<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-24365
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM/CX
BERMUDA
(441) 296-1431
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LEONARD M. FERTIG
CHIEF EXECUTIVE OFFICER
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
C/O CME DEVELOPMENT CORPORATION
18 D'ARBLAY STREET
LONDON W1V 3FP ENGLAND
44-171-292-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT L. KOHL, ESQ. ALAN SIEGEL, ESQ.
ROSENMAN & COLIN LLP AKIN, GUMP, STRAUSS,
575 MADISON AVENUE HAUER & FELD, L.L.P.
NEW YORK, NY 10022 590 MADISON AVENUE
(212) 940-8800 NEW YORK, NY 10022
(212) 872-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
______________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ______________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
$125,000,000
[LOGO]
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
% CONVERTIBLE SUBORDINATED NOTES DUE 2004
INTEREST PAYABLE ON AND
The Notes offered hereby are convertible into shares of Class A Common
Stock, par value $.01 per share, of Central European Media Enterprises Ltd.
('CME,' and together with its Subsidiaries, the 'Company') at any time after 60
days following the date of original issuance through maturity, unless previously
redeemed, at a conversion price of $ per share, subject to adjustment in
certain events. CME's authorized capital stock includes Class A Common Stock and
Class B Common Stock. The rights of each class of Common Stock are identical,
except with respect to voting. The Class A Common Stock is traded on the Nasdaq
National Market under the symbol 'CETV.' On April 17, 1997, the last reported
sale price of the Class A Common Stock on the Nasdaq National Market was $31.125
per share. See 'Price Range of Common Stock' and 'Description of Common Stock.'
The Notes will mature on , 2004. The Notes are redeemable,
in whole or in part, at the option of CME at any time on or after
, 2000, at the redemption prices set forth herein, plus accrued
and unpaid interest. Upon a Change in Control (as defined), each holder of Notes
will have the right, subject to certain conditions and restrictions, to require
CME to repurchase any or all outstanding Notes owned by such holder at 100% of
the principal amount thereof, plus accrued and unpaid interest. CME has filed an
application to include the Notes in the Nasdaq SmallCap Market under the
proposed symbol 'CETVG.'
The Notes will be unsecured and subordinated to all present and future
Senior Indebtedness (as defined) of the Company. At December 31, 1996, after
giving effect to this Offering and the application of the net proceeds therefrom
(based on the assumptions set forth under 'Use of Proceeds'), Senior
Indebtedness would have been approximately $55,096,000. At December 31, 1996,
liabilities (including trade payables but excluding inter-company liabilities)
of CME's consolidated subsidiaries, to which the Notes are effectively also
subordinated, were approximately $105,052,000. See 'Description of the Notes.'
FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THIS OFFERING, SEE
'RISK FACTORS' ON PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Note.............................. % % %
Total(4).............................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) See 'Underwriting' for indemnification arrangements.
(3) Before deducting estimated expenses of $850,000 payable by the Company.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional $18,750,000 principal amount of Notes solely to cover
over-allotments. If this option is exercised in full, total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ ,
respectively. See 'Underwriting.'
The Notes offered hereby are being offered by the Underwriters, subject to
prior sale and acceptance by the Underwriters and subject to their right to
reject any order in whole or in part. It is expected that the Notes, in
temporary or definitive registered form, will be available for delivery on or
about , 1997 at the offices of Schroder Wertheim & Co. Incorporated,
New York, New York. If temporary Notes are delivered, definitive Notes will be
available for exchange as soon as practicable after that date.
SCHRODER WERTHEIM & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1997
<PAGE>
[MAP OF CENTRAL AND EASTERN EUROPE WITH COMPANY'S AREAS OF OPERATIONS
HIGHLIGHTED]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND OF THE
UNDERLYING COMMON STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE 'UNDERWRITING.'
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) all references to
the 'Company' include Central European Media Enterprises Ltd. ('CME'), its
predecessors and its direct and indirect Subsidiaries and (ii) all references to
'Subsidiaries' include each corporation or partnership in which Central European
Media Enterprises Ltd. has a direct or indirect equity or voting interest.
Except as otherwise noted, (i) the information in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised, and (ii) all
statistical and financial information presented in this Prospectus has been
converted into United States dollars using exchange rates as of December 31,
1996 (Kc27.33 = $1.00; DM1.55 = $1.00; ROL4,035 = $1.00; SIT141.48 = $1.00;
Sk31.90 = $1.00; Zl2.88 = $1.00; Hrn1.89 = $1.00; HUF162 = $1.00) with the
exception of such information contained in or derived from the Company's
financial statements. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Foreign Currency.' All references to '$' or
'dollars' are to United States dollars, all references to 'Kc' are to Czech
korunas, all references to 'DM' are to German marks, all references to 'ROL' are
to Romanian lei, all references to 'SIT' are to Slovenian tolar, all references
to 'Sk' are to Slovak korunas, all references to 'Zl' are to Polish zloty, all
references to 'Hrn' are to Ukrainian hryvna and all references to 'HUF' are to
Hungarian forints.
THE COMPANY
The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland and has television broadcast operations under development in
other areas of Poland and in Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.
The Company's television broadcast operations consist of the following:
<TABLE>
<CAPTION>
TELEVISION BROADCAST OPERATIONS TERRITORY BROADCAST REACH(1) ECONOMIC INTEREST
- ------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Nova TV Czech Republic 10.2 93.2%(2)
PRO TV Romania 12.5 77.5%(3)
POP TV Slovenia 1.6 85.3%(4)
Markiza TV Slovak Republic 4.3 80.0%
Studio 1+1 Group Ukraine 48.5 50.0%
TV Wisla Poland 7.8 16.2%
PULS Berlin-Brandenburg 6.0 58.0%
Nuremberg Station Nuremberg 1.2 37.4%
Leipzig Station Saxony 0.7 16.7%
Dresden Station Saxony 1.1 16.7%
-----
Total 93.9
-----
-----
</TABLE>
- ------------------
(1) 'Broadcast Reach' measures the number of people in millions the Company's or
the Company's local partners' broadcast signal can reach.
(2) The Company has recently obtained additional interests in Nova TV, raising
the Company's economic interest in Nova TV from 66.0% to 93.2%. The Company
is in the process of registering these additional interests pursuant to
Czech law.
(3) The Company's partners in Romania hold options to purchase equity in Media
Pro International from the Company which, if exercised, could reduce the
Company's equity interest to not less than 66.0%.
(4) The Company has recently obtained additional interests in POP TV, raising
its economic interest in POP TV from 72.0% to 85.3%.
3
<PAGE>
Nova TV, the Company's television station in the Czech Republic, has
consistently achieved a 65% to 70% audience share. Nova TV continues to benefit
from the growing television advertising market in the Czech Republic. Television
advertising expenditures in the Czech Republic grew from approximately $67
million in 1993 to $96 million in 1994 (Nova TV's first year of operations) to
approximately $165 million in 1996, as estimated by the Company. During 1996,
Nova TV recorded $109.2 million in net revenues and $53.1 million in broadcast
cash flow, resulting in a 48.6% broadcast cash flow margin and an increase of
18.6% in 'same station' broadcast cash flow over 1995. Nova TV has achieved its
success in part by providing a wide range of popular programming designed to
appeal to a mass market audience, including a mix of locally produced news and
entertainment formats and films and television series acquired from major
international distributors.
The Company is applying its experience with Nova TV to its broadcast
operations in Romania, Slovenia, the Slovak Republic, Ukraine and Poland and
intends to apply this operating strategy in new markets under development. In
Romania, Slovenia and the Slovak Republic, the Company's broadcast operations,
PRO TV, POP TV and Markiza TV have achieved the leading audience share in their
areas of broadcast. PRO TV, POP TV and Markiza TV reach approximately 55%, 80%
and 79% of their national markets, respectively. In Ukraine, the Company has
acquired a 50.0% economic interest in the Studio 1+1 group of companies (the
'Studio 1+1 Group') which has a ten year license to provide programming and sell
advertising for 63 hours of broadcasting per week on a Ukrainian public
television station, UT-2, which reaches approximately 93% of Ukraine's
population of 52.1 million. In Poland, the Company has a 33.0% interest in TVN
which, in turn, has a 49.0% interest in TV Wisla. TV Wisla broadcasts to
approximately 7.8 million people in southern Poland. TVN has an option to
acquire an additional 27.2% interest in TV Wisla. In each of these markets,
television advertising spending is growing rapidly. The Company seeks to further
expand its reach in these markets through investing in additional regional
licenses, affiliating with other broadcasters and reaching agreements with local
cable operators.
The Company continues to develop other broadcast opportunities. In February
1997, the Polish National Radio and Television Council awarded to TVN television
broadcast licenses for northern Poland and the cities of Warsaw and Lodz. The
Company estimates that these television broadcast licenses have a potential
broadcast reach of approximately 11 million people. The Company and ITI, its
partner in TVN, intend to develop a national television broadcast network in
Poland which will broadcast programming and sell advertising through affiliate
stations, including TV Wisla and those broadcasting under the television
broadcast licenses awarded to TVN in northern Poland and the cities of Warsaw
and Lodz. The Company anticipates owning a 50.0% interest in this television
broadcast network, which the Company anticipates to launch in the fourth quarter
of 1997. In Hungary, the Company has applied for a national broadcast license
with strategic partners in accordance with tender procedures which recently were
announced. The Company also owns a dubbing and production studio in Hungary. The
Company believes that its broadcast experience in the region, its proven
programming strategy, its extensive knowledge of the political and economic
climates in Central and Eastern Europe, and its proven ability to attract local
strategic partners, position it to capitalize on these and other development
opportunities.
The Company owns interests in four private regional television stations
operating in Germany, including PULS, which broadcasts to six million people in
the Berlin-Brandenburg area. These stations provide 'total local' programming,
which involves delivering in-depth coverage of local and regional news and
events, thereby distinguishing these stations from the national networks by
being uniquely responsive to the distinct regional tastes of the respective
local viewers. PULS has generated losses since its operations commenced in late
1993. The partners of PULS are currently in negotiations with potential new
investors in PULS. A new investor would be expected to acquire a significant
equity interest in PULS, either as a co-investor with the Company or as a sole
investor. The outcome of ongoing negotiations with potential new investors could
either result in a decrease of the Company's future funding obligations to PULS
or require the Company to make additional capital investments in PULS. Such
investment by a new investor also could result in a reduction of the carrying
value and a
4
<PAGE>
corresponding charge against earnings related to the Company's equity investment
in PULS and its other German operations.
BUSINESS STRATEGY
The Company's strategic objective is to strengthen its position as the
leading broadcaster in Central and Eastern Europe by applying its broadcasting,
financial and political expertise to achieve profitability in all of its
existing broadcast operations and to develop and operate additional television
broadcast operations. Key elements of the Company's strategy include:
o Being an early market entrant and establishing national and regional
television broadcast operations in the emerging markets of Central
and Eastern Europe. These markets present opportunities for the
Company to compete where advertising expenditures have been
experiencing high rates of growth. The Company believes there are
significant advantages to being an early entrant into these markets,
as there are limited frequencies available to broadcasters, thus
limiting competition. The Company also believes early entrants have
the opportunity to establish good relationships with advertisers and
build viewer loyalty and station identity before other entrants
commence operations. In Central and Eastern Europe, early entrants
also have the opportunity to acquire exclusive rights to attractive
programming for their respective markets.
o Broadcasting programming attractive to a mass market audience in
Central and Eastern Europe. Programming is a critical element in
building audience share, which is an extremely important factor in
generating advertising revenues. The Company's strategy is to
broadcast a mix of locally and internationally produced movies,
series, talk shows, variety shows, sports and news. The Company
believes broadcasting a significant amount of locally produced
programming and developing a distinctive independent news program
give a strong local identity to its broadcast operations, cater to
local tastes and appeal to the desires of the local regulatory
authorities. The Company complements its local programming by
building and maintaining an extensive library of exclusive
programming rights to popular films and television series produced
by the world's leading studios, including Paramount Pictures, Sony
Pictures, Twentieth Century Fox and Warner Bros. The Company
utilizes 'western style' production techniques to provide high
quality local language programming to its television audiences. The
Company employs modern equipment and short, lively program formats
and purchases state of the art equipment for its studios in each
location where it conducts broadcast operations.
o Creating investment alliances with local strategic partners in each
location where it seeks to establish broadcast operations. This
approach is consistent with the objectives of local licensing
authorities, thereby enhancing the likelihood that the Company or
its local strategic partners will be awarded such licenses.
Additionally, creating local strategic alliances helps ensure that
the Company's broadcast operations will be responsive to local
tastes and interests.
o Maximizing broadcast reach within licensed territories to maximize
its potential audience share and therefore increase the
attractiveness of its programming to advertisers. In each area where
the Company's and its partners' stations do not reach the entire
population, the Company seeks to create a network for its
programming and seeks to distribute it through local broadcasters
and cable systems. The Company concentrates on urban areas where
advertising dollars are focused. The Company currently employs
satellite technology in Romania, which does not have a
well-developed terrestrial television distribution system, to
distribute programming to affiliate stations. In order to serve
Romania and other markets, the Company has obtained a 12 year lease
on a transponder on a Eutelsat HB3 Satellite (the 'Satellite
Transponder'), which is scheduled to be launched in the fourth
quarter of 1997. When the Satellite Transponder becomes operational,
the Company will have the capacity to distribute up to five distinct
channels simultaneously without the necessity of building a
potentially costly transmission infrastructure in those countries.
5
<PAGE>
o Leveraging critical mass among its operations. The Company currently
broadcasts to approximately 93.9 million people in seven countries
and is developing or exploring operations in several other
countries. The Company believes it has reached a critical mass which
has enabled it to begin to benefit from synergies among the
Company's operations. For example, the Company has begun to gain
greater leverage in its purchasing, programming, news gathering and
production abilities. In addition, the Company intends to develop
related businesses which serve broadcasters both affiliated and not
affiliated with the Company, and intends to market certain lower
cost production services to producers and broadcasters in the higher
cost countries of Western Europe and the United States.
o Employing a dedicated team of experienced professionals who will
continue to lead the Company through the complex licensing
processes, and seek broadcast rights, in markets of Central and
Eastern Europe. Leonard M. Fertig, President and Chief Executive
Officer of the Company, has been active in obtaining broadcast
licenses for the Company and its strategic partners in Central and
Eastern Europe since 1991. Ronald S. Lauder, Chairman of the Company
and former U.S. Ambassador to Austria, has been involved actively in
the region and plays an important role in the Company's licensing
activities. The Company believes its management and dedicated
licensing team provide a competitive advantage in obtaining
broadcast rights. The Company's success in obtaining broadcast
rights generally has been achieved after lengthy competition
involving numerous other parties, including major international
media companies. The Company also employs experienced operating and
financial managers and accesses international technology,
programming and funding to promote the successful development and
management of its broadcast operations.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.................................... $125,000,000 aggregate principal amount of %
Convertible Subordinated Notes Due 2004 (the 'Notes').
Interest Payment Dates................................ and , commencing , 1997.
Maturity Date......................................... , 2004.
Conversion............................................ The Notes will be convertible at the option of the
holder, in whole or in part, at any time after 60 days
following the date of original issuance through maturity,
unless previously redeemed, into Class A Common Stock at
$ per share, subject to adjustment under certain
conditions.
Optional Redemption................................... The Notes will be redeemable, in whole or in part, at the
option of the Company, at any time on or after ,
2000, at the redemption prices set forth herein, plus
accrued and unpaid interest.
Change in Control..................................... Upon a Change in Control (as defined), each holder of the
Notes will have the right, subject to certain conditions
and restrictions, to require the Company to repurchase
any or all outstanding Notes submitted by such holder at
100% of the principal amount, plus accrued and unpaid
interest.
