Depositee shall
be entitled to appoint such a person by notice to the Depositor and the
relevant Countersignor. Nothing contained in this Agreement shall
affect the right to serve process in any other manner permitted by
Applicable Law.
18.5 Consent to enforcement
The Depositor and each of the Countersignors hereby consents generally
in respect of any proceedings to the giving of any relief or the issue
of any process in connection with such proceedings including the
making, enforcement or execution against any property whatsoever
(irrespective of its use or intended use) of any order or judgement
which may be made or given in such proceedings.
18.6 Waiver of immunity
To the extent that the Depositor or any of the Countersignors may in
any jurisdiction claim for itself or its assets immunity from suit,
execution, attachment or other legal process, the Depositor and/or the
relevant Countersignor waive immunity in respect of:
(a) the giving of any relief by way of injunction or order for
specific performance or for the recovery of assets or revenues;
and/or
(b) the issue of any process against its assets for the enforcement of
a judgement or, in an action in rem, for the arrest, detention or
sale of any of its assets and revenues.
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18.7 Partial invalidity
If, at any time, any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any
jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other
jurisdiction shall in any way be affected or impaired thereby.
AS WITNESS the hands of the duly authorised representatives of the Contracting
Parties to this Agreement the day and year first before written.
22
Exhibit 10.35
SECURITY DEPOSIT NO. 2 AGREEMENT
dated April 11, 2000
between
HTCC TANACSADO RESZVENYTARSASAG
as Depositor
and
CITIBANK RT.
as Depositee and Security Agent
and
HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
KNC KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG
as Countersignors
<PAGE>
THIS SECURITY DEPOSIT NO. 2 AGREEMENT (the "Agreement") is made on 11 April 2000
BETWEEN:
(1) HTCC TANACSADO RESZVENYTARSASAG as depositor (the "Depositor");
(2) CITIBANK RT. as depositee (the "Depositee"), acting on its own behalf
and in its capacity as Security Agent (acting on behalf of each Finance
Party);
AND IS COUNTERSIGNED BY:
(3) HUNGAROTEL TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as countersignor;
(4) RABA-COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as countersignor;
(5) PAPA ES TERSEGE TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as
countersignor; and
(6) KELET-NOGRAD COM TAVKOZLESI KONCESSZIOS RESZVENYTARSASAG as
countersignor
(the parties detailed at (3) to (6) inclusive above each a "Countersignor" and
together, the "Countersignors")
(the parties detailed at (1) to (6) inclusive above each a "Contracting Party"
and together, the "Contracting Parties").
The Depositee is acting on its own behalf and in its capacity as Security Agent
(acting on behalf of each Finance Party) by way of a power of attorney, each
substantially in the form set out in the Schedule 1 (Form of the power of
attorney from each Finance Party to the Security Agent).
IT IS HEREBY AGREED as followed:
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1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
"Depositee's Declaration" means the written declaration made by the
Depositee and delivered to the Depositor and to each of the
Countersignors as required to terminate the Security Deposit and to
delete the notation from the share registry of each of the
Countersignors, substantially in the form set out in the Schedule 3
(Form of the Depositee's Declaration regarding the termination of the
Security Deposit).
"Deposit Period" means the period commencing on the date of this
Agreement and terminating on the date on which the Secured Liabilities
have been finally and duly paid, duly performed and/or duly discharged
(as appropriate) in full.
"Deposited Shares" means the registered shares of each of the
Countersignors identified and listed in Schedule 2 (List of the
Deposited Shares).
"Dispute" shall have the meaning ascribed to it in Clause 18.3
(Arbitration).
"Loan" means, at any time, the amount of principal outstanding under
the Senior Secured Debt Facility Agreement at such time, which can be
in the aggregate for an amount of up to one hundred and thirty million
euros (EUR 130,000,000).
"Material Adverse Effect" means the occurrence of any material adverse
change in the value of the Deposited Shares and/or in the ability of
the Depositee to enforce any or all of its rights arising under this
Agreement.
"Permitted Encumbrance" means any Encumbrance falling within the scope
of paragraph (c) of Clause 21.3 (Negative pledge) of the Senior Secured
Debt Facility Agreement.
"Power of Attorney" means the power of attorney to be provided by the
Depositor to the Depositee on the date of this Agreement and every
twelve (12) months thereafter, substantially in the form set out in
Schedule 5 (Form of the Power of Attorney from a Depositor to the
Depositee to exercise shareholders' rights).