Subordination......................................... The Notes will be subordinated to all present and future
Senior Indebtedness (as defined) of the Company and its
Subsidiaries and effectively subordinated to liabilities
(including trade payables but excluding intercompany
liabilities) of the Company's Subsidiaries.
Use of Proceeds....................................... Estimated net proceeds of approximately $120 million plus
corporate cash balances of approximately $39.1 million will
be used to fund broadcast operations in Poland, Ukraine,
Romania and Slovenia; to continue to fund operations in
Germany; to fund the Company's commitments with respect
to its interest in MobilRom; to purchase long-term
programming rights; to invest in long-term broadcast
development opportunities; and for general corporate
purposes.
Proposed Nasdaq SmallCap Market Symbol................ CETVG
Additional Amounts.................................... Payments in respect of the Notes will be made without
withholding or deduction for or on account of any taxes,
duties, levies or other governmental charges of whatever
nature imposed by or on behalf of Bermuda. The Company
will, subject to certain exceptions, pay such additional
amounts ('Additional Amounts') so that Holder will
receive the full amount of the principal of, premium, if
any, on and interest on the Notes.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Tax Redemption........................................ The Notes are redeemable at the Company's option, in
whole but not in part, at a redemption price equal to
100% of the principal amount thereof plus accrued and
unpaid interest (including Additional Amounts, if any) to
the date of redemption, in the event that the Company
becomes obligated to pay any Additional Amounts as a
result of changes in applicable tax laws or regulations
or in the application or official interpretation thereof.
</TABLE>
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following data should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Consolidated Financial Statements and the Notes thereto included herein.
Data are derived from the Company's audited financial statements and the
footnotes thereto included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Net revenues............................................................... $ 53,566 $ 98,919 $ 135,985
Operating income........................................................... 957 22,308 9,996
Equity in loss of unconsolidated affiliates................................ (13,677) (14,816) (17,867)
Net loss................................................................... (20,505) (18,736) (30,003)
Net loss per common share.................................................. -- (1.28) (1.55)
Ratio of earnings to fixed charges(1)...................................... -- 4.8:1 2.1:1
OTHER DATA:
Broadcast cash flow(2)
Nova TV.................................................................. $ 12,233 $ 44,789 $ 53,128
PRO TV................................................................... -- (2,483) (5,290)
POP TV................................................................... -- (4,124) (6,394)
-------- -------- ---------
Consolidated broadcast cash flow........................................... 12,233 38,182 41,444
Markiza TV............................................................... -- -- (4,502)
-------- -------- ---------
Adjusted broadcast cash flow(3)............................................ $ 12,233 $ 38,182 $ 36,942
-------- -------- ---------
-------- -------- ---------
Net cash (used in) provided by operating activities........................ $ (1,532) $ 1,943 $ (6,619)
Number of television broadcast operations at the end of period............. 3 5 10
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets...................................................................... $146,159 $266,559
Total assets........................................................................ 365,130 490,130
Total debt.......................................................................... 55,096 180,096
Shareholders' equity................................................................ 249,320 249,320
</TABLE>
- ------------------
(1) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes, plus fixed charges, losses of less
than 50% owned affiliates with debt not guaranteed by the Company, and
minority interest in earnings (losses) of consolidated subsidiaries. Fixed
charges consist of interest on debt. See 'Risk Factors--Effect of Leverage
on Ability to Repay Notes and Deficiency of Earnings Available to Cover
Fixed Charges.'
(2) 'Broadcast cash flow,' which is commonly used as a measure of performance
for broadcast companies, as used herein, is defined as net broadcast
revenues, less broadcast operating expenses excluding depreciation and
amortization, broadcast selling, general and administrative expenses, and
cash program rights costs. Cash program rights costs represent cash payments
for current programs payable and such payments do not necessarily correspond
to program use. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with
generally accepted accounting principles. Broadcast cash flow is only
presented for the periods in which broadcasting took place. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(3) Consolidated broadcast cash flow plus broadcast cash flow of Markiza TV. The
Company has an 80% economic interest in Markiza TV but because it has a 49%
voting interest it does not consolidate Markiza TV, but accounts for Markiza
TV using the equity method.
(4) As adjusted to reflect the issuance and sale of the Notes by the Company in
the Offering and the estimated net proceeds therefrom. See 'Use of Proceeds'
and 'Capitalization.'
9
<PAGE>
RISK FACTORS
Investors in the Notes offered hereby should consider carefully the
following significant risk factors, in addition to all of the other information
appearing in this Prospectus, in connection with an investment in the Notes.
HISTORY OF LOSSES. The Company, incorporated in Bermuda in June 1994, is
the successor to the television license acquisition and station development
activities conducted by its affiliates since 1991, and began generating revenues
in 1994. The Company's commercial television activities, begun at Nova TV in
February 1994, at PRO TV in December 1995, at POP TV in December 1995, at
Markiza TV in August 1996, in Ukraine in October 1996, in Poland in September
1996, at PULS in November 1993, at the Nuremberg Station in April 1994 and at
the Leipzig Station and the Dresden Station in May 1996, represent new types of
ventures in the Company's markets, and, while Nova TV has generated net income,
there can be no assurance that the Company will be successful in achieving net
profits in its other broadcast operations. As anticipated, the Company has
incurred net losses since inception, and may incur additional net losses for the
next several years, particularly in light of its growth strategy. For the years
ended December 31, 1996, 1995 and 1994, the Company incurred net losses of $30.0
million, $18.7 million and $20.5 million, respectively. As of December 31, 1996,
the Company had an accumulated deficit of $78.0 million. See 'The Company.'
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW AND POSSIBLE
INABILITY TO SERVICE DEBT. CME conducts all of its operations through
Subsidiaries. Accordingly, the primary internal source of CME's cash and its
ability to service debt, including the Notes, and its ability to distribute
dividends to its holders of Common Stock, are dependent upon the earnings of its
Subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those Subsidiaries to, CME. CME may not be able to compel
its Subsidiaries to make distributions to service the Notes. Because CME is an
equity holder or partner of each of its Subsidiaries, CME's claims as such will
generally rank junior to all other creditors of and claimants against its
Subsidiaries. In the event of a Subsidiary's liquidation, there may not be
assets sufficient for CME to recoup its investment therein. Each of the
Subsidiaries was formed under the laws of, and has its operations in, a country
other than Bermuda, the jurisdiction of CME's organization. In addition, each of
CME's operating Subsidiaries receives its revenues in the local currency of the
jurisdiction in which it is situated. As a consequence, CME's ability to obtain
dividends or other distributions is subject to, among other things, restrictions
on dividends under applicable local laws and foreign currency exchange
regulations of the jurisdictions in which its Subsidiaries operate. See
'Devaluation; Currency Risk.' The Subsidiaries' ability to make distributions to
CME are also subject to their having sufficient funds from their operations
legally available for the payment thereof which are not needed to fund their
operations, obligations or other business plans and, in some cases, the approval
of the other partners, stockholders or creditors of these entities. The laws
under which CME's currently operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital and required
reserves and after the recovery of accumulated losses. If CME's Subsidiaries are
unable or unwilling to make distributions to CME, and CME is unable to obtain
additional debt or equity financing, CME may be unable to service the Notes and
its growth may be inhibited.
LACK OF AVAILABLE CURRENT EARNINGS FROM SUBSIDIARIES OTHER THAN NOVA
TV. Currently, Nova TV is the only Subsidiary which has sufficient earnings to
make distributions to CME. There is no assurance that Nova TV will continue to
generate sufficient earnings or liquidity, or that any other Subsidiary will
generate sufficient earnings or liquidity, or that distributions from
Subsidiaries in U.S. dollars will be made to CME in amounts sufficient to make
the required principal and interest payments on the Notes. See 'Holding Company
Structure; Limitations on Access to Cash Flow and Possible Inability to Service
Debt.'
SUBORDINATION. The Notes will be general unsecured obligations of CME,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of CME and its Subsidiaries. See 'Description of Notes.' As of
December 31, 1996, on a pro forma basis, after giving effect to the
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Offering, the outstanding Senior Indebtedness of the Company and its
consolidated subsidiaries would have been approximately $55,096,000. There are
no restrictions in the Indenture on the creation of additional Senior
Indebtedness including any indebtedness ranking senior to the Notes. At December
31, 1996, on a pro forma basis, after giving effect to the Offering, liabilities
(including trade payables but excluding inter-company liabilities) of the
Company's consolidated subsidiaries, to which the Notes are effectively also
subordinated, were approximately $105,052,000.
EFFECT OF LEVERAGE ON ABILITY TO REPAY NOTES AND DEFICIENCY OF EARNINGS
AVAILABLE TO COVER FIXED CHARGES. As of December 31, 1996, on a pro forma basis,
after giving effect to the Offering and the use of proceeds therefrom, CME and
its consolidated subsidiaries would have had approximately $180,096,000 of total
debt. Assuming the Company issued and sold the Notes as of January 1, 1995, and
assuming an interest rate of 6.5%, the Company would have had a ratio of
earnings to fixed charges of 1.8:1 for the year ended December 31, 1995 and a
deficiency of earnings available to cover fixed charges of $2,784,000 for the
year ended December 31, 1996. The degree to which the Company is leveraged could
have important consequences to purchasers of the Notes including (i) increasing
the Company's vulnerability to adverse general economic and industry conditions,
(ii) limiting the Company's ability to obtain additional financing in the
future, (iii) reducing the Company's flexibility to respond to changing
business, technological and economic conditions, (iv) impeding the Company's
ability to obtain financing or refinancing for general working capital
expenditures or for other general corporate purposes, and (v) requiring the
dedication of a substantial portion of the cash flow from those Subsidiaries of
the Company that the Company is able to access to pay the principal and interest
on indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures and other general corporate purposes.
LIMITATIONS ON REPURCHASE OF NOTES AND ABSENCE OF FINANCIAL
COVENANTS. Upon a Change of Control or a Termination of Trading, each holder of
the Notes will have certain rights to require the Company to repurchase all or a
portion of such holder's Notes. See 'Description of the Notes-- Repurchase at
the Option of Holders Upon a Change of Control--Right to Require Repurchase of
Notes Upon a Termination of Trading.' If a Change of Control or a Termination of
Trading were to occur, there can be no assurance that the Company would have, or
would be able to arrange for, sufficient funds to pay the repurchase price for
the Notes tendered by the holders thereof. In addition, these repurchase
features of the Notes may make it more difficult to effect or may discourage a
change in control of the Company. These provisions resulted from negotiations
between the Company and the Underwriters and are not the result of the Company's
knowledge of any specific effort to obtain control of the Company by means of
accumulating shares of common stock of the Company or by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by the Company to
adopt a series of anti-takeover provisions. The Indenture does not contain any
financial performance covenants. Consequently, the Company is not required under
the Indenture to meet any financial tests such as those that would measure the
Company's working capital, amount of additional indebtedness, interest coverage,
fixed charge coverage, net worth, or other tests in order to maintain compliance
with the terms of the Indenture. See 'Description of Notes.'
DEPENDENCE ON ADDITIONAL CAPITAL. The ownership, development and operation
of television broadcast operations requires substantial capital investment. The
net proceeds of the Offering together with the Company's current cash balances,
distributions from Nova TV and local financing of broadcast operations and
broadcast operations under development should be adequate to satisfy the
Company's operating and capital requirements for approximately 12 to 18 months.
There can be no assurance that the Company will be able to obtain additional
local financing of broadcast operations or broadcast operations under
development on terms acceptable to the Company. Thereafter, the Company
anticipates it will require additional capital as it continues to pursue its
growth strategy. See 'Use of Proceeds.' Sources of additional capital may
include debt and equity financing at the Subsidiary level and additional debt
and equity financing by the Company. Any additional equity financing by the
Company may be dilutive to shareholders. The Company's ability to obtain
additional debt financing at other than the operating Subsidiary level may be
limited because it does not conduct operations directly and may have no
significant source of cash flow available for debt service. If such financing is
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unavailable, the number of television broadcast operations which the Company can
develop in the future may be limited. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
COMPETITIVE INDUSTRY. The Company encounters, and expects to continue to
encounter, intense competition in the television broadcasting industry. The
Company's television stations compete, and the Company's broadcast operations
under development will compete, for revenues, viewers and programming with other
private television stations, with government-owned and operated television
stations and with cable and direct broadcast satellite television systems in
their respective markets. The Company also competes for revenues with other
advertising media, such as newspapers, radio, magazines and outdoor advertising.
In addition, the Company is faced with numerous competitors, both strategic and
financial, in attempting to obtain television broadcast rights and programming
in Central and Eastern Europe. Many actual and potential competitors are part of
larger companies with substantially greater financial, marketing and other
resources than the Company, and there can be no assurance that the Company will
be able to compete effectively against its existing or future competitors. In
each of the markets in which the Company competes, additional licenses may be
granted by regulatory authorities. See 'Business--Operations in the Czech
Republic: Nova TV-- Competition,' 'Business--Operations in Romania: PRO
TV--Competition,' 'Business--Operations in Slovenia: POP TV--Competition,'
'Business--Operations in the Slovak Republic: Markiza TV-- Competition,'
'Business--Operations in Ukraine: Studio 1+1 Group--Competition,' 'Business--
Operations in Poland--Competition,' 'Business--Operations in Germany: the German
Stations-- Competition,' and 'Business--Broadcast Operations Under Development.'
RISKS OF TELEVISION BROADCAST OPERATIONS. The Company's operating results
are dependent upon the sale of commercial advertising time and the ability to
control operating expenses. The sale of commercial advertising time is dependent
on the general economic conditions in the country and market where each
television broadcast operation is located, the relative popularity of the
programming of the Company's broadcast operations, the demographic
characteristics of the audiences of the Company's broadcast operations, the
activities of competitors and other factors which may be outside of the
Company's control. The cost of programming to the Company may increase as the
Company broadcasts a greater number of locally produced programs and as the
commercial television markets in which the Company operates continue to develop.
The Company intends to pursue aggressively license, investment and development
opportunities in additional broadcast operations in Central and Eastern Europe.
This growth strategy entails the risks inherent in assessing the value,
strengths and weaknesses of development opportunities, in evaluating the costs
and uncertain returns of building and expanding the facilities for operating
stations and in integrating and managing the operations of additional television
stations. In addition, the Company is in varying degrees dependent, in the
countries in which it operates, upon the availability and accessibility of
government-owned broadcast and transmission facilities for distribution of its
signal throughout its license areas.
FINANCIAL CONDITION OF PULS. PULS, in which the Company has a substantial
equity investment, continues to require additional cash funding to meet ongoing
operating deficits. The Company estimates total cash funding required for PULS
to be approximately $5.5 million through June 1997. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.' None of the investors in PULS,
including the Company, have further contractual obligations to invest additional
capital in this station. The partners of PULS are currently in negotiations with
potential new investors in PULS. A new investor would be expected to acquire a
significant equity interest in PULS, either as a co-investor with the Company or
as a sole investor, which may result in a change in the Company's equity
interest in PULS. A new investor would be expected to assume responsibility for
PULS' operations. Depending on the results of negotiations with these potential
new investors, the Company may continue to have significant funding obligations
with respect to PULS. Regardless of whether a transaction with a new investor is
consummated, there can be no assurance that the Company may not have to take a
reduction of all or a portion of the carrying value of the Company's equity
interest in PULS, which was $12.6 million as of December 31, 1996, and a
corresponding charge against the Company's earnings. If such an investment is
not
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obtained or if a determination is made not to further fund the operations of
PULS, insolvency may occur, requiring a sale or cessation of its operations.
Such action could result in the loss by the Company of part or all of its equity
in PULS. In addition, a reduction of the carrying value of PULS, or other
factors, might cause the Company to reduce all or part of the carrying value of
the Company's investments in FFF (the parent company of the Nuremberg Station)
and SFF (through which the Company owns its interests in the Leipzig Station and
the Dresden Station) which were $6.1 million and $1.6 million, respectively, as
of December 31, 1996. See 'The Company' and 'Business--Operations in Germany:
the German Stations--Recent Developments.'
POSSIBLE INABILITY TO CONTROL SUBSIDIARIES. The Company has invested in
its operating Subsidiaries with strategic and financial partners. Although the
Company is involved to varying degrees in the management of its Subsidiaries and
intends to invest in the future only in broadcast operations in which it will be
involved in management, the degree of its voting power in Subsidiaries in which
the Company owns less than a majority of the voting power, and the voting power
and veto rights of its strategic and financial partners in Subsidiaries in which
the Company owns a majority of the voting power, may preclude it from
controlling the operations, strategies and financial decisions of its
Subsidiaries or other entities in which it may acquire interests. The Company
may be unable, without the consent of the relevant partners, to cause its
Subsidiaries, whether or not majority owned, to make distributions, to implement
strategies or to make programming decisions that the Company may favor.
Moreover, the ability of the Company to sell equity interests in its
Subsidiaries is subject to equity holder or similar agreements and, in certain
cases, regulatory approvals that limit the ability of the parties (including the
Company) to transfer their equity interests. Therefore, there can be no
assurance of the Company's ability to realize economic benefits through the sale
of its assets. See 'The Company.'
EXPANSION INTO EARLY STAGE MARKETS. The Company is developing broadcast
operations, and is pursuing opportunities to expand broadcast operations, in
several Central and Eastern European markets where market economies only
recently have begun to develop. The Company's primary assets, its interests in
over-the-air television licenses, are government granted. Although the general
trend in the markets in which the Company operates and intends to operate has
been toward more open markets and trade policies and the fostering of private
economic activity, no assurance can be given that the governments in the region
will continue to pursue such policies or that such policies may not be altered
significantly, especially in the event of a change in leadership, social or
political disruption or unforeseen circumstances affecting economic, political
or social life. Social unrest, political instability, economic distress or other
factors beyond the Company's control in any such Central or Eastern European
country could have a material adverse effect on the Company's business.
Moreover, to the extent that the Company expands its reach by utilizing
satellite facilities to transmit its signal to affiliates in a particular
country, it may become subject to governmental regulation restricting such
transmission. Accordingly, there can be no assurance that the Company will be
successful in developing and expanding broadcast operations in its prospective
new markets or that such operations can be operated profitably. See
'Business--Operations in Ukraine: Studio 1+1 Group;' 'Business--Operations in
Poland;' 'Business--Broadcast Operations Under Development.'
RISKS OF CRIME AND CORRUPTION. The local and international media have
reported significant organized criminal activity and government corruption in
certain markets where the Company conducts operations. There can be no assurance
that organized or other crime or claims (whether or not substantiated) that the
Company or any of its Subsidiaries has been involved in official corruption will
not in the future have a material adverse effect on the Company.
RISKS INHERENT IN FOREIGN INVESTMENT. The Company has invested all of its
resources in operations outside of the United States and plans to make
additional international investments in the future. Risks inherent in foreign
operations include loss of revenues, property and equipment from expropriation,
nationalization, war, insurrection and other political risks, risks of increases
in taxes and governmental royalties and fees and involuntary renegotiation of
contracts with or licenses from foreign governments. The Company is also exposed
to the risk of changes in foreign and domestic laws and policies that govern
operations of overseas-based companies.
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DEVALUATION; CURRENCY RISK. Although the Company's Subsidiaries have
attempted, and will continue to attempt, to match revenues and expenses and
borrowings and repayments in terms of their respective local currencies, the
Company and its Subsidiaries currently generate most of their revenues in Czech
korunas, Romanian lei, Slovenian tolar, Slovak korunas, Ukrainian hryvna, Polish
zloty, Hungarian forints and German marks and incur expenses in those currencies
as well as in British pounds and United States dollars. Certain expenses,
primarily for programming, are incurred in United States dollars and other
foreign currencies. Fluctuations in the value of foreign currencies may cause
United States dollar translated amounts to change in comparison with previous
periods. Each of the Slovenian, Romanian, Slovak, Ukrainian and Polish
currencies is a managed currency with limited convertibility. In addition, the
Company in the future may acquire interests in entities that operate in other
countries where the removal or conversion of currency is restricted. The Company
currently does not hedge against foreign currency exchange translation risks
with respect to its dollar-denominated financial statements but may hedge
against specific foreign currency transaction risks. Because of the number of
currencies involved, the constantly changing currency exposures and the fact
that all foreign currencies do not fluctuate in the same manner against the
United States dollar, the Company cannot quantify the effect of exchange rate
fluctuations on its future financial condition or results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Foreign Currency.'
GOVERNMENT REGULATORY RESTRICTIONS. Broadcast operations of the Company
are subject to extensive government regulation as to the issuance, renewal,
transfer and ownership of station licenses, as well as the timing and content of
programming and the timing, content and amount of commercial advertising
permitted. In many countries the regulatory systems as they apply to private
(and especially foreign) investors in broadcasting stations are relatively new
and untested. In certain countries the Company is restricted in the amount of
direct interests it may hold in television stations; in such cases station
licenses may be held by the Company's local partners, and the Company has
arrangements to provide programming, advertising and other services (including
management services) to the station. No assurance can be given that any
necessary regulatory approvals for these arrangements will be obtained or that
such arrangements will not be subject to regulatory review in the future which
may limit the influence the Company may have with respect to its local broadcast
partners. There are also regulations requiring that certain percentages of
programming be produced or originated in local markets. The cost of programming
could also increase as a result of political initiatives taken by the European
Union to increase the amount of European-produced programming broadcast. In
addition, broadcast regulations and license conditions in the Company's markets
impose operating conditions relating, for example, to required amounts of
broadcasting, use of locally produced programming and the content and quantity
of advertising which may be broadcast. While the Company believes that it and
its Subsidiaries are in compliance in all material respects with applicable
laws, rules, regulations, and licenses, there can be no assurance that more
restrictive laws, rules, regulations or enforcement policies will not be adopted
in the future which could make compliance more difficult or expensive or
otherwise adversely affect the Company's business or prospects. See
'Business--Operations in the Czech Republic: Nova TV--Regulation,'
'Business--Operations in Romania: PRO TV--Regulation,' 'Business--Operations in
Slovenia: POP TV--Regulation,' 'Business--Operations in the Slovak Republic:
Markiza TV--Regulation,' 'Business--Operations in Ukraine: Studio 1+1 Group--
Regulation,' 'Business--Operations in Poland--Regulation,' 'Business--Operations
in Germany: the German Stations--Regulation' and 'Business--Broadcast Operations
Under Development.'
UNCERTAINTY OF LICENSE RENEWALS. The licenses to operate the Company's
broadcast operations are effective for the following periods: (i) the license to
operate Nova TV expires in 2005; (ii) the six licenses of PRO TV's affiliate
stations in Romania expire from 2001 to 2002; (iii) the licenses of the
Company's two partners in Slovenia expire in 2002; (iv) the license of the
Company's partner in the Slovak Republic expires in 2007; (v) the license to
provide programming and sell advertising to UT-2 in Ukraine expires in 2006;
(vi) the license to operate TV Wisla expires in 2004; (vii) the licenses to
operate PULS and the Nuremberg Station expire in 2000 and 2001, respectively;
(viii) the licenses to operate the Leipzig Station and the Dresden Station
expire in 2003; and (ix) the license to operate Radio Alfa expires in 1999. All
of the licenses pursuant to which the Company's or its local partners'
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television stations operate are by their terms renewable. The Company has no
reason to believe that these licenses will not be renewed. However, no statutory
or regulatory presumption exists for the current license holder, and there can
be no assurance that these licenses will be renewed by the local media
authorities upon expiration of their initial terms. The failure of any such
licenses to be renewed may have a material adverse effect on the Company.
RISKS INVOLVED IN USING SATELLITE TRANSPONDER. The Company is using
satellite technology to assist it in maximizing broadcast reach in certain of
its broadcast operations. The Company currently uses satellite technology
pursuant to a short-term lease in anticipation of the launch of the satellite
containing the Satellite Transponder. There is a risk (i) that the satellite on
which the Company leases the Satellite Transponder will not be launched in the
fourth quarter of 1997 as scheduled, (ii) that this satellite or the Satellite
Transponder will not function as expected and (iii) that this satellite will
have a shorter useful life than expected. The occurrence of any of these events
could impair the Company's ability to extend its broadcast reach in certain
countries. Although the Company intends to arrange suitable backup plans, there
can be no assurance that the occurrence of any of these events would not have a
material adverse effect on the Company's business and the results of its
operations.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is particularly
dependent upon the active involvement of Leonard M. Fertig, President and Chief
Executive Officer, and Ronald S. Lauder, Chairman. The loss of the services of
either of these individuals could have a material adverse effect on the Company.
The degree of Mr. Lauder's involvement in the activities of the Company varies
from time to time based on the then current needs of the Company. Mr. Lauder's
involvement has been greatest in connection with the acquisition of broadcast
rights and in locating local strategic partners. Mr. Lauder is not an employee
of the Company. The Company has an employment agreement with Mr. Fertig, which
expires on August 9, 1998. The employment agreement with Mr. Fertig contains a
non-compete covenant, with a term of two years after the termination of
employment. Because of the specialized nature of the Company's business, the
Company believes that its future success will depend in large part upon its
ability to attract and retain highly-skilled managerial, technical and marketing
personnel as well as experienced local managers. Although the Company has been
successful in attracting such personnel in the past, competition for such
personnel is intense, and there can be no assurance that the Company will
continue to be successful in attracting and retaining the personnel it requires
to grow. See 'Management.'
CONTINUING CONCENTRATION OF SHARE OWNERSHIP AND VOTING CONTROL;
ANTI-TAKEOVER PROVISIONS. The Company's officers and directors, and certain of
their affiliates and employees, collectively own beneficially approximately
26.2% of the outstanding capital stock and 67.5% of the voting power of the
Company. Ronald S. Lauder owns beneficially approximately 21.9% of the
outstanding capital stock and 56.3% of the voting power of the Company, except
where a separate class vote is required by Bermuda law. Mr. Lauder has the
ability to control the election of the Board of Directors of the Company and
thus the direction and future operations of the Company without the supporting
vote of any other shareholder of the Company, including decisions regarding
acquisitions and other business opportunities (except with respect to a 'going
private' transaction between the Company and Mr. Lauder), the declaration of
dividends and the issuance of additional shares of Class A Common Stock and
other securities. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change of control of the Company, a
transaction which might otherwise be beneficial to shareholders. In addition,
the Company's Memorandum of Association and bye-laws contain provisions that
could delay, defer or prevent a change in control without the approval of the
incumbent Board of Directors. These provisions, among other things, create a
class of common stock with super voting rights and authorize the Board of
Directors to issue preferred stock in one or more classes or series without any
action on the part of the shareholders. Such provisions could limit the price
that investors might be willing to pay in the future for shares of Class A
Common Stock and impede the ability of the shareholders to replace management
even if factors warrant such a change. Moreover, certain provisions of the Notes
make it more difficult to effect or may discourage a change in control of the
Company. See 'Risk Factors--Limitations on Repurchase of Notes and Absence of
Financial Covenants.' A change of control of the Company may result in a loss of
the Company's rights to certain
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television broadcast licenses which could have a material adverse effect on the
Company, and which, therefore, may impede a third party from attempting to
obtain control of the Company. See 'Description of Capital Stock.'
ABSENCE OF PUBLIC MARKET FOR THE NOTES. Prior to the Offering there has
been no public market for the Notes and there can be no assurances that an
active trading market will develop or be sustained. The trading price of the
Notes or the shares of Class A Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
regulatory factors, competitive conditions, market and economic conditions and
general trends in the broadcasting industry.
ENFORCEMENT OF CIVIL LIABILITIES AND JUDGMENTS. The Company is a Bermuda
company, and substantially all of its assets and all of its operations are
located, and all of its revenues are derived, outside the United States. The
Company has appointed Corporation Service Company as its agent to receive
service of process with respect to any action brought against it in the United
States District Court for the Southern District of New York or any New York
State court under the securities laws of the United States or any state thereof.
However, it may not be possible for investors to enforce outside the United
States judgments against the Company obtained in the United States in any civil
actions, including actions predicated upon the civil liability provisions of the
United States federal securities laws. In addition, certain of the directors and
officers of the Company are non-residents of the United States, and all or a
substantial portion of the assets of such persons are or may be located outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons, or to enforce
against them judgments obtained in the United States courts, including judgments
predicated upon the civil liability provisions of the United States federal
securities laws. There is uncertainty as to whether the courts of the countries
in which the Company operates or plans to operate would enforce (i) judgments of
United States courts obtained against the Company or such persons predicated
upon the civil liability provisions of the United States federal and state
securities laws or (ii) in original actions brought in such countries, as
applicable, liabilities against the Company or such persons predicated upon the
United States federal and state securities laws. A final and conclusive judgment
in Federal or State courts of the United States under which a sum of money is
payable (not being a sum payable in respect of taxes or other charges of a like
nature or in respect of a fine or other penalty or multiple damages) may be
subject to enforcement proceedings as a debt in the Supreme Court of Bermuda
under the common law doctrine of obligation. Among other things, it is necessary
to demonstrate that the court which gave the judgment was competent to hear the
action in accordance with private international law principles as applied in
Bermuda and that the judgment is not contrary to public policy in Bermuda, has
not been obtained by fraud or in proceedings contrary to natural justice and was
not based on error in Bermuda law.
BERMUDA CORPORATE LAW. The Company is a Bermuda company and, accordingly,
is governed by The Companies Act 1981 of Bermuda. The Companies Act 1981 of
Bermuda differs in certain respects from laws generally applicable to United
States corporations and shareholders, including the provisions relating to
interested directors, mergers and similar arrangements, takeovers, shareholder's
suits, indemnification of directors and inspection of corporate records. See
'Description of Capital Stock--Differences in Corporate Law.'
FOREIGN PERSONAL HOLDING COMPANY AND PASSIVE FOREIGN INVESTMENT COMPANY
RULES. The Company seeks to manage its affairs and the affairs of its
Subsidiaries so that neither the Company nor any of its foreign corporate
Subsidiaries would be classified as a foreign personal holding company ('FPHC')
or a passive foreign investment company ('PFIC') under the United States
Internal Revenue Code of 1986, as amended. If the Company or any such
Subsidiaries were an FPHC, the undistributed foreign personal holding company
income (generally, the taxable income, with certain adjustments), if any, of the
Company or of its foreign corporate Subsidiaries would be included in the income
of the United States shareholders of the Company as a dividend, on a pro rata
basis. If the Company were a PFIC, then each United States shareholder of the
Company generally would, upon certain distributions by the Company or upon
disposition of the Class A Common Stock at a gain, be liable to pay tax at the
then prevailing rates on ordinary income plus an interest charge, as if the
distribution or gain had been recognized ratably over the United States
shareholder's holding period for the Class A Common Stock,
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or if a 'qualified electing fund' election were made by the United States
shareholder, a pro rata share of the Company's ordinary income and net capital
gain would be required to be included in the United States shareholder's income
each year. While the Company intends to manage its affairs and the affairs of
its Subsidiaries so as to avoid FPHC and PFIC status, there can be no assurance
that the Company will be successful in this endeavor. See 'Certain Tax
Considerations--United States Federal Income Taxation--Foreign Personal Holding
Companies' and 'Certain Tax Considerations--United States Federal Income
Taxation--Passive Foreign Investment Companies.'