"Rules" shall have the meaning ascribed to it in Clause 18.3
(Arbitration).
"Secured Liabilities" mean collectively, all moneys, obligations and
liabilities whatsoever (in the same currency in which such moneys,
obligations and liabilities are, as appropriate, expressed to be
payable), which are now or which may at any time after the date of this
Agreement be due, owing, incurred and/or outstanding from any of the
Countersignors to the Depositee or any
2
<PAGE>
Finance Party or any transferee or assignee or replacement or successor
of the Depositee or such Finance Party under any of the Senior Finance
Documents to which any of the Countersignors and such person is a party
and which arise under such Senior Finance Documents, the principal
details of which are set out in Clause 2 (The Secured Liabilities).
"Security Deposit" means the deposit ("zarolt letet") created and
granted over the Deposited Shares by the Depositors in favour of the
Depositee pursuant to Clause 3.1. (Security Deposit).
"Senior Secured Debt Facility Agreement" means the EUR 130,000,000
senior secured debt facility agreement dated on or about the date of
this Agreement made between: (1) Hungarotel Tavkozlesi Koncesszios
Reszvenytarsasag as Borrower; (2) RABA-COM Tavkozlesi Koncesszios
Reszvenytarsasag as Borrower; (3) Papa es Tersege Tavkozlesi
Koncesszios Reszvenytarsasag as Borrower; (4) KNC Kelet-Nograd COM
Tavkozlesi Koncesszios Reszvenytarsasag as Borrower; (5) Hungarian
Telephone and Cable Corp. as Guarantor; (6) HTCC Tanacsado
Reszvenytarsasag as Guarantor; (7) Citibank, N.A. and Westdeutsche
Landesbank Girozentrale as Arrangers; (8) Citibank International plc.
as Facility Agent; (9) Citibank Rt. as Security Agent; and (10) the
financial institutions defined in such senior secured debt facility
agreement as the Original Lenders.
"Valuation Price" has the meaning provided for in Clause 10.2
(Procedure).
2.1 Defined terms in the Senior Secured Debt Facility Agreement
In this Agreement all terms and expressions shall, in the absence of
contrary intention or unless otherwise defined, have the meanings
attributed to such terms and expressions in the Senior Secured Debt
Facility Agreement (including by reference to any other document),
mutatis mutandis. Clause 1.2 (Construction) of the Senior Secured Debt
Facility Agreement shall be deemed to be incorporated in this
Agreement, mutatis mutandis.
2. THE SECURED LIABILITIES
2.1 Liabilities arising under the Senior Finance Documents
The Contracting Parties hereby declare that under the terms and
conditions of the Senior Finance Documents:
(a) the Depositor undertook, subject to the terms and conditions of
the Senior Finance Documents to which it is a party:
(i) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(ii) to perform and/or comply with its obligations under such
Senior Finance Documents,
3
<PAGE>
Provided that the aggregate secured amount under (i) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(b) Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of seventy nine million euro (EUR
79,000,000), in accordance with the following repayment
schedule (as amended from time to time pursuant to the
Senior Secured Debt Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.), subject to any reduction pursuant to Clause
9.6 (Adjustments to Margin) of the Senior Secured Debt
Facility Agreement; (B) in relation to any Loan denominated
in forint, BUBOR, or in relation to any Loan
4
<PAGE>
denominated in euro, EURIBOR; and (C) the Associated Costs,
if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(c) RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of fourteen million euro (EUR 14,000,000), in
accordance with the following repayment schedule (as amended
from time to time pursuant to the Senior Secured Debt
Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall
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<PAGE>
accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.), subject to any reduction pursuant to Clause
9.6 (Adjustments to Margin) of the Senior Secured Debt
Facility Agreement; (B) in relation to any Loan denominated
in forint, BUBOR, or in relation to any Loan denominated in
euro, EURIBOR; and (C) the Associated Costs, if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(d) Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag undertook,
subject to the terms and conditions of the Senior Finance
Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of thirteen million euro (EUR 13,000,000), in
accordance with the following repayment schedule (as amended
from time to time pursuant to the Senior Secured Debt
Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
6
<PAGE>
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of such interest
shall be the percentage rate per annum which is the
aggregate of: (A) one point seven five per cent. per annum
(1.75% p.a.) annum, subject to any reduction pursuant to
Clause 9.6 (Adjustments to Margin) of the Senior Secured
Debt Facility Agreement; (B) in relation to any Loan
denominated in forint, BUBOR, or in relation to any Loan
denominated in euro, EURIBOR; and (C) the Associated Costs,
if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000);
(e) KNC Kelet-Nograd COM Tavkozlesi Koncesszios Reszvenytarsasag
undertook, subject to the terms and conditions of the Senior
Finance Documents to which it is a party:
(i) to repay any Facility A Loans then drawn down by it and
outstanding, which may be for an aggregate amount of up to
the equivalent of twenty six million euro (EUR 26,000,000),
in accordance with the following repayment schedule (as
amended from time to time pursuant to the Senior Secured
Debt Facility Agreement);
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2001 three per cent. (3%)
31 December 2001 four per cent. (4%)
30 June 2002 five per cent. (5%)
31 December 2002 six per cent. (6%)
30 June 2003 seven per cent. (7%)
31 December 2003 seven per cent. (7%)
7
<PAGE>
Repayment Date Repayment of Facility A
Loans (%)
-------------- ----------------------------
30 June 2004 seven per cent. (7%)
31 December 2004 seven per cent. (7%)
30 June 2005 eight per cent. (8%)
31 December 2005 eight per cent. (8%)
30 June 2006 eight per cent. (8%)
31 December 2006 ten per cent. (10%)
30 June 2007 ten per cent. (10%)
31 December 2007 ten per cent. (10%)
TOTAL: one hundred per cent.