FORWARD-LOOKING STATEMENTS. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, believes, intends or anticipates will or may occur in the future,
including such matters as future investments in existing television broadcast
operations and the development of new television broadcast operations (including
the amount and nature thereof), the use of proceeds of this Offering, business
strategies and the future need for additional funds from outside sources, are
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements herein. Important factors that could contribute
to such differences are set forth herein under 'Risk Factors,' including, but
not limited to, 'History of Losses,' 'Holding Company Structure; Limitations on
Access to Cash Flow and Possible Inability to Service Debt,' 'Lack of Available
Current Earnings from Subsidiaries Other than Nova TV,' 'Effect of Leverage on
Ability to Repay Notes and Deficiency of Earnings Available to Cover Fixed
Charges,' 'Limitations on Repurchase of Notes and Absence of Financial
Covenants,' 'Dependence on Additional Capital,' 'Competitive Industry,' 'Risks
of Television Broadcast Operations,' 'Financial Condition of PULS,' 'Possible
Inability to Control Subsidiaries,' 'Expansion into Early Stage Markets,' 'Risks
of Crime and Corruption,' 'Risks Inherent in Foreign Investment,' 'Devaluation;
Currency Risk,' 'Government Regulatory Restrictions,' 'Uncertainty of License
Renewals,' and 'Risks Involved in Using Satellite Transponder.'
17
<PAGE>
THE COMPANY
The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland, and has television broadcast operations under development in
other areas of Poland and in Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.
Central European Media Enterprises Ltd. was incorporated in June 1994 under
the laws of Bermuda. The chart on the following page sets forth the functional
corporate structure of the Company.
The Company's ownership interest in Ceska Nezavisla Televizni Spolecnost
s.r.o. ('Nova TV') is governed by the terms of a Memorandum of Association and
Investment Agreement dated as of May 4, 1993 to which Ceska Sporitelna Bank
('CS') and CET 21 s.r.o. ('CET 21'), are also parties. In August 1996, the
Company purchased CS's 22.0% economic interest in Nova TV and virtually all of
CS's voting power in Nova TV (the 'Additional Nova TV Purchase'). In March 1997,
the Company acquired an additional 5.2% interest in Nova TV through the
retirement of a $5.2 million loan in exchange for such interest (the '1997 Nova
TV Purchase'). The Company is in the process of registering the Additional Nova
TV Purchase and the 1997 Nova TV Purchase pursuant to Czech law. On an ongoing
basis, after giving effect to the Additional Nova TV Purchase and the 1997 Nova
TV Purchase, the Company is entitled to 93.2% of the total profits of Nova TV
and has 91.2% of the voting power in Nova TV. CET 21 and certain of its partners
will own the remaining 6.8% of Nova TV, subject to the registration procedures.
CET 21 has given Nova TV the exclusive access to the use of the broadcast
license. The Company has the right to appoint five of the seven members of Nova
TV's Committee of Representatives, which directs the affairs of Nova TV. With
respect to certain fundamental corporate decisions, including the declaration of
dividends, a 67.0% vote of the voting interest is required. A representative of
CET 21 has certain delay and veto rights on non-economic programming matters
related directly to the broadcast license. See 'Business--Litigation.'
The Company's interest in PRO TV is governed by a Cooperation Agreement
(the 'Romanian Agreement') among CME Media Enterprises B.V. ('CME BV'), Adrian
Sarbu ('Sarbu') and Ion Tiriac ('Tiriac'), forming Media Pro International S.A.
('Media Pro International'). Pursuant to the Romanian Agreement, the Company
owns 77.5% of the equity of Media Pro International. Interests in profits of
Media Pro International are equal to the partners' equity interests. Sarbu and
Tiriac hold options (exercisable until August 1997 at a cost per unit equal to
the cost per unit of the Company's original investment in Media Pro
International) on a portion of the Company's equity which, if exercised, could
reduce the Company's equity interest to not less than 66.0%. The Company has the
right to appoint three of the five members of the Council of Administration
which directs the affairs of Media Pro International. Although the Company has
majority voting power in Media Pro International, with respect to certain
financial and fundamental corporate matters the affirmative vote of either Sarbu
or Tiriac is required. The Company recently exercised an option to purchase
49.0% of the equity of PRO TV, SRL, an affiliate station of Media Pro
International. Messrs. Sarbu and Tiriac own substantially all of the remainder
of PRO TV, SRL. PRO TV, SRL holds many of the licenses for the stations which
comprise the PRO TV network. The Company also owns a 95.0% equity interest in
Unimedia SRL ('Unimedia'), which owns a 10.0% equity interest in a consortium,
MobilRom ('MobilRom'). In December 1996, MobilRom was awarded a license to
operate a GSM cellular telephone network in Romania. Mr. Sarbu owns the
remaining 5.0% of Unimedia.
18
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CORPORATE STRUCTURE*
[CHART REFLECTING ORGANIZATION STRUCTURE OF COMPANY]
Central European Media Enterprises Ltd.
|
|
|
Dutch and
CME Development_____100.0%_____Netherlands_____100.0%_____CME Programming
Corporation Antilles Services Inc.
Holding
Companies
|
|
___________________________________|_______________________________________
| | | | | | | |
| | | | | | | |
100.0% 93.2%(1) 62.0%(2) 77.5%(3) | 85.3%(4) 80.0%(5) |
| | | | | | | |
| | | | | | | |
German Nova TV Radio Alfa Media Pro | Pro Plus STS |
Holding (Czech (Czech International | (POP TV) (Markiza TV) |
Companies Republic) Republic) (PRO TV/ | (Slovenia) (Slovak |
| PRO FM) | Republic) |
|_______________________ (Romania) | |
| | | ______________| |
| | | | __________________________________|
58.0% 50.0% 50.0% | | | | |
| | | | | | | |
| | | | 50.0% | 24.9%(6)(7) 33.0%(6)(8)
PULS FFF ____SFF____ | | | | |
| | | | | | | |
| | | | Studio 1+1 | Broadcast Broadcast
74.8% 33.3% 33.3% | Group | Oper. Under Oper. Under
| | | | (Ukraine) | Develop. Develop.
| | | | | 2002 Kft. TVN
Nuremberg Leipzig Dresden | | (Hungary) (Poland)
Station Station Station | | |
| |_______ |
| | |
9.5% 97.4% 49.0%
| | |
| | |
MobilRom Videovox TV Wisla
(Romania) (Hungary)
- ---------------
(1) The Company is in the process of registering its recent acquisitions of
additional interests of Nova TV under Czech law, raising its economic
interest in Nova TV from 66.0% to 93.2%.
(2) The Company has outstanding loans to Radio Alfa which are convertible into
an additional equity interest which, when combined with its current 62.0%
interest, would give the Company an 83.7% interest in Radio Alfa.
(3) The Company's partners in Romania hold options to purchase equity from the
Company which, if exercised, would reduce the Company's equity interest to
not less than 66.0%.
(4) The Company owns 78.0% of the equity in Pro Plus, but has an effective 85.3%
economic interest, as a result of its rights to 33.0% of the profits of MMTV
and 33.0% of the profits of Tele 59.
(5) The Company has an 80.0% economic interest and a 49.0% voting interest in
STS.
(6) The Company or its local partners have acquired television broadcast
licenses (or are applying for television broadcast licenses) and are
developing broadcast operations in these countries.
(7) As a condition to bidding on a national broadcast license, the Company
reduced its 97.5% interest in 2002 Kft. to 24.9%.
(8) TVN, the Company's Polish subsidiary, in which it has a 33.0% equity
interest has been awarded television broadcast licenses in northern Poland
and the cities of Warsaw and Lodz. TVN currently owns 49.0% of TV Wisla and
has an option which could increase TVN's equity interest in TV Wisla to
approximately 76.2%.
* All interests indicated are economic interests; equity and/or voting interests
may vary.
19
<PAGE>
The Company's interest in POP TV is governed by a Partnership Agreement
(the 'Slovenian Partnership Agreement') among CME BV, MMTV 1 d.o.o. Ljubljana
('MMTV') and Tele 59 d.o.o. Maribor ('Tele 59'), forming Produkcija Plus d.o.o.
('Pro Plus'). In March 1997, the Company purchased a substantial portion of
MMTV's interest in Pro Plus for an aggregate price of approximately $5.0 million
(the 'Additional Pro Plus Purchase'). After giving effect to the Additional Pro
Plus Purchase, the Company currently owns 78.0% of the equity in Pro Plus, but
has an effective economic interest of 85.3% as a result of its right to 33.0% of
the profits of MMTV and 33.0% of the profits of Tele 59. Tele 59 currently owns
a 21.0% equity interest in Pro Plus, and MMTV currently owns a 1.0% equity
interest in Pro Plus. The Company, which owns 10.0% of the equity of each of
Tele 59 and MMTV, has acquired an option to increase its equity interest in MMTV
in conjunction with the Additional Pro Plus Purchase. Voting power and interests
in profits of Pro Plus are equal to the partners' equity interests. All major
decisions concerning the affairs of Pro Plus are made by the general meeting of
partners and require a 70.0% affirmative vote. Certain financial and fundamental
corporate matters require an 85.0% affirmative vote of the partners. In July
1996, the Company, together with MMTV and Tele 59, entered into an agreement to
purchase a 66.0% equity interest in Kanal A, a privately owned television
station in Slovenia, which competes with POP TV (the 'Kanal A Agreement'), which
would increase POP TV's broadcast reach to approximately 85% of the Slovenian
population. There is currently an injunction in effect preventing the completion
of the Kanal A Agreement. See 'Business--Litigation.'
The Company's interest in Markiza TV is governed by a Participants
Agreement dated September 28, 1995 (the 'Slovak Agreement') between CME BV and
Markiza-Slovakia s.r.o. ('Markiza') forming Slovenska Televizna Spolocnost,
s.r.o. ('STS'). Pursuant to the Slovak Agreement, the Company is required to
fund all of the capital requirements of, and holds a 49.0% voting interest and
an 80.0% economic interest in, STS. Markiza, which holds the television
broadcast license, and STS have entered into an agreement under which STS is
entitled to conduct television broadcast operations pursuant to the license. On
an ongoing basis, the Company is entitled to 80.0% of the profits of STS, except
that until the Company is repaid its capital contributions plus a priority
return at the rate of 6.0% per annum on such capital contributions, 50.0% of the
profits will be paid to the Company and the remaining 50.0% of the profits will
be paid pro rata to the partners based on their economic interests. A Board of
Representatives directs the affairs of STS, the composition of which includes
two designees of the Company and three designees of Markiza, however, all
significant financial and operational decisions of the Board of Representatives
require a vote of 80.0% of its members. In addition, certain fundamental
corporate matters are reserved for decision by a general meeting of partners and
require a 67.0% affirmative vote of the partners.
In Ukraine, the Studio 1+1 Group consists of several entities in which the
Company holds direct or indirect interests. CME BV, through a wholly-owned
subsidiary, holds a 50.0% equity interest in each of Innova Film GmbH ('Innova')
and International Media Services ('IMS'). In addition, this wholly-owned
subsidiary anticipates that it will acquire an indirect 25.0% equity interest in
Prioritet, a Ukrainian based company ('Prioritet'). Innova holds an indirect
30.0% equity interest in a separate Ukrainian based company which holds the
license to broadcast programming and sell advertising on UT-2 (the 'UT-2
License'). This Ukrainian based company has, in turn, assigned its right to sell
advertising on UT-2 to Innova. In addition, Innova, IMS and Prioritet have
entered into arrangements regarding advertising revenues generated on UT-2.
Interests in profits of each entity in the Studio 1+1 Group are equal to equity
interests held in such entities. All significant decisions of the entities in
the Studio 1+1 Group are reserved for decision of the shareholders, requiring a
majority vote (other than decisions of the shareholders of the Ukrainian based
company which holds the UT-2 broadcast license, which require a 75.0% vote).
Certain fundamental corporate matters of these entities require unanimous
shareholder approval.
The Company together with the Polish media group ITI, are partners in TVN
Sp. z.o.o. ('TVN') in Poland. ITI holds 67.0% of the equity in TVN and the
Company holds the remaining 33.0%. The governance provisions for TVN are set
forth in a Shareholders Agreement dated as of May 25, 1995 between CME BV and
ITI (the 'TVN Agreement'). Pursuant to the TVN Agreement, the economic interests
of the Company and ITI are equivalent to their equity interests. A Supervisory
Board directs the
20
<PAGE>
affairs of TVN, and is comprised of five designees of ITI and four designees of
the Company. The affirmative vote of at least two ITI designees and two Company
designees is required to approve certain significant financial and operational
decisions. Certain fundamental corporate matters including the declaration of
dividends and the termination or liquidation of TVN are reserved for decision by
the shareholders of TVN, and require the affirmative vote of holders of at least
75% of the outstanding equity.
In Hungary, the Company has submitted an application for a national
broadcast license through a consortium, including MEDIA COM, InterCom and DDTV,
in accordance with tender procedures which were recently announced. Until
recently, the Company owned 97.5% of the equity of 2002 Tanacsado es Szolgaltato
Korlatolt Felelosegu Tarsasag ('2002 Kft'), however, as a condition to bidding
on a national broadcast license, the Company reduced its interest in 2002 Kft to
24.9%. In December 1996, CME BV acquired 2002 Kft's 97.4% equity interest in
Videovox Studio Limited Liability Company, a Hungarian dubbing and production
company ('Videovox').
The Company's present 58.0% non-controlling ownership interest in the
German limited partnership that operates PULS is held through wholly-owned
intermediate entities and limited partnerships (the 'CME Partnerships'). The
Company's interest in PULS is governed by a partnership agreement among the CME
Partnerships and their partners (the 'PULS Partnership Agreement'). Currently,
calls for capital contributions may be made by a 75.0% vote of the voting power
of the partners in PULS, but this capital call would be binding only upon
partners who voted in favor. A partner which does not make a contribution upon
such a capital call will have its equity interest diluted. Since September 1995,
the partners have approved capital calls aggregating DM44,075,000 ($28,435,000)
and the Company, on its own, has agreed to fund virtually the full amount of
these capital calls.
The PULS Partnership Agreement provides that profits and losses of PULS are
shared as follows: net losses are allocated to the partners in proportion of
their capital contributions; cumulative net profits are allocated in the same
proportion until such losses are recovered. Thereafter, once certain priority
returns have been paid, the Company will be entitled to 58.0% of the profits of
PULS. Pursuant to the PULS Partnership Agreement, the Company currently has
effectively 50.4% of the voting power of PULS. In general, a 75% vote of the
voting power of the partners of PULS is required with respect to certain
financial matters and certain partnership matters, including, among other
things, amendments to the partnership agreement, mergers, reorganizations and a
transfer of all of PULS's assets and approval of the annual budget and financial
plans. The Company has the right to appoint two of the nine members of the
Supervisory Board of PULS.
The partners of PULS are currently in negotiations with potential new
investors in PULS. A new investor would be expected to acquire a significant
equity interest in PULS, either as a co-investor with the Company or as a sole
investor, which may result in a change in the Company's equity interest in PULS.
A new investor would be expected to assume responsibility for PULS's operations.
The outcome of ongoing negotiations with potential new investors could either
result in a decrease of the Company's future funding obligations to PULS or
require the Company to make additional capital investments in PULS. Such an
investment by a new investor also could result in a material reduction of the
carrying value of the Company's equity investment in PULS, which was $12.6
million as of December 31, 1996, and a corresponding charge against the
Company's earnings in the period incurred. Regardless of whether a transaction
with an investor is consummated, there is no assurance that the Company may not
have to take a reduction of all or a portion of the carrying value of PULS. See
'Business-- Operations in Germany: the German Stations--Recent Developments.'
The Company's 37.4% equity interest in the Nuremberg Station was obtained
by acquiring a 50.0% non-voting equity interest in Franken Funk & Fernsehen GmbH
('FFF'), which owns 74.8% of the equity in NMF Neue Medien Franken GmbH & Co.
('NMF'), which directly owns the Nuremberg Station. The remaining 25.2% of NMF
is owned by an unaffiliated individual. The Company's interest in the Nuremberg
Station is governed by a so-called 'Silent Partner Agreement' under German law
between the Company, Dr. Dietmar Straube (a managing director of the Company's
German operations and the owner of the remaining 50.0% equity interest and 100%
voting interest in FFF), and FFF. A
21
<PAGE>
Silent Partner Agreement gives the silent partner (the Company in this case) the
economic benefits of an equity interest without a voting interest and without a
physical instrument evidencing the interest. While the Company does not own
shares of stock of FFF or have the right to elect any of its directors, the
prior approval of the Company is required for certain significant transactions.
The Company is entitled to 50.0% of FFF's profits and losses and 50.0% of the
proceeds upon liquidation of its assets. However, Dr. Straube is entitled to a
one-time preferred distribution of DM1,860,000 ($1,200,000) out of the
cumulative profits.
The Company has a 49.0% equity and voting interest in Sachsen Funk &
Fernsehen ('SFF') and the Company is entitled to distributions of 50.0% of the
profits of SFF. Dr. Straube owns the remaining equity of SFF. SFF owns a 33.3%
interest in Leipzig Fernsehen and Dresden Fernsehen which operate regional
television stations in Leipzig (the 'Leipzig Station') and Dresden (the 'Dresden
Station'), respectively.
A reduction of the carrying value of PULS, or other factors, might cause
the Company to reduce all or part of the carrying value of the Company's
investments in FFF and SFF, which were $6.1 million and $1.6 million,
respectively, as of December 31, 1996.
CME Development Corporation, a wholly-owned subsidiary of the Company,
provides development services to the Company. CME Programming Services, Inc.
('CMEPS'), a wholly-owned subsidiary of the Company, provides programming and
production services to the Company's television broadcast operations in Central
and Eastern Europe. CMEPS will also provide satellite transmission services to
the Company's television stations in Central and Eastern Europe. See
'Business--Programming Services.'
The Company's registered offices are located at Clarendon House, Church
Street, Hamilton HM CX Bermuda and its telephone number is 441-296-1431. The
Central European Media Enterprises group of companies also maintains offices at
18 D'Arblay Street, London W1V 3FP England, telephone number 44-171-292-7900.
22
<PAGE>
USE OF PROCEEDS
The estimated net proceeds for the Offering are expected to be
approximately $120 million after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the net
proceeds, plus corporate cash balances of approximately $39.1 million as of
April 17, 1997 to (i) fund television broadcast operations in Poland, Ukraine,
Romania, Slovenia (approximately $50 million to $55 million); (ii) fund existing
television operations in Germany (approximately $5 million to $8 million under
the Company's current business plan); and (iii) fund the Company's obligation
with respect to its interest in MobilRom (approximately $8.4 million). In the
event that the Company is successful in its bid for a broadcast license in
Hungary, the Company expects its funding requirements to be approximately $30
million to $35 million. Depending upon the outcome of ongoing negotiations
between the partners in PULS and potential new investors in PULS, the Company's
funding requirements with respect to its existing television operations in
Germany could increase significantly. The balance of the net proceeds from the
Offering and cash balances may be used for investment in long-term programming
rights, additional broadcast development opportunities in the region and for
general corporate purposes. Pending their application, the net proceeds from the
Offering will be invested in investment grade tax-exempt municipal securities,
other government securities or short-term interest bearing instruments. In the
event that the Company is successful in developing additional broadcast
operations, additional debt or equity may be required to fully finance these
operations.
PRICE RANGE OF COMMON STOCK
The Class A Common Stock began trading on the Nasdaq National Market on
October 13, 1994 under the trading symbol 'CETV.' On April 17, 1997, the last
reported sales price for the Class A Common Stock was $31.125. The following
table sets forth the high and low sale prices for the Class A Common Stock for
each quarterly period during the last two fiscal years of the Company and for
the first two quarters of 1997, as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1995
First Quarter........................................................ $ 14.125 $ 7.750
Second Quarter....................................................... 16.000 9.875
Third Quarter........................................................ 27.250 13.750
Fourth Quarter....................................................... 25.750 17.750
1996
First Quarter........................................................ 24.500 19.750
Second Quarter....................................................... 30.000 22.000
Third Quarter........................................................ 32.000 20.750
Fourth Quarter....................................................... 31.750 25.375
1997
First Quarter........................................................ 37.250 30.750
Second Quarter (through April 17, 1997).............................. 33.500 31.000
</TABLE>
At March 31, 1997, there were 40 holders of record (including brokerage
firms and other nominees) of the Class A Common Stock and 15 holders of record
of the Class B Common Stock. There is no established public trading market for
the Class B Common Stock.
DIVIDEND POLICY
The Company has not declared or paid and has no present intention to
declare or pay in the foreseeable future any cash dividends in respect of any
class of its Common Stock. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.' The Company's ability to pay
cash dividends is primarily dependent upon receipt of dividends or distributions
from its Subsidiaries over which it has limited control. See 'Risk
Factors--Holding Company Structure; Limitations on Access to Cash Flow and
Possible Inability to Service Debt.'
23
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the short-term debt and capitalization of
the Company at December 31, 1996, as adjusted to reflect the Offering. This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
AS
ACTUAL ADJUSTED (1)
-------- -------------
<S> <C> <C>
Short-term debt:
Bank credit facilities.............................................................. $ 7,106 $ 7,106
Capital lease obligations........................................................... 1,794 1,794
Investments payable................................................................. 1,955 1,955
-------- -------------
Total short-term debt............................................................ $ 10,855 $ 10,855
-------- -------------
-------- -------------
Long-term debt:
Bank credit facilities.............................................................. $ 22,488 $ 22,488
Capital lease obligations........................................................... 7,120 7,120
Investments payable................................................................. 14,633 14,633
% Convertible Subordinated Notes Due 2004....................................... -- 125,000
-------- -------------
Total long-term debt............................................................. 44,241 169,241
-------- -------------
Shareholders' equity:
Preferred Stock, $.01 par value; authorized: 5,000,000 shares; issued and
outstanding: none................................................................ -- --
Class A Common Stock, $.01 par value; authorized: 30,000,000 shares; issued and
outstanding: 16,664,143 shares................................................... 167 167
Class B Common Stock, $.01 par value; authorized: 15,000,000 shares; issued and
outstanding: 7,191,475 shares.................................................... 72 72
Additional paid-in capital............................................................ 330,315 330,315
Accumulated deficit................................................................... (78,004) (78,004)
Cumulative currency translation adjustment............................................ (3,230) (3,230)
-------- -------------
Total shareholders' equity.......................................................... 249,320 249,320
-------- -------------
Total capitalization............................................................. $293,561 $ 418,561
-------- -------------
-------- -------------
</TABLE>
- ------------------
(1) As adjusted to reflect the issuance and sale of the Notes by the Company in
the Offering and the application of the estimated net proceeds therefrom.
See 'Use of Proceeds.'
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial information presented below for the five years ended
December 31, 1996 is derived from the audited Consolidated Financial Statements
of the Company. The following selected financial information should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto as of December 31, 1994, 1995 and 1996, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................... $ -- $ -- $ 53,566 $ 98,919 $135,985
-------- -------- -------- -------- --------
Total station operating costs and expenses..... -- 1,802 36,083 52,542 85,101
Selling, general and administrative expenses... 20 811 6,009 7,725 21,357
Corporate operating and development expenses... 171 2,708 3,699 10,669 15,782
Amortization of goodwill and allowance for
development costs............................ -- -- 985 3,442 2,940
Non-cash stock compensation charge............. -- -- 5,833 858 --
Capital registration tax....................... -- -- -- 1,375 809
-------- -------- -------- -------- --------
Total operating expenses....................... 191 5,321 52,609 76,611 125,989
-------- -------- -------- -------- --------
Operating (loss) income........................ (191) (5,321) 957 22,308 9,996
Equity in loss of unconsolidated affiliates.... (141) (3,671) (13,677) (14,816) (17,867)
Interest and other income...................... -- 64 179 1,238 2,876
Interest expense............................... -- (140) (1,992) (4,959) (4,670)
Foreign currency exchange gains (losses)....... -- (176) (245) 324 (2,861)
-------- -------- -------- -------- --------
(Loss) income before provision for income
taxes........................................ (332) (9,244) (14,778) 4,095 (12,526)
Provision for income taxes -- -- (3,331) (16,340) (16,405)
-------- -------- -------- -------- --------
Loss before minority interest in consolidated
subsidiaries................................. (332) (9,244) (18,109) (12,245) (28,931)
Minority interest in loss (income) of
consolidated subsidiaries.................... 7 884 (2,396) (6,491) (1,072)
-------- -------- -------- -------- --------
Net loss....................................... $ (325) $ (8,360) $(20,505) $(18,736) $(30,003)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net loss per common share...................... $ (1.28) $ (1.55)
-------- --------
-------- --------
Weighted avg. shares outstanding (000s)........ 14,678 19,373
-------- --------
-------- --------
Cash dividends declared........................ $ -- $ -- $ -- $ -- $ --
Ratio of earnings to fixed charges(1).......... -- -- -- 4.8:1 2.1:1
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Broadcast cash flow(2)......................... $ -- $ -- $ 12,233 $ 38,182 $ 41,444
Net cash (used in) provided by operating
activities................................... (14) (3,826) (1,532) 1,943 (6,619)
Number of television broadcast operations at
the end of period............................ -- 1 3 5 10
BALANCE SHEET DATA:
Current assets................................. $ -- $ 4,773 $ 71,447 $116,728 $146,159
Total assets................................... -- 17,824 115,332 222,027 365,130
Total debt..................................... -- 5,142 32,592 20,285 55,096
Shareholders' equity........................... -- 3,464 62,631 138,936 249,320
</TABLE>
- ------------------
(1) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes plus fixed charges, losses of less
than 50% owned affiliates with debt not guaranteed by the Company, and
minority interest in earnings (losses) of consolidated subsidiaries. Fixed
charges consist of interest on debt. The deficiency of earnings available to
cover fixed charges was $5,573 in 1993 and $1,101 in 1994.
(2) 'Broadcast cash flow,' which is commonly used as a measure of performance
for broadcast companies, as used herein, is defined as net broadcast
revenues, less broadcast operating expenses excluding depreciation and
amortization, broadcast selling, general and administrative expenses, and
cash program rights costs. Cash program rights costs represent cash payments
for current programs payable and such payments do not necessarily correspond
to program use. Broadcast cash flow should not be considered as a substitute
measure of operating performance, or liquidity prepared in accordance with
generally accepted accounting principles. Broadcast cash flow is only
presented for the periods in which broadcasting took place and only for the
Company's consolidated broadcast Subsidiaries. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland and has television broadcast operations under development in
other areas of Poland and Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.
The Company's revenues are derived principally from the sale of television
advertising to local, national and international advertisers. To a limited
extent, the Company also engages in certain barter transactions in which its
broadcast operations exchange unsold commercial advertising time for goods and
services. The Company experiences seasonality, with advertising sales tending to
be lowest during the third quarter of each calendar year, which includes the
summer holiday schedule (typically July and August), and highest during the
fourth quarter of each calendar year.
The primary expenses incurred in operating broadcast stations are
programming costs, employee salaries, broadcast transmission expenses and
selling, general and administrative expenses. Certain of the Company's
operations do not require the direct incurrence of broadcast transmission
expenses. License fees payable to governmental entities in connection with
securing television licenses from government authorities, if any, are usually
minimal. However, the Company incurs significant development expenses, including
funding and negotiating with local partners, researching and preparing license
applications, preparing business plans and conducting pre-operating activities
as well as restructuring existing affiliate entities which hold the licenses.
The Company conducts all of its operations through Subsidiaries.
Accordingly, the primary internal sources of the Company's cash are dividends
and other distributions from its Subsidiaries. The Company's ability to obtain
dividends or other distributions is subject to, among other things, restrictions
on dividends under applicable local laws and foreign currency exchange
regulations of the jurisdictions in which its Subsidiaries operate. The
Subsidiaries' ability to make distributions to the Company is also subject to
the legal availability of sufficient operating funds which are not needed for
operations, obligations or other business plans and, in some cases, the approval
of the other partners, stockholders or creditors of these entities. The laws
under which the Company's currently operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital and required
reserves and after the recovery of accumulated losses.
SELECTED COMBINED FINANCIAL INFORMATION--BROADCAST CASH FLOW
The following table is not required by US generally accepted accounting
principles ('GAAP') or intended to replace the Consolidated Financial Statements
prepared in accordance with GAAP. This table sets forth certain combined
operating data for the years ended December 31, 1996, 1995 and 1994 for national
television broadcast stations or networks. The financial information included
below departs materially from GAAP because it aggregates the revenues and
operating income of certain entities not consolidated in the Consolidated
Financial Statements with those of the Company's consolidated operations. This
supplemental information is presented solely for additional analysis and not as
a presentation of results of operations of each component, nor as combined or
consolidated financial data presented in accordance with GAAP. Regional
television stations in Germany are not included in this analysis as these
operations are dissimilar from those of national television broadcast
27
<PAGE>
entities. The investments in the German operations are accounted for under the
equity method and operating data for these companies is set forth in Note 14 to
the Consolidated Financial Statements.
The Company accounts for its 80% economic interest in Markiza TV using the
equity method of accounting. Under this method of accounting, the Company's
interest in net earnings or losses of Markiza TV is included in the consolidated
earnings and an adjustment is made to the carrying value at which the investment
is recorded on the consolidated balance sheet. The following supplementary
unaudited combined information includes certain financial information of Markiza
TV on a line-by-line basis, similar to that of the Company's consolidated
entities, which include Nova TV, PRO TV and POP TV.
Management service charges are not included in the combined operating data
below as these are eliminated in the Consolidated Financial Statements.