(100%)
(ii) to repay each Facility B Loan drawn down by it, which may be
for an amount of up to five million euro (EUR 5,000,000), at
the end of the relevant Interest Period in accordance with
the terms and conditions provided for in the Senior Secured
Debt Facility Agreement;
(iii) to pay interest on the Facility A Loan and any Facility B
Loan, in each case, drawn down by it and outstanding, which
shall accrue on a daily basis and be calculated on the basis
of a year of three hundred and sixty (360) days and the
actual number of days elapsed and the rate of: (A) such
interest shall be the percentage rate per annum which is the
aggregate of one point seven five per cent. per annum (1.75%
p.a.), subject to any reduction pursuant to Clause 9.6
(Adjustments to Margin) of the Senior Secured Debt Facility
Agreement; (B) in relation to any Loan denominated in
forint, BUBOR, or in relation to any Loan denominated in
euro, EURIBOR; and (C) the Associated Costs, if any;
(iv) to pay certain fees, costs and expenses arising in relation
to such Senior Finance Documents; and
(v) to perform and/or comply with its obligations under such
Senior Finance Documents,
Provided that the aggregate secured amount under (iv) shall not
exceed the equivalent of twenty five million euro (EUR
25,000,000).
2.2 Liabilities arising under this Agreement
The Contracting Parties hereby declare that, under the terms and
conditions of this Agreement, the Depositor undertakes, subject to such
terms and conditions:
(a) to pay the fees, costs and expenses arising in relation to this
Agreement; and
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<PAGE>
(b) to perform and/or comply with its obligations.
2.3 Secured Liabilities
Each of the Depositor and the Countersignors hereby unconditionally and
irrevocably acknowledges and agrees that the Secured Liabilities will
not be duly and fully discharged until each and every of their
respective obligations and/or liabilities whatsoever provided for in
Clause 2.1 (Liabilities arising under the Senior Finance Documents) and
Clause 2.2 (Liabilities arising under this Agreement) have been duly
and fully discharged.
3. THE SECURITY DEPOSIT
3.1 Security Deposit
For the purpose of securing the Secured Liabilities the Depositor
hereby irrevocably and unconditionally creates a Security Deposit over
each registered share comprising the Deposited Shares. The Deposited
Shares shall be blank endorsed. The Security Deposit is made in favour
of the Depositee acting on its own behalf and in its capacity as
Security Agent acting on behalf of each Finance Party and any
transferees or assignees or replacements or successors of the Depositee
or any such Finance Party, for the full amount of the Secured
Liabilities.
3.2 Joint and several security
The Security Deposit established by this Agreement is joint and
several. Each Deposited Share serves as Encumbrance for the whole of
the Secured Liabilities. The Depositee shall be entitled to select any
one or more of the Deposited Shares as the Depositee, in the
Depositee's absolute discretion sees fit, against which to enforce the
Security Deposit.
3.3 Additional security
The rights constituted by this Agreement are in addition to and are not
in any way prejudiced or affected by any other Encumbrance, security,
guarantee, indemnity or other right whatsoever now or subsequently held
by the Depositee and/or any Finance Party for any of the Secured
Liabilities. The powers conferred on the Depositee by this Agreement in
relation to the Secured Liabilities and the Deposited Shares, shall be
in addition to and not in substitution for the rights conferred on
Depositee and the Finance Parties by laws and regulations of Hungary or
other Applicable Law except in so far as they are expressly excluded in
this Agreement and, where there is any ambiguity or conflict between
such rights contained in any such laws and regulations of Hungary or
other Applicable Law and those conferred by this Agreement, then the
terms of this Agreement shall, to the extent permitted by such laws and
regulations of Hungary or other Applicable Law, prevail.
3.4 Continuing security
(a) The Contracting Parties agree and confirm that any transferee becoming
a party to the Senior Secured Debt Facility Agreement pursuant to
Clause 23 (Changes to the Lenders) of such Senior Secured Debt Facility
Agreement as a Lender or any other person otherwise becoming a party to
the Senior Secured
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<PAGE>
Debt Facility Agreement as an assignee or transferee or replacement or
successor of a Finance Party shall thereupon become entitled to the
benefit of the provisions contained in this Agreement as if such
transferee or person had originally been and had been named as a party
to this Agreement (subject to compliance with Clause 11 (Release
notice)).
(b) The Security Deposit constituted by this Agreement shall:
(i) be a continuing Encumbrance for the due payment, satisfaction and
discharge in full of the Secured Liabilities and such Encumbrance
shall not be considered as satisfied or discharged or prejudiced
by any intermediate payment, satisfaction or settlement of any
part of the Secured Liabilities or any other matter or thing
whatsoever; and
(ii) not be prejudiced by any time or indulgence granted to any person,
or any abstention or delay by the Depositee or any Finance Party
in perfecting or enforcing any Encumbrance, securities,
guarantees, or rights or remedies whatsoever.
4. CONSTITUTION OF THE SECURITY DEPOSIT
The Security Deposit established by this Agreement shall be constituted
upon the execution of this Agreement.
5. NOTATION IN THE SHARE REGISTRY
Each of the Countersignors hereby irrevocably and unconditionally
undertakes to enter and maintain in its share registry notations
reflecting the fact that the Deposited Shares have been deposited in
favour of the Depositee in its own capacity and in its capacity as
Security Agent, in form and substance acceptable to the Depositee. The
Depositor shall deliver to the Depositee a certified copy of each
Countersignor's share registry showing the notations referred to above
simultaneously with the execution of this Agreement.
Until the Secured Liabilities are duly paid, satisfied and discharged
in full, if each of the Countersignors shall: (i) make a bonus issue of
shares; or (ii) sub-divide its outstanding shares; or (iii) reclassify
any of its shares into other securities of the respective
Countersignor; or (iv) grant, issue or offer to shareholders of the
respective Countersignor options, rights or warrants entitling them to:
(1) subscribe for or purchase shares; or (2) subscribe for or purchase
securities convertible into or exchangeable for, or which carry rights
to subscribe or purchase shares; or (v) make or do any similar or
analogous action or deed, then any such shares or securities so granted
offered or issued to the Depositor shall become security in favour of
the Depositee, and shall immediately be deposited by the Depositor in
accordance with the terms and conditions of this Agreement.
10
<PAGE>
6. PRIORITY OF THE SECURITY DEPOSIT
6.1 The priority of the Security Deposit
No other Encumbrance whatsoever shall be created over the Deposited
Shares where such Encumbrance would rank ahead of the Security Deposit
except as expressly provided for and permitted by operation of
mandatory provisions of laws and regulations of Hungary.
6.2 Delegation of rights
The Depositee may, at any time and from time to time, delegate to any
person all or any of the rights and benefits which are at such time,
being exercised or capable of being exercised by the Depositee under
this Agreement in relation to the Deposited Shares or any part thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR
The Depositor makes each of the representations and warranties set out
in this Clause 7 to the Depositee and acknowledges that the Depositee
has entered into this Agreement and that each Finance Party and the
Security Agent have entered into the Senior Secured Debt Facility
Agreement and the documents provided for therein, in reliance on these
representations and warranties.