POP TV and PRO TV began operations in December 1995 and Markiza TV began
operations in August 1996. The Company believes that this unaudited combined and
combining operating data provides useful disclosure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
$000S 1994 1995 1996(1)
- --------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Combined Operating Data:
Net revenues................................. $ 53,566 $ 98,919 $ 141,587
Total station operating costs and expenses... (36,083) (52,542) (93,409)
Selling, general and administrative
expenses................................... (6,009) (7,725) (21,192)
-------- -------- ---------
Station operating income..................... 11,474 38,652 26,986
Depreciation of assets....................... 3,773 7,251 14,691
Amortization of programming rights........... 10,403 16,319 24,000
Cash program rights costs.................... (13,417) (24,040) (28,735)
-------- -------- ---------
Broadcast cash flow.......................... $ 12,233 $ 38,182 $ 36,942
-------- -------- ---------
-------- -------- ---------
Broadcast cash flow margin................... 22.8% 38.6% 26.1%
Broadcast cash flow attributable to the
Company.................................... $ 8,074 $ 24,667 $ 34,447(2)
<CAPTION>
NOVA TV
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
$000S 1994 1995 1996
- --------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Operating Data:
Net revenues................................. $ 53,566 $ 98,305 $ 109,242
Total station operating costs and expenses... (36,083) (49,894) (54,578)
Selling, general and administrative
expenses................................... (6,009) (5,533) (9,247)
-------- -------- ---------
Station operating income..................... 11,474 42,878 45,417
Depreciation of assets....................... 3,773 6,904 8,024
Amortization of programming rights........... 10,403 16,077 16,207
Cash program rights costs.................... (13,417) (21,070) (16,520)
-------- -------- ---------
Broadcast cash flow.......................... $ 12,233 $ 44,789 $ 53,128
-------- -------- ---------
-------- -------- ---------
Broadcast cash flow margin................... 22.8% 45.6% 48.6%
Broadcast cash flow attributable to the
Company.................................... $ 8,074 $ 29,561 $ 46,753(2)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------
TOTAL
$000S NOVA TV PRO TV POP TV SUBTOTAL(3) MARKIZA TV ADJUSTED(1)
- --------------------------------------------- -------- -------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net revenues................................. $109,242 $ 15,803 $ 9,080 $ 134,125 $ 7,462 $ 141,587
Station operating expense.................... (54,578) (16,497) (12,764) (83,839) (9,570) (93,409)
Selling, general and administrative
expenses................................... (9,247) (6,351) (3,989) (19,587) (1,605) (21,192)
-------- -------- -------- ----------- ---------- -----------
Station operating income..................... 45,417 (7,045) (7,673) 30,699 (3,713) 26,986
Depreciation of assets....................... 8,024 2,678 2,516 13,218 1,473 14,691
-------- -------- -------- ----------- ---------- -----------
EBITDA....................................... 53,441 (4,367) (5,157) 43,917 (2,240) 41,677
Amortization of programming rights........... 16,207 3,725 1,667 21,599 2,401 24,000
Cash program rights costs.................... (16,520) (4,648) (2,904) (24,072) (4,663) (28,735)
-------- -------- -------- ----------- ---------- -----------
Broadcast cash flow.......................... $ 53,128 $ (5,290) $ (6,394) $ 41,444 $ (4,502) $ 36,942
-------- -------- -------- ----------- ---------- -----------
-------- -------- -------- ----------- ---------- -----------
Broadcast cash flow margin................... 48.6% -- -- 30.9% -- 26.1%
Broadcast cash flow attributable to the
Company.................................... $ 46,753(2) $ (4,100) $ (4,604) $ 38,049 $ (3,602) $ 34,447
</TABLE>
- ------------------
(1) Represents combined operating data for national television broadcast
entities, including Markiza TV, on a line-by-line basis, which is accounted
for using the equity method of accounting in the accompanying consolidated
financial statements, and does not include regional television stations in
Germany because these operations are dissimilar from those of national
television broadcast entities.
(2) Reflects the Additional Nova TV Purchase on August 1, 1996 as if such
acquisition had been effective from January 1, 1996.
(3) Includes consolidated television broadcast entities only.
'Broadcast cash flow' is a broadcasting industry measure of performance and
defined as net broadcast revenues, less broadcast operating expenses excluding
depreciation and amortization, broadcast selling, general and administrative
expenses, and cash program rights costs. 'Broadcast cash flow margin' is
broadcast cash flow divided by net broadcast revenues. 'Broadcast cash flow
attributable to the Company' is broadcast cash flow which is attributable to the
Company based on the Company's effective economic interest in Nova TV, PRO TV,
POP TV and Markiza TV as of December 31, 1996 which was 88.0%, 77.5%, 72.0% and
80.0%, respectively. The Company acquired the additional 22% economic interest
in Nova TV on August 1, 1996 pursuant to the Additional Nova TV Purchase (which
is in the process of being registered under Czech law). Cash program rights
costs represent cash payments for current programs payable and such payments do
not necessarily correspond to program use. The Company has included broadcast
cash flow because it is commonly used in the broadcast industry as a measure of
performance. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with GAAP.
In 1996, broadcast cash flow for the Company's national television
broadcast entities (including Markiza TV) was $36,942,000. In 1996, Nova TV's
broadcast cash flow increased by 18.6% to $53,128,000 from $44,789,000 in 1995.
Nova TV's stronger broadcast cash flow was primarily the result of increased net
revenues and lower programming rights costs during the period. Lower program
rights costs in 1996 were in part the result of Nova TV's 1995 investment in
programming for future periods. Had the Additional Nova TV Purchase (See Note 1
to the Consolidated Financial Statements) been effective from January 1, 1996,
broadcast cash flow attributable to the Company from Nova TV would have
increased by 58%, or $17,192,000 to $46,753,000 compared to $29,561,000 in 1995.
As anticipated by the Company, for 1996, Nova TV's broadcast cash flow continued
to be partially offset by negative broadcast cash flow of PRO TV ($5,290,000),
POP TV ($6,394,000) and Markiza TV
29
<PAGE>
($4,502,000) as these broadcast operations continue to develop and invest in
programming for future periods.
APPLICATION OF ACCOUNTING PRINCIPLES
Although the Company conducts operations largely in foreign currencies, the
Company prepares its financial statements in United States dollars and in
accordance with GAAP. The Company's consolidated operating statements include
the results of Nova TV, PRO TV, POP TV, Videovox, Radio Alfa and 2002 Kft and
separately set forth the minority interest attributable to other owners of these
Subsidiaries. POP TV and PRO TV began operations in December 1995, Videovox was
acquired by the Company in May 1996, and Radio Alfa was acquired in December
1996. The results of other broadcast operations, PULS, FFF, SFF, Markiza TV and
TVN are accounted for using the equity method which reflects the Company's share
of the net income or losses in those operations. The Company's investment in
MobilRom is recorded at the lower of cost and market value. The Company's
investments in broadcast operations under development, including the Studio 1+1
Group and other broadcast development opportunities are reflected on the balance
sheet as development costs.
FOREIGN CURRENCY
The Company and its subsidiaries generate revenues primarily in Czech
korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolar ('SIT'), Slovak korunas
('Sk'), Hungarian forints ('HUF'), Ukrainian hryvna ('Hrn'), Polish zloty ('ZI')
and German marks ('DM'), and incur substantial operating expenses in those
currencies. The Romanian lei, Slovenian tolar, Ukranian hryvna, Polish zloty and
Slovak koruna are managed currencies with limited convertibility. The Company
also incurs operating expenses of programming in United States dollars and other
foreign currencies. For entities operating in economies considered non-highly
inflationary, including Nova TV, POP TV, Markiza TV, Videovox, Radio Alfa, 2002
Kft, TVN and certain Studio 1+1 Group entities, balance sheet accounts are
translated from foreign currencies into United States dollars at the relevant
period end exchange rate; statement of operations accounts are translated from
foreign currencies into United States dollars at the weighted average exchange
rates for the respective periods. The resulting translation adjustments are
reflected in a component of shareholders' equity with no effect on the
consolidated statements of operations. PRO TV and certain Studio 1+1 Group
entities operate in economies qualifying as highly inflationary. Accordingly,
non-monetary assets are translated at historical exchange rates and monetary
assets are translated at current exchange rates. Translation adjustments are
included in the determination of income. Currency translation adjustments
relating to transactions of the Company in currencies other than the functional
currency of the entity involved are reflected in the operating results of the
Company. The exchange rates at the end of, and during, the periods indicated
were as follows:
<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
--------------------------- ----------------------------
YEAR ENDED
AT DECEMBER 31, DECEMBER 31,
--------------- ---------------
1996 1995 MOVEMENT 1996 1995 MOVEMENT
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00........ 27.33 26.60 2.7% 27.21 26.57 2.4%
German mark equivalent of $1.00......... 1.55 1.43 8.4% 1.50 1.44 4.2%
Hungarian forint equivalent of $1.00.... 162 n/a n/a 151 n/a n/a
Polish zloty equivalent of $1.00........ 2.88 n/a n/a 2.70 n/a n/a
Romanian lei equivalent of $1.00........ 4,035 2,578 56.5% 3,204 2,402(1) 33.4%
Slovak koruna equivalent of $1.00....... 31.90 n/a n/a 31.14 n/a n/a
Slovenian tolar equivalent of $1.00..... 141.48 125.99 12.3% 136.45 125.99(2) 8.3%
Ukrainian hryvna equivalent of $1.00.... 1.89 n/a n/a 1.83(3) n/a n/a
</TABLE>
(Footnotes on next page)
30
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Average exchange rate from December 1, 1995 through December 31, 1995 only.
(2) Average exchange rate from December 15, 1995 through December 31, 1995 only.
(3) Hryvna became the currency of Ukraine in September 1996.
The Company's results of operations and financial position during 1996 were
impacted by changes in foreign currency exchange rates since 1995. In the highly
inflationary economy in Romania, PRO TV indexes sales contracts to the United
States dollar in order to minimize the effects of Romanian lei devaluation. As
shown above, all operating currencies have weakened against the United States
dollar in 1996.
The underlying Czech koruna and Slovenian tolar assets and liabilities of
Nova TV and POP TV, decreased by 2.7% and 12.3% in dollar terms during 1996,
respectively, due to foreign exchange movements. PRO TV's monetary assets and
liabilities decreased by up to 56.5% during 1996 depending on the time they
remained outstanding during the period.
Nova TV's operating income, together with interest costs and minority
interest in income, is approximately 2.4% lower than would be the case had the
weighted average exchange rate for 1996 remained the same as in 1995.
If the weighted average exchange rate for 1996 were the same as in 1995,
PRO TV's and POP TV's operating losses, including interest costs and minority
interest, would have decreased by 33.4% and 8.3% in dollar terms, respectively
(subject to certain adjustments to PRO TV's profit and loss items which are
derived from non-monetary assets and liabilities). Similarly, the Company's
equity in losses in unconsolidated affiliates in Germany (PULS, FFF and SFF),
would have decreased 4% in dollar terms.
Results of Operations
1996 compared to 1995
The Company's net revenues increased by $37,066,000, or 37%, to
$135,985,000 in 1996 from $98,919,000 in 1995. This increase was primarily
attributable to the increase in revenues of PRO TV and POP TV, which were
operational for all of 1996 compared to one month in 1995, and the increase in
Nova TV's net revenues. PRO TV and POP TV posted net revenues of $15,803,000 and
$9,080,000 in 1996, respectively, and Nova TV's net revenues increased
$10,937,000, or 11%, to $109,242,000 in 1996 from $98,305,000 in 1995. Nova TV's
increase in net revenue was primarily attributable to the continued growth of
the total advertising market in the Czech Republic and Nova TV's ability to
maintain an audience share of 65% to 70%. To a lesser extent, Videovox, a
Hungarian dubbing company, purchased in May 1996, also contributed to the
increase in the Company's net revenues with net revenues of $1,707,000 for 1996.
Total station operating costs and expenses increased $32,559,000, or 62%,
to $85,101,000 in 1996 from $52,542,000 in 1995. The increase in total station
operating costs and expenses was primarily attributable to PRO TV, POP TV, and
Videovox's total station operating costs and expenses which were $16,497,000,
$12,764,000 and $1,213,000 in 1996, respectively, and, to a lesser extent, to an
increase in Nova TV's total station operating costs and expenses of $4,684,000,
or 9%, to $54,578,000 in 1996. The increase in Nova TV's total station operating
costs and expenses is primarily the result of an enhancement in the production
quality of self-produced programs necessary to maintain Nova TV's audience
share.
Station selling, general and administrative expenses increased $13,632,000,
or 176%, to $21,357,000 in 1996 from $7,725,000 in 1995. This increase was
primarily attributable to additional station selling, general and administrative
expenses for PRO TV and POP TV. From 1995, Nova TV's station selling, general
and administrative expenses increased by $3,714,000, or 67%, to $9,247,000 due
to increased marketing efforts in 1996 and the write-off of bad debts in the
fourth quarter of 1996 totaling $1,300,000, from co-producers of certain game
shows broadcast on Nova TV.
31
<PAGE>
Corporate operating costs and development expenses for 1996 and 1995 were
$15,782,000 and $10,669,000, respectively, increasing $5,113,000, or 48%. The
increase was primarily attributable to the Company's increased scope of
operations over the same period in 1995, which includes the Company's new
operations in Poland, Ukraine, and Hungary, the launch of Markiza TV in August
1996 and development activities in other countries.
Amortization of goodwill and allowance for development costs decreased
$502,000, or 15%, to $2,940,000 in 1996 from $3,442,000 in 1995. The decrease
was primarily the result of an allowance for development activities in Poland
during 1995, partially offset by amortization related to the Additional Nova TV
Purchase and, to a lesser extent, the amortization of goodwill and license
acquisition costs related to investments in PRO TV and POP TV in December 1995.
A stock compensation charge of $0 and $858,000 was recognized in 1996 and
1995, respectively. The stock compensation charge was related to shares granted
to a former officer of the Company.
The Company incurred $809,000 and $1,375,000 in capital registration taxes
for 1996 and 1995, respectively.
Operating income decreased $12,312,000, or 55%, to $9,996,000 in 1996 from
$22,308,000 in 1995. The decrease in the Company's operating results was
primarily attributable to operating losses of PRO TV and POP TV, and, to a
lesser extent, increased corporate and development expenses, partially offset by
the increase in operating income of Nova TV over the same period in 1995.
Equity in loss of unconsolidated affiliates increased by $3,051,000, or
21%, to $17,867,000 in 1996 from $14,816,000 in 1995, primarily attributable to
the launch of Markiza TV in August 1996, partially offset by reduced losses at
FFF. The Company's share of the losses of Markiza TV for 1996 totaled
$3,583,000. The Company's share of losses in PULS and FFF decreased by
$1,045,000, or 7% in 1996. The Company's share of losses in PULS, including
goodwill amortization, for 1996 remained at approximately the same level despite
the Company's increase in ownership from 48.5% at December 31, 1995 to 58.0% at
December 31, 1996. In 1996, PULS began a new local programming format which
resulted in reduced operating costs and slightly increased net revenues. In
addition, losses at FFF have also decreased as a result of a similar change in
its programming format and slightly increased net revenues.
Interest and other income increased $1,638,000, or 132%, to $2,876,000 for
1996 from $1,238,000 in 1995. The increase in interest income is primarily
attributable to the net cash proceeds from the Company's 1996 public offering of
Class A Common Stock which was completed in November 1996 (the '1996 Offering').
Interest expense decreased $289,000, or 5.8%, to $4,670,000 in 1996 from
$4,959,000 in 1995. This is primarily attributable to lower debt levels at Nova
TV, including the early repayment of debt, during 1996 compared to 1995;
partially offset by interest expense from debt incurred to make the Additional
Nova TV Purchase.
The foreign currency exchange loss of $2,861,000 in 1996 was primarily
attributable to the US dollar denominated borrowings of PRO TV and POP TV and
the devaluation during 1996 of the Romanian lei and the Slovenian tolar,
respectively, against the dollar. Movements in these currencies in 1995 had less
of an impact on the Company because PRO TV and POP TV commenced operations in
December 1995.
Provision for income taxes was $16,405,000 for 1996 and $16,340,000 for
1995. The income tax provision in 1996 and 1995 primarily related to income
taxes payable in the Czech Republic on Nova TV's pre-tax profits which have
increased due to higher operating income at Nova TV, offset by an income tax
rate of 41% in 1995 and a lower income tax rate of 39% in 1996.
Minority interest in income (loss) of consolidated subsidiaries was
$1,072,000 in 1996 and $6,491,000 in 1995. This decrease was primarily the
result of the Additional Nova TV Purchase, together with losses for PRO TV and
POP TV.
32
<PAGE>
Primarily as a result of these factors, the net loss of the Company was
$30,003,000 and $18,736,000 for 1996 and 1995, respectively.
1995 compared to 1994
The Company's net revenues increased $45,353,000, or 85%, to $98,919,000 in
1995 from $53,566,000 in 1994. This increase was attributable primarily to the
increase in advertising revenues earned by Nova TV as a result of growth in the
television advertising market in the Czech Republic and, to a lesser extent,
increased market share in that market. In addition, the increase in the 1995
figure was partially attributable to the fact that PRO TV and POP TV commenced
broadcasting in December 1995. Since the Company has a non-controlling ownership
interest in PULS and FFF, losses incurred by PULS and FFF are accounted for
under the equity method and, therefore, no revenues are presented in respect of
these entities.
Station operating expenses increased $16,459,000, or 46%, to $52,542,000 in
1995 from $36,083,000 in 1994. As a percentage of net revenues, station
operating costs and expenses decreased from 67% in 1994 to 53% in 1995. These
expenses represent the costs associated with the operations of Nova TV, PRO TV
and POP TV, including amortization of programming rights of $16,319,000 and
$10,403,000 and depreciation of station assets and amortization of other
intangibles of $7,251,000 and $3,773,000 for the years ended 1995 and 1994,
respectively. The increase in station operating costs and expenses was primarily
attributable to the expanding Nova TV operations and Nova TV broadcasting for
the full year in 1995 compared with 11 months during 1994, as well as the
launches of PRO TV and POP TV in December 1995. Station operating costs and
expenses as a percentage of net revenues decreased due to revenues growing at a
faster rate than such costs and expenses.
Station selling, general and administrative expenses increased $1,716,000,
or 29%, to $7,725,000 in 1995 from $6,009,000 in 1994. As a percentage of net
revenues, station selling, general and administrative expense decreased from 11%
in 1994 to 8% in 1995. This decrease in station selling, general and
administrative expenses as a percentage of net revenues was a result of fixed
costs being spread over a larger revenue base, certain start-up expenses
associated with Nova TV early in 1994 not recurring in 1995, and offset in part
by the operations of PRO TV and POP TV commencing in December 1995.
Total corporate operating expenses in 1995 and 1994 were $10,669,000 and
$3,699,000 respectively, increasing $6,970,000, or 188%. The increase was
primarily attributable to the Company's increased scope of operations and the
increased number of development projects in 1995. Amortization of goodwill and
allowance for development costs increased $2,457,000 to $3,442,000 in 1995 from
$985,000 in 1994. The increase was primarily due to additional development
efforts in Poland, Romania and Slovenia.
The non-cash stock compensation charge of $5,833,000 and $858,000
recognized in 1994 and in 1995, respectively, relates to shares and options
granted to officers and employees of the Company. Under the terms of the
Company's contracts with its former President, the Company issued 454,703 shares
of Class A Common Stock to a trust nominated by him. Upon his departure in
August 1995, 194,872 shares remained unvested. The Company and the former
President agreed that 18,000 of these unvested shares vested on December 31,
1996. In 1995, $858,000 was recognized as expense to account for the vesting of
64,958 shares under the original plan and the 18,000 unvested shares which
remained eligible for vesting, all of which vested prior to December 31, 1996.
Operating income increased $21,351,000 as the Company generated operating
income before minority interest of $22,308,000 in 1995 compared to $957,000 in
1994. The overall increase in the Company's operating results was attributable
to continued improved performance at Nova TV in the comparative periods.
Equity in loss of unconsolidated affiliates increased $1,139,000, or 8%, to
$14,816,000 in 1995 from $13,677,000 in 1994. The increase in losses was due to
an increase in the Company's share of
33
<PAGE>
losses in PULS as a result of increased investment in PULS and the recognition
of a full year of losses for FFF for 1995 compared to a partial year for 1994.
The Company invested in FFF in April of 1994.
Interest and other income increased $1,059,000 to $1,238,000 in 1995 from
$179,000 in 1994. This increase was primarily attributable to the interest
earned on the proceeds of issuance of common stock of the Company on October 13,
1994 and November 9, 1995.
Interest expense increased $2,967,000 to $4,959,000 in 1995 from $1,992,000
in 1994. This increased interest expense was primarily due to interest on bank
loans and a capital lease on the building at Nova TV for a full year in 1995
compared to a partial year for 1994, and partially to interest payments related
to a loan from Ronald S. Lauder, the principal shareholder of the Company.
Provision for income taxes was $16,340,000 in 1995 and $3,331,000 in 1994.
The increase in 1995 income tax provision primarily relates to income taxes
payable in the Czech Republic on Nova TV pre-tax profits which were $39,050,000
in 1995 and $10,276,000 in 1994.
Minority interest in income of consolidated subsidiaries was $6,491,000 in
1995 and $2,396,000 in 1994. This increase reflected the increased profitability
of Nova TV, offset, in part, by losses for PRO TV and POP TV.
The net loss of the Company was $18,736,000 and $20,505,000 in 1995 and
1994, respectively. The decrease in losses was attributable to the increased
profits of Nova TV offset by increases in the Company's share of losses in PULS
and FFF, higher development costs and the effect of increased station operating
expenses and selling, general and administrative expenses resulting from the
launches of PRO TV and POP TV in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash (used in) provided by operating activities was ($6,619,000) in 1996
and $1,943,000 in 1995. This change was primarily attributable to tax payments
by Nova TV and the inclusion of full-year losses for PRO TV and POP TV.
Accounts receivable increased by $4,867,000, or 15%, to $37,342,000, net of
currency fluctuations, at December 31, 1996, from $32,475,000 at December 31,
1995. This increase is primarily attributable to increased sales at Nova TV and
the addition of accounts receivable at PRO TV and POP TV launched in December
1995. Current liabilities increased $14,053,000 or 30%, to $60,506,000 at
December 31, 1996 from $46,453,000 at December 31, 1995, principally as a result
of increased accounts payable and increased accrued liabilities related to the
Company's new operations, PRO TV and POP TV, offset by reduced tax liabilities.
Cash used in investing activities increased by $27,573,000 or 40%, to
$95,936,000 in 1996 from $68,363,000 in 1995, primarily due to funding of the
newly launched station, Markiza TV (included in investments in unconsolidated
affiliates) and higher capitalized development costs.
The Company's investment in unconsolidated affiliates increased to
$56,599,000 at December 31, 1996 from $12,433,000 at December 31, 1995. This is
primarily a result of an increase of the investments in PULS of DM28,861,000
($18,620,000), FFF of DM3,000,000 ($1,935,000), SFF of DM1,500,000 ($968,000),
Markiza TV of $29,323,000 (including $3,714,000 which was classified as
development costs at December 31, 1995) and the Polish operations of
$11,500,000, partially offset by the Company's share of losses in PULS of
$10,279,000 (excluding goodwill amortization of $1,543,000), FFF of $1,949,000,
SFF of $325,000, Markiza TV of $3,583,000 (including license acquisition costs
amortization of $182,000) and the Polish operations of $188,000. The investments
reflect additional capital calls agreed in 1996 of DM26,575,000 ($17,145,000)
for PULS of which DM26,361,000 ($17,007,000) is to be funded by the Company and
of which DM2,000,000 ($1,290,000) remained outstanding as of December 31, 1996.
During 1996, the Company provided equity funding to Markiza TV of $25,609,000
and loans of $9,000,000. These loans are registered with the Slovakian central
bank and will mature in 2001 and carry an interest rate of 6.0% per annum.
34
<PAGE>
In 1996 the Company invested $17,801,000 in property, plant and equipment
(compared to $23,196,000 in 1995) and $18,936,000 in development activities
(compared to $12,325,000 in 1995). The reduction in investment in property,
plant and equipment for 1996 reflects the fact that PRO TV and POP TV are no
longer start up operations. The higher capitalized development costs principally
relate to investments in the Studio 1+1 Group.
Cash provided by financing activities for the year ended December 31, 1996
was $127,609,000. The largest cash inflow was $144,348,000 from the 1996
Offering before related expenses. Cash outflows consist primarily of loans to
affiliates.
The Company's operations to date have been financed primarily through
public offerings of shares of Class A Common Stock completed in October 1994
(the 'IPO') and November 1995 and the 1996 Offering which raised net proceeds
after offering expenses of approximately $68,800,000, $86,600,000 and
$143,600,000, respectively. Prior to the IPO, the Company relied on certain
affiliates for capital in the form of both debt and equity financing.
The Company was paid a dividend of approximately $1,400,000 in 1995 by Nova
TV. In 1996, the Company was paid a total of approximately $8,447,000 in
dividends by Nova TV.
Primarily as a result of the 1996 Offering and the results of operations of
Nova TV in 1995 and 1996, the Company had cash of $78,507,000 at December 31,
1996 ($53,210,000 at December 31, 1995) and marketable securities of $2,896,000
at December 31, 1996 ($10,652,000 at December 31, 1995) available to finance its
future activities.
The Company has made and will continue to make investments to develop
broadcast operations in Central and Eastern Europe. The Company currently is
developing broadcast operations in Ukraine and Poland and has applied for a
national broadcast license in Hungary. The Company's cash needs for those
investment activities may exceed cash generated from operations, resulting in
external financing requirements.
On August 1, 1996, the Company entered into the Additional Nova TV Purchase
for the purchase of CS's 22% economic interest and virtually all of CS's voting
rights in Nova TV for a purchase price of Kc 1 billion ($36,590,000). The
Company also entered into a loan agreement with CS to finance 85% of the
purchase price. The remainder of the purchase price Kc150,000,000 ($5,488,000)
was paid by the Company on November 15, 1996 out of the Company's cash balances.
The loan from CS was drawn in August 1996 and is expected to be drawn in April
1997 in the amounts of Kc450,000,000 ($16,464,000) and Kc400,000,000
($14,636,000), respectively, to fund purchase payments due at those times, and
the loan bears an interest rate of 12.9% annually. Quarterly repayments on the
loan are required in the amount of Kc22,500,000 ($823,000) during the period
from November 1997 through November 1998, Kc42,500,000 ($1,555,000) during the
period from February 1999 through August 2002, and Kc 20,000,000 ($732,000)
during the period from November 2002 through November 2003.
The Company expects that Nova TV's future cash requirements will continue
to be satisfied through operating cash flows and available borrowing facilities.
Nova TV currently has two loan facilities with CS. The first facility consists
of a long term loan due on December 30, 1999 in the principal amount of
Kc180,000,000 ($6,586,000) and bears interest at a rate of 2.5% over the bank's
prime rate, currently 12.5%. Principal payments of Kc60,000,000 ($2,195,000) are
due each year on this facility. In January 1996 Nova TV paid the Kc60,000,000
($2,195,000) due on this facility for 1996. The second facility is a line of
credit, obtained in November 1995, for an amount up to Kc250,000,000
($9,147,000) bearing interest at a rate 0.5% over Prague Interbank Offer Rate
('PRIBOR'). This facility was unutilized at December 31, 1996. These loans are
secured by Nova TV's equipment, vehicles and receivables.
PRO TV has two borrowing facilities with Tiriac Bank in Romania which were
obtained in July 1996. The first facility consists of $2,000,000 line of credit
substantially payable by July 31, 1997. The line of credit bears interest at a
rate of 5% over LIBOR (5.72% at December 31, 1996). At December 31, 1996
$1,709,000 was borrowed under this facility. The second facility is a long term
loan for $4,000,000 due July 31, 2001. The long term loan bears interest at 5%
over LIBOR (5.72% at December 31, 1996) and
35
<PAGE>
is repaid in installments starting July 31, 1997. At December 31, 1996
$2,758,000 was borrowed under this facility. These facilities are secured by PRO
TV's equipment and vehicles. Notwithstanding these borrowing facilities, the
Company believes that it will be required to provide additional funding to PRO
TV in 1997.
PULS, in which the Company has a substantial equity investment, continues
to require additional cash funding to meet ongoing operating deficits. The
Company estimates total cash funding required for PULS to be approximately $5.5
million through June 1997. None of the investors in PULS, including the Company,
have further contractual obligations to invest additional capital in this
station. The partners of PULS are currently in negotiations with potential new
investors in PULS. A new investor would be expected to acquire a significant
equity interest in PULS, either as a co-investor with the Company or as a sole
investor, which may result in a change in the Company's equity interest in PULS.
A new investor would be expected to assume responsibility for PULS' operations.
The outcome of ongoing negotiations with potential new investors could either
result in a decrease of the Company's future funding obligations to PULS or
require the Company to make additional capital investments in PULS. Such an
investment also could result in a material reduction of the carrying value of
the Company's equity investment in PULS which was $12,600,000 at December 31,
1996 and a corresponding charge against the Company's earnings. Regardless of
whether a transaction with an investor is consummated, there is no assurance
that the Company may not have to take a reduction of all or a portion of the
carrying value of PULS. In addition, a reduction of the carrying value of PULS,
or other factors, might cause the Company to reduce all or part of the carrying
value of the Company's investments in FFF (the parent company of the Nuremberg
Station) and SFF (through which the Company owns its interests in the Leipzig
Station and the Dresden Station), which were $6,100,000 and $1,600,000,
respectively, as of December 31, 1996.
The laws under which the Company's currently operating subsidiaries and
affiliates are organized provide generally that dividends may be declared by the
partners or shareholders out of yearly profits subject to the maintenance of
registered capital, required reserves and after the recovery of accumulated
losses. In the case of the Company's Dutch and Netherlands Antilles
subsidiaries, the Company's voting power is sufficient to compel the making of
distributions. The Company's voting power is sufficient to compel Nova TV to
make distributions. In the case of PRO TV, distributions may be paid from the
profits of PRO TV subject to a reserve of 5% of annual profits until the
aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can
compel PRO TV to make distributions. In the case of POP TV, the Company's voting
power is not sufficient to compel the payment of dividends. There are no legal
reserve requirements in Slovenia. In the case of Markiza TV, distributions may
be paid from net profits subject to an initial reserve requirement of 10% of net
profits until the reserve fund equals 5% of registered capital. Subsequently,
the reserve requirement is equal to 5% of net profits until the reserve fund
equals 10% of registered capital. The Company's voting power in Markiza TV is
not sufficient to compel the distribution of dividends. In the case of PULS, the
PULS Partnership Agreement provides that if profits are available for
distribution, 66 2/3% of the partnership interest may require that 40% of such
profits be placed in reserves until DM16,700,000 ($10,774,000) are reserved. All
profits in excess thereof must be distributed. The agreement relating to FFF
does not contain restrictions on distributions out of available profits. The
laws of countries where the Company is developing operations contain
restrictions on the payment of dividends.
Except for the Company's working capital requirements and completing the
funding of existing television broadcast operations and the mobile
telecommunications venture in Romania (MobilRom), the Company's future cash
needs will depend on management's acquisition and development decisions. The
Company is actively engaged in the development of additional broadcast
operations and investing in existing broadcasting companies throughout Central
and Eastern Europe. The Company incurs limited expenses in identifying and
pursuing broadcast opportunities before any investment decision is made. The
Company anticipates making additional investments in other broadcast operations,
supplemented by capital raised from local financial or strategic partners as
well as local debt and lease financing, to the extent that it is available and
appropriate for each project. The Company's
36
<PAGE>
aggregate funding commitment with respect to MobilRom is up to $12.0 million, of
which approximately $3.6 million has been funded to date.
The Company believes that the net proceeds from the Offering, together with
its current cash balances, cash generated from Nova TV and local financing of
broadcast operations and broadcast operations under development should be
adequate to satisfy the Company's operating and capital requirements for 12 to
18 months for both its current operations and operations under development.
Statements made in this section, 'Liquidity and Capital Resources,'
regarding future investments in existing television broadcast operations and the
development of new television broadcast operations (including the amount and
nature thereof), business strategies and the future need for additional funds
from outside sources, are forward-looking statements. Forward-looking statements
are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial and otherwise, could differ materially from
those set forth in or contemplated by the forward-looking statements herein.
Important factors that contribute to such risks include the Company's success in
obtaining additional broadcast licenses, the cost of developing these
opportunities into television broadcast operations, the ability to acquire
programming, the ability to attract audiences, the rate of development of
advertising markets in these countries and general market and economic
conditions.
37
<PAGE>
BUSINESS
GENERAL
The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland and has television broadcast operations under development in
other areas of Poland and in Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.
The Company or its strategic and financial partners have been successful in
obtaining broadcast rights and then in turn transforming these rights into
operating television stations in a relatively short period of time. In many of
the Company's markets the Company's broadcast operations have become the top
rated stations within their broadcast reach in their first year of operation.