7.1 The Deposited Shares
Save as expressly disclosed in writing to the Depositee prior to the
date of this Agreement or promptly upon the acquisition of any new
shares in any of the Countersignors by the Depositor, the Depositor
confirms that:
(a) it is the exclusive owner of the Deposited Shares and has not sold
or otherwise disposed of or agreed to sell or otherwise dispose of
the Deposited Shares or any of its rights or benefits in respect
of the Deposited Shares or any part thereof except in accordance
with this Agreement;
(b) it has all necessary power, has taken all necessary corporate
action, has obtained all necessary consents of all government
agencies and bodies and has taken all action necessary or required
by laws and regulations of Hungary or other Applicable Law to
enable it to duly execute this Agreement and to duly perform
and/or comply with its obligations arising under this Agreement;
(c) there subsists no fact(s), event(s) and/or circumstance(s) and/or
any breach of any law or regulation of Hungary or other Applicable
Law which may have a Material Adverse Effect;
(d) there are no third party rights whatsoever affecting the Deposited
Shares save for the Permitted Encumbrances;
(e) it has received no notice of any claims (adverse or otherwise) by
any person in respect of the ownership of the Deposited Shares or
claiming any interest whatsoever in such Deposited Shares, nor has
any
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<PAGE>
acknowledgement whatsoever been given to any person in respect
of the Deposited Shares;
(f) this Agreement creates a valid and perfected first priority
Encumbrance over the Deposited Shares and each and every part
thereof, which secures the payment of the Secured Liabilities, and
which is enforceable as such against all creditors and purchasers
of the Depositor; and
(g) neither the making of this Agreement nor their compliance with
this Agreement will conflict with or result in a breach of any of
the terms, conditions or provisions of or constitute a default
(however described or provided for) under any other agreement to
which it is a party or by which it is bound, or violate any of the
terms and conditions of its constitutional documents or any
judgement, decree or order, rule or regulation applicable to it.
7.2 Security
This Agreement creates those Encumbrances it purports to create and may
not be avoided or otherwise set aside on the winding-up, liquidation or
bankruptcy of the Depositor or otherwise except by operation of
mandatory provisions of the laws and regulations of Hungary.
8. UNDERTAKINGS OF EACH DEPOSITOR
8.1 Duration
The undertakings set out in this Clause 8 remain in force at all times
throughout the Deposit Period.
8.2 Prohibited use, disposals
Unless otherwise provided by this Agreement or the Senior Secured Debt
Facility Agreement, the Depositor may not, without the prior written
consent of the Depositee, save as expressly disclosed in writing to the
Depositee prior to the date of this Agreement or promptly after the
acquisition of new shares in any of the Countersignors following the
date of this Agreement:
(a) create or permit to subsist any Encumbrance whatsoever on any of
the Deposited Shares or any part thereof; or
(b) sell, transfer, grant, lease or otherwise dispose of any interest
whatsoever in the Deposited Shares (or any part of such Deposited
Shares); or
(c) waive its right(s) of ownership in the Deposited Shares, or
otherwise do or permit to be done any act or thing which might
jeopardise the interests and/or rights of the Depositee or any
Finance Party.
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<PAGE>
The Contracting Parties acknowledge that such restrictions of dealing
may not be registered in the share registers of the Countersignors and
may therefore not be binding on third parties.
9. PROTECTION OF ENCUMBRANCE
If the Depositor fails to do so and/or immediately after the occurrence
of emergency or extreme circumstance(s), the Depositee shall be
entitled at any time to take any such action as the Depositee, in its
reasonable discretion, thinks fit for the purpose of protecting the
Encumbrance constituted by this Agreement. The Depositor hereby
unconditionally and irrevocably agrees to indemnify the Depositee on
demand against any losses, liabilities, fees, costs and expenses,
properly and duly incurred or expended by the Depositee in the
protection or attempted protection of the Encumbrance constituted by
this Agreement.
10. DEPOSITEE'S RIGHT OF SATISFACTION
10.1 Sale
The Contracting Parties irrevocably and unconditionally agree that the
Depositee may exercise its right to satisfaction under this Agreement
by transfer, sale or other disposal of the Deposited Shares following
the occurrence of an Event of Default on its own behalf and on behalf
of each and every Finance Party.
10.2 Procedure
The Contracting Parties hereby irrevocably and unconditionally agree
that notwithstanding the provisions of Clause 10.1 (Sale), once the
right to seek satisfaction under this Agreement from the Security
Deposit or any part thereof has arisen, the Depositee shall be entitled
and the Depositor hereby unconditionally and irrevocably authorises the
Depositee, pursuant to the power of attorney, the form of which is set
out in Schedule 5 (Form of the Power of Attorney from a Depositor to
the Depositee to exercise shareholder's rights), until the earlier of:
(i) the Secured Liabilities being duly paid, satisfied and discharged
in full; and (ii) the transfer, sale or other disposal of the Deposited
Shares, to exercise for and on behalf of the Depositor and without any
limitation, all or any of their shareholders' rights, as shareholder of
the relevant Countersignor.
The Depositor hereby irrevocably and unconditionally agrees to renew
the power of attorney, issued on the date of this Agreement
substantially in the form of Schedule 5 (Form of the Power of Attorney
from a Depositor to the Depositee to exercise shareholders' rights)
every twelve (12) months after the date of this Agreement throughout
the Deposit Period.
In addition to the above, the Depositee shall be entitled to transfer,
sell or otherwise dispose for value the Deposited Shares. In the event
that the Depositee, in exercising its rights under this Agreement,
shall decide to transfer, sell or otherwise dispose of all or part of
the Deposited Shares, the Depositee shall use reasonable endeavours to
transfer, sell or otherwise
13
<PAGE>
dispose of the Deposited Shares through an independent, internationally
recognised auction house appointed by the Depositee. The Deposited
Shares shall be initially offered at the market value as determined by
an independent, internationally recognised accounting firm appointed
jointly by the Depositee, the Depositor and the relevant Countersignor
(the "Valuation Price"). Notwithstanding the foregoing, the Depositor
may solicit potential offers for the Deposited Shares, and the
Depositee agrees to consider any offers so solicited. In the event that
no offers are received at or above the Valuation Price within sixty
(60) days of appointment of the aforementioned accounting firm, then
the Depositee shall be free to accept any third party offer(s) made for
the transfer, sale or other disposal of the Deposited Shares.
10.3 Application of proceeds
Any moneys received by the Depositee after the Security Deposit created
by this Agreement has been enforced pursuant to this Agreement shall be
applied in the following order of priority (but without prejudice to
the right of any Finance Party to recover any and all shortfall(s)
arising under the Senior Finance Documents from the Depositor and/or
any Countersignor) by the Depositee:
(a) in satisfaction of, or provision, for all fees, costs and expenses
incurred by the Depositee in connection with the enforcement of
this Agreement;
(b) in or towards payment of the Secured Liabilities; and
(c) in payment of the surplus (if any) to the relevant Depositor.
11. RELEASE NOTICE
The Depositee undertakes at the end of the Deposit Period to issue to
the Depositor the Depositee's Declaration, which is required for the
deletion of the Security Deposit from the share registry of the
relevant Countersignor at the end of the Deposit Period.
12. FURTHER ASSURANCES
By executing this Agreement, the Depositor hereby unconditionally and
irrevocably consents to the Depositee taking whatever actions the
Depositee may reasonably and practicably require at the Depositor's own
expense, for:
(a) registering or protecting the rights created by this Agreement
over any of the Deposited Shares; and/or
(b) facilitating the enforcement against any Deposited Share or the
exercise of any right, power or discretion exercisable, by the
Depositee or any of its or their delegates or agents in respect of
any of the Deposited Shares; and/or
14
<PAGE>
(c) the execution of any document or the giving of any notice, order
or direction and the making of any registration, which in any such
case, the Depositee may reasonably think expedient.
13. APPOINTMENT OF ATTORNEY
In order to maintain the perfection, enforce or realise the Security
Deposit constituted by this Agreement the Depositor and each of the
Countersignors hereby jointly unconditionally appoint:
(a) the Depositee; and
(b) each such delegate as is referred to in Clause 6.2 (Delegation of
rights),
to be its attorney at any time to sign and do all such acts and things
which the Depositor and any of the Countersignors could do or ought to
do pursuant to the provisions contained in this Agreement in relation
to the Deposited Shares and generally in the name of the Depositor and
each of the Countersignors to maintain the perfection, enforce or
realise the Security Deposit.
14. AMENDMENTS
The Contracting Parties hereby agree that any provisions of this
Agreement may only be amended in writing with the consent of each
Contracting Party.
15. EXPENSES AND INDEMNITY
The Depositor and each of the Countersignors shall, on the basis of
joint and several liability, forthwith on demand pay to the Depositee
and each Finance Party, all properly documented fees, costs and
expenses (including, but not limited to, legal fees) properly incurred
by the Depositee or such Finance Party, as applicable, in connection
with this Agreement or in connection with the enforcement of or the
preservation of any rights under any of the Senior Finance Documents to
which the Depositor and/or any of the Countersignors are a party and
keep the Depositee and each Finance Party indemnified against any
failure or delay of the Depositor and/or any of the Countersignors
and/or any of its agents and representatives in paying the same.
16. ASSIGNS
Neither the Depositor nor any of the Countersignors shall be entitled
to assign or transfer all or any of their respective rights, benefits
and obligations under this Agreement. The Depositee and each Finance
Party may assign or transfer all or any of their rights, benefits and
obligations under this Agreement, in accordance with the provisions set
out in Section 8 (Changes to Parties) of the Senior Secured Debt
Facility Agreement.
17. NOTICES
17.1 Communications in writing
Each communication to be made under this Agreement shall be made in
writing and, unless otherwise stated, shall be made by fax or letter
provided that if any notice is delivered by fax, the written original
of such notice shall be sent to the Depositee by first class prepaid
letter.
15
<PAGE>
17.2 Delivery
Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has
by fifteen (15) days' written notice to the Depositee specified another
address) be made or delivered to that other person at the address set
out in Clause 17.4 (Addresses for notices) below (or, in the case of a
Transferee, at the end of the Transfer Certificate to which it is a
party as a Transferee) and shall be deemed to have been made or
delivered in the case of any communication made:
(a) by letter, when left at that address or (as the case may be) ten
(10) days after being deposited in the post postage prepaid in an
envelope addressed to it at that address;
(b) by facsimile, when dispatched Provided that: (a) a confirmation of
uninterrupted transmission by a transmission report is received;
and (b) there having been no telephonic communication by the
recipient to the sender (any such telephonic communication to be
confirmed in writing) that the facsimile has not been received in
legible form within 3 hours after sending, if sent on a Business
Day between the hours of 9:00 a.m. and 4:00 p.m. in the
recipient's time zone or if sent other than between the hours of
9:00 a.m. and 4:00 p.m. in the recipient's time zone on a Business
Day, by noon on the next following Business Day. For the purposes
of this sub-clause, a Business Day is a day (other than a Saturday
or Sunday) on which banks (generally) are open for business in the
places where both the sender and the recipient of the facsimile
are situated,
Provided that any communication or document to be made or delivered to
the Depositee shall be effective only when received by the Depositee
and then only if the same is expressly marked for the attention of the
department or officer identified in Clause 17.4 (Addresses for notices)
below (or such other department or officer as the Depositee shall from
time to time specify for this purpose).
17.3 Language
Each communication and document made or delivered by one Contracting
Party to another pursuant to this Agreement shall be in the English
language.
17.4 Addresses for notices
(a) The address, telephone number and facsimile number of the Depositor for
all notices under or in connection with this Agreement are:
Address: HTCC Tanacsado Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
16
<PAGE>
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositee and each of the
Countersignors by not less than fifteen (15) Business Days' prior
written notice;
(b) the address, telephone number and facsimile number of the Depositee for
all notices under or in connection with this Agreement are:
Address: Citibank Rt.
Citibank Tower, Bank Center
Szabadsag ter 7.
H-1051 Budapest
Hungary
Attention: Corporate Bank Head (Mark T. Robinson)
Legal Department Head (Dr. Karoly Foti)
Telephone: +36 1 374 5000
Facsimile: +36 1 374 5115
or such other as it may notify to the Depositor, and each of the
Countersignors by not less than fifteen (15) Business Days' prior
written notice;
(c) the address, telephone number and facsimile number of Hungarotel
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: Hungarotel Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice;
(d) the address, telephone number and facsimile number of RABA-COM
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
17
<PAGE>
Address: RABA-COM Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee, and
each of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice;
(e) the address, telephone number and facsimile number of Papa es Tersege
Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: Papa es Tersege Tavkozlesi Koncesszios Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositor, the Depositee and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice; and
(f) the address, telephone number and facsimile number of KNC Kelet-Nograd
COM Tavkozlesi Koncesszios Reszvenytarsasag for all notices under or in
connection with this Agreement are:
Address: KNC Kelet-Nograd COM Tavkozlesi Koncesszios
Reszvenytarsasag
Attention: Kaj Ole Bertram
Telephone: +36 1 474 7701
Facsimile: +36 1 474 0350
18
<PAGE>
Copied to: Legal Counsel
(Dr. Peter Lakatos - Koves Clifford Chance Punder
Madach Trade Center, Madach Imre ut 14, H-1075 Budapest,
Hungary
Telephone: +36 1 268 1600
Facsimile: +36 1 268 1610)
or such other as it may notify to the Depositee, the Depositor and each
of the other Countersignors by not less than fifteen (15) Business
Days' prior written notice.
17.5 Representation
The Depositor, the Depositee and each of the Countersignors shall each
procure and ensure that for the duration of this Agreement, they shall
maintain a representative at the addresses specified above, duly
empowered to take receipt of any such notice or communication during
regular business hours.
18. MISCELLANEOUS
18.1 Language
This Agreement shall be executed in the English language.
18.2 Governing law
This Agreement shall be governed by, and shall be construed in
accordance with Hungarian law.
18.3 Arbitration
Any dispute (a "Dispute") arising out of or in connection with this
Agreement (including a Dispute regarding the existence, validity,
interpretation, breach or termination of this Agreement or the
consequences of its nullity) shall be referred to and finally settled
by arbitration under the Rules of Conciliation and Arbitration (the
"Rules") of the Arbitration Court of the Hungarian Chamber of Commerce
by three arbitrators appointed in accordance with the Rules. The place
and seat of any arbitration proceedings commenced pursuant to this
Clause 18.3 shall be Budapest. The language in which such arbitration
shall be conducted shall be English or Hungarian, by agreement of the
parties to such proceedings, or failing such agreement, as the
Depositee may in its sole discretion elect. Any judgement or
determination rendered shall be final and binding on the parties
thereto and may be entered in any court having jurisdiction or
application may be made to such court for an order of enforcement as
the case may require. No failure or delay in exercising any rights of
any Finance Party under this Agreement shall operate as a waiver, or
preclude the further exercise of such rights.
18.4 Service of process for arbitration proceedings
The Depositor and each of the Countersignors agree that the process by
which any arbitration proceedings are begun may be served on it by
being delivered to the address identified in Clause 17.4 (Address for
notices) above or other its
19
<PAGE>
registered office for the time beings or on the person duly appointed
by the Depositor as its agent for service of process in Hungary and so
notified in writing to the Depositee. If the appointment of the
person(s) mentioned in this Clause 18.4 ceases to be effective the
Depositor and/or the relevant Countersignor shall immediately appoint a
further person in Hungary to act on its behalf in Hungary as agent for
the commencement of arbitration proceedings and, failing such
appointment within fifteen (15) days, the Depositee shall be entitled
to appoint such a person by notice to the Depositor and the relevant
Countersignor.
Nothing contained in this Agreement shall affect the right to serve
process in any other manner permitted by Applicable Law.
18.5 Consent to enforcement
The Depositor and each of the Countersignors hereby consents generally
in respect of any proceedings to the giving of any relief or the issue
of any process in connection with such proceedings including the
making, enforcement or execution against any property whatsoever
(irrespective of its use or intended use) of any order or judgement
which may be made or given in such proceedings.
18.6 Waiver of immunity
To the extent that the Depositor or any of the Countersignors may in
any jurisdiction claim for itself or its assets immunity from suit,
execution, attachment or other legal process, the Depositor and/or the
relevant Countersignor waive immunity in respect of:
(a) the giving of any relief by way of injunction or order for
specific performance or for the recovery of assets or revenues;
and/or
(b) the issue of any process against its assets for the enforcement of
a judgement or, in an action in rem, for the arrest, detention or
sale of any of its assets and revenues.
18.7 Partial invalidity
If, at any time, any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any
jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other
jurisdiction shall in any way be affected or impaired thereby.
AS WITNESS the hands of the duly authorised representatives of the Contracting
Parties to this Agreement the day and year first before written.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM HUNGARIAN TELEPHONE
AND CABLE CORP.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000889949
<NAME> HUNGARIAN TELEPHONE AND CABLE CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,308
<SECURITIES> 0
<RECEIVABLES> 7,970
<ALLOWANCES> (1,030)
<INVENTORY> 0
<CURRENT-ASSETS> 26,215
<PP&E> 142,329
<DEPRECIATION> (26,803)
<TOTAL-ASSETS> 154,683
<CURRENT-LIABILITIES> 16,948
<BONDS> 122,917
0
0
<COMMON> 11
<OTHER-SE> (6,957)
<TOTAL-LIABILITY-AND-EQUITY> 154,683
<SALES> 45,438
<TOTAL-REVENUES> 45,438
<CGS> 0
<TOTAL-COSTS> 29,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,450
<INCOME-PRETAX> (17,773)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,773)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,945
<CHANGES> 0
<NET-INCOME> 3,172
<EPS-BASIC> 0.33
<EPS-DILUTED> 0
</TABLE>