License fees, if any, payable to governmental entities in connection with
securing television licenses are usually minimal. A summary of the Company's
broadcast operations appears below.
<TABLE>
<CAPTION>
TELEVISION BROADCAST
OPERATIONS TERRITORY BROADCAST REACH(1) ECONOMIC INTEREST
- ---------------------------- ---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Nova TV Czech Republic 10.2 93.2%(2)
PRO TV Romania 12.5 77.5%(3)
POP TV Slovenia 1.6 85.3%(4)
Markiza TV Slovak Republic 4.3 80.0%
Studio 1 + 1 Group Ukraine 48.5 50.0%
TV Wisla Poland 7.8 16.2%
PULS Berlin-Brandenburg 6.0 58.0%
Nuremberg Station Nuremberg 1.2 37.4%
Leipzig Station Saxony 0.7 16.7%
Dresden Station Saxony 1.1 16.7%
-----
Totals 93.9
-----
-----
</TABLE>
- ------------------
(1) 'Broadcast Reach' measures the number of people in millions the Company's or
the Company's local partners' broadcast signal can reach.
(2) The Company has recently obtained additional interests in Nova TV, raising
the Company's economic interest from 66.0% to 93.2%. The Company is in the
process of registering these additional interests pursuant to Czech law.
(3) The Company's partners in Romania hold options to purchase equity in Media
Pro International from the Company which, if exercised, could reduce the
Company's equity interest to not less than 66.0%.
(4) The Company has recently obtained additional interests in POP TV, raising
the Company's economic interest in POP TV from 72.0% to 85.3%.
OPERATING ENVIRONMENT
Private commercial television stations (those which derive the majority of
their revenues from the sale of advertising) generally began broadcasting in the
United States in the 1940s, in parts of Western Europe in the 1950s, but not
until the 1980s and 1990s in Germany, and the 1990s in Central and
38
<PAGE>
Eastern Europe. Commercial television has become an important medium for
advertisers in the more developed advertising markets. For example, in 1996,
television advertising expenditures totaled $38 billion in the United States and
an aggregate of $23 billion in the 16 countries in Western Europe. The Company
believes that, over time, television advertising expenditures in Central and
Eastern European countries, which are relatively low, will follow a pattern of
development similar to that of Western Europe and the United States.
The following table and chart set forth (i) the population and number of TV
households for those countries of Central and Eastern Europe where the Company
is focusing its efforts and (ii) the recent growth in television advertising
expenditures in certain of those countries.
<TABLE>
<CAPTION>
COUNTRY POPULATION(1) TV HOUSEHOLDS(2)
- ----------------------------------------------------------------------------- ------------- ----------------
<S> <C> <C>
Czech Republic............................................................... 10,300,000 4,000,000
Hungary...................................................................... 10,200,000 3,800,000
Poland....................................................................... 38,600,000 12,300,000
Romania...................................................................... 22,700,000 6,700,000
Slovak Republic.............................................................. 5,400,000 1,800,000
Slovenia..................................................................... 2,000,000 600,000
Ukraine...................................................................... 52,100,000 17,300,000
------------- ----------------
Total...................................................................... 141,300,000 46,500,000
------------- ----------------
------------- ----------------
</TABLE>
- ------------------
(1) Source: Economist Intelligence Unit Limited, December 1996.
(2) Source: Zenith Media, January 1997, except for Ukraine: CIT Publications,
November 1996. A TV Household is a residential dwelling with one or more
television sets.
39
<PAGE>
TV Advertising Expenditures
(US Dollars (in millions))
[CHART SHOWING ADVERTISING EXPENDITURES
IN AREAS OF CENTRAL AND EASTERN EUROPE IN WHICH THE COMPANY
CONDUCTS OPERATIONS OR IS DEVELOPING BROADCAST OPPORTUNITIES]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Czech Republic (1) $6 $37 $67 $96 $145 $165
Romania (2) na na na $10 $25 $45
Slovak Republic (3) $1 $14 $18 $25 $25 $32
Slovenia (4) na $12 $18 $23 $30 $35
Poland (5) $21 $50 $168 $268 $334 $385
Ukraine (6) na na na na $9 $20
Note: Romania, Slovenia and Ukraine data not available for certain years.
- ------------------
(1) Source: DDB Needham Worldwide A.S. Praha Advertising, IP Prague and Company
estimates.
(2) Source: Plus Advertising and Company estimates.
(3) Source: DDB Needham Worldwide A.S. Praha Advertising, IP Bratislava and
Company estimates.
(4) Source: M&M Magazine, Mediana Research and Company estimates.
(5) Source: IP Arbo and Company estimates.
(6) Source: Company estimates.
40
<PAGE>
The Regional Agreement for European Broadcasting Area of 1961 allocates
television broadcast frequencies to each country. Access to the available
frequencies is controlled by regulatory agencies in each country. New awards of
licenses to broadcast on these frequencies occur infrequently.
Czech Republic
The Czech Republic is a parliamentary democracy of approximately 10.3
million people, which the Company believes has developed a stable market economy
and is moving toward eventual membership in the European Union. Prior to 1992,
television advertising in the Czech Republic was limited to two public channels.
Currently, there are four over-the-air television stations in the Czech
Republic: two public stations which reach 96% and 83% of the population,
respectively, and two private commercial stations, Nova TV and Prima TV, which
reach 99% and 44% of the population, respectively. Since the onset of
privatization activities in 1992, the television advertising market in the Czech
Republic has expanded rapidly to approximately $165 million in 1996. The Czech
media law, originally adopted in 1991, and revised in 1996, allowed for the
creation of Nova TV and generally permits up to 10% of its broadcast time to be
used for advertising compared with 1% of broadcast time on each public channel.
It is currently estimated that at some point during prime time hours 60% to 70%
of the Czech population watches television, as compared with 60% of the
population of the United States.
Romania
Romania is a parliamentary democracy of approximately 22.7 million people,
making it one of the largest potential markets in Central and Eastern Europe.
Approximately 97% of Romanian households have television, and cable penetration
is approximately 31%. According to the Company's estimates, television
advertising totaled approximately $45 million in 1996. In 1992, the National
Commission for Audio-Visual (the 'Romanian Media Commission') was established to
grant broadcast licenses and regulate television, radio and cable. Currently,
there are two public stations and two private stations competing with PRO TV. Of
the public stations, TVR1 reaches the entire Romanian population and TVR2
reaches 60%. The two primary private competitors, Antena 1 and Tele 7ABC, reach
approximately 15% and 9% of the population, respectively. Private broadcasters,
such as PRO TV, are permitted to use up to 15% to 20% of their broadcast time
for advertising, as compared to public broadcasters which are permitted to use
only up to 7.5% of their time for advertising. PRO TV has a broadcast reach of
55% of the Romanian population.
Slovenia
Slovenia is a parliamentary democracy of 2.0 million people and had an
estimated per capita GDP of $9,600 in 1996, the highest among the former Eastern
bloc countries. Approximately 97% of Slovenian households have television.
Television advertising increased 17% in 1996 to $35 million, and represented
approximately 32.5% of total advertising expenditures. The POP TV network
stations operate under licenses regulated pursuant to the Law on Public Media
adopted in 1994 and pursuant to the Law on Telecommunications adopted in 1988.
Private broadcasters are permitted to use up to 20% of their broadcast time for
advertising compared to 15% on public stations. Currently, there are two public
stations and two private stations in Slovenia competing with the POP TV network.
Historically, the Slovenian television market has been dominated by one of the
public stations, SLO 1, which reaches 97% of the Slovenian population. In
addition, cable television penetration in Slovenia is at a relatively high 35%.
Slovak Republic
The Slovak Republic has a population of 5.4 million and 99% of households
have television. The economy of the Slovak Republic has recently begun to
respond to economic reform, with estimated GDP growth of 6.5% in 1996. The
Company believes that as a market economy develops in the Slovak Republic,
television advertising spending has the potential to grow significantly.
Television advertising increased 28% in 1996 to $32 million, according to the
Company's estimates, yet television advertising spending per capita in the
Slovak Republic in 1996 still was less than half of that of the Czech Republic.
41
<PAGE>
The license under which Markiza TV operates is regulated pursuant to the Act on
Radio and Television Broadcasting. Currently, there are two national public
stations which compete with Markiza TV, each of which reach 98% of the
population of the Slovak Republic.
Ukraine
Ukraine, a parliamentary democracy of 52.1 million people, is the largest
market served by the Company. Approximately 94% of Ukrainian households have
television, and cable penetration is approximately 6%. Although television
advertising in Ukraine was only $20 million in 1996, the Company expects that
Ukraine's television advertising market will grow rapidly as Ukraine develops an
economy that fosters competition among providers of goods and services. The
Studio 1+1 Group is permitted to use up to 15% of its broadcasting time for
advertising and has a broadcast reach through UT-2 of 93% of Ukraine's
population.
Poland
Poland is a parliamentary democracy of 38.6 million people and had an
estimated per capita GDP of approximately $3,500 in 1996. Poland has the largest
television advertising market of the former eastern bloc countries, other than
Russia, with $385 million of television advertising expenditures in 1996. In
1996, television advertising expenditures increased by 15% from 1995.
Approximately 98% of Polish households have television, and cable and satellite
penetration are 23% and 16%, respectively. Competition in Poland consists of two
national public broadcast channels, TVP1 and TVP2, with broadcast reaches of 98%
and 96% of Poland's population, respectively; Polsat, the largest private
broadcaster, with a broadcast reach of 74%; and 11 regional channels.
Restrictions on advertising provide that public advertising on TV Wisla may not
exceed 15% of daily broadcasting time and 12 minutes in any one hour.
Germany
Germany is currently Europe's largest television advertising market with
television advertising expenditures of approximately $4.9 billion in 1996. In
1984, legislation was enacted which permitted the expansion of private national
television stations and which reduced restrictions on advertising on private
television stations. Since that time, television broadcasting in Germany has
been conducted primarily by several well-established public and private national
stations. Until 1993, there were no privately owned regional television stations
in Germany. Efforts to broadcast television on a regional basis were limited to
(i) ARD, one of the public station groups, which, in addition to their joint
nationwide program provide programs intended for regional reception and (ii) the
inclusion on certain national television broadcast stations of a program segment
of 30 to 45 minutes in length in the early evening which focuses on a particular
region's news and events. As a result, television advertising has been purchased
and broadcast primarily on a national basis.
In 1993, certain of the 16 German states began to award private regional
broadcasting licenses, such as those awarded to operate PULS, the Nuremberg
Station, the Leipzig Station and the Dresden Station (collectively, the 'German
Stations'). Licenses to broadcast regional television have been awarded to other
broadcasters in Munich, Hamburg and Berlin.
STRATEGY
The Company's objective is to strengthen its position as the leading
broadcaster in Central and Eastern Europe by applying its broadcasting,
financial and political expertise to achieve profitability in all of its
existing broadcast operations and to develop and operate additional television
broadcast operations.
42
<PAGE>
Early Entry Into Attractive Television Markets
The Company's strategy is to establish national and regional television
broadcast operations in the emerging markets of Central and Eastern Europe. The
Company believes there are significant competitive advantages to being an early
entrant into these markets including: (i) the number of television broadcast
frequencies being made available is regulated by government licensing
authorities, thus limiting competition, and (ii) early entrants have the
opportunity to establish good relationships with advertisers and build viewer
loyalty and station identity before other entrants can commence operations. In
Central and Eastern Europe, early entrants also have the opportunity to acquire
exclusive rights to attractive programming for their respective markets.
The Company believes that advertising expenditures in Central and Eastern
European countries generally will continue to increase rapidly as those
countries develop market-based economies and competition increases for goods and
services. For example, in the Czech Republic, television advertising
expenditures increased from approximately $6 million in 1991 to $165 million in
1996. The Company believes that Nova TV, as an early entrant with limited
competition, has been able to capitalize successfully on this market growth,
having achieved net advertising revenues of $109 million during 1996. Since
December 1995, the Company has launched television broadcast operations in
Romania, Slovenia and the Slovak Republic which have established themselves as
the leading television broadcasters within their broadcast reach. The Company
recently commenced television broadcast operations in Ukraine and southern
Poland. The Company intends to compete for commercial television licenses in
other Central and Eastern European markets which it deems economically
attractive, including in other areas of Poland and in Hungary.
Attractive Programming
The Company seeks to create and acquire programming which will appeal to a
mass market audience in the Central and Eastern European countries within which
the Company and its partners operate. Programming is a critical element in
building audience share, which is an extremely important factor in generating
advertising revenues. The Company's strategy is to broadcast a mix of locally
and internationally produced movies, series, talk shows, variety shows, sports
and news. The Company believes broadcasting a significant amount of locally
produced programming and developing a distinctive independent news program give
a strong local identity to its broadcast operations, cater to local tastes and
appeal to the desires of the local regulatory authorities. The Company
complements its local programming by maintaining an extensive library of
exclusive programming rights to popular films and television series produced by
the world's leading studios, including Paramount Pictures, Sony Pictures,
Twentieth Century Fox and Warner Bros. The Company utilizes 'western style'
production techniques to provide high quality local language programming to its
television audiences. The Company employs modern equipment and short, lively
program formats and purchases state of the art equipment for its studios in each
location where it conducts broadcast operations.
Investment Alliances
The Company's strategy is to form investment alliances with local strategic
partners in each country or region where it seeks to establish broadcast
operations. The Company believes that these alliances are essential to obtaining
television broadcast licenses. The Company seeks investment alliances with local
strategic partners who are known to local licensing authorities, are well
respected in their local media communities and are politically non-partisan. In
addition, the Company believes that having alliances with local partners
demonstrates to local licensing authorities that it has a strong commitment to
broadcast programming which is responsive to particular local interests. The
success of this strategy has been demonstrated by the Company's record of
obtaining broadcast rights in several markets in Central and Eastern Europe
under competitive conditions.
43
<PAGE>
Maximize Broadcast Reach
The Company's strategy is to maximize its broadcast reach within its
markets in order to maximize its potential audience share and therefore increase
the attractiveness of its programming to advertisers. In those areas where the
Company and its partners' stations do not reach the entire population, the
Company seeks to create a network for its programming and seeks to distribute it
through other, unaffiliated local broadcasters and through local cable systems.
The Company concentrates on reaching urban areas where advertising dollars are
focused. The media laws in many of the countries where the Company operates
require cable operators to carry all over-the-air broadcasting within their
areas free of charge. The Company currently employs satellite technology in
Romania, which does not have a well-developed terrestrial television
distribution system, to distribute its programming to a network of affiliate
stations. In order to serve other markets, the Company has obtained a 12 year
lease on a transponder on the Satellite Transponder, which is scheduled to be
launched in the fourth quarter of 1997. The Satellite Transponder will allow the
Company's broadcast operations to distribute programming efficiently to a
disbursed network of terrestrial television transmitters and cable system
headends without the necessity of building a potentially costly transmission
infrastructure. Using existing digital compression technology, the Company will
be able to use the Satellite Transponder to simultaneously distribute
programming on up to five different channels emanating from five distinct
locations.
Leveraging Critical Mass Among Its Operations
The Company currently broadcasts to approximately 93.9 million people in
seven countries and is developing or exploring operations in several other
countries. The Company believes it has reached a critical mass which has enabled
it to begin to benefit from synergies among the Company's operations. For
example, the Company has begun to gain greater leverage in its purchasing,
programming, news gathering and production abilities. In addition, the Company
intends to develop related businesses which serve broadcasters both affiliated
and not affiliated with the Company, and intends to market certain lower cost
production services to producers and broadcasters in the higher cost countries
of Western Europe and the United States.
Employing a Dedicated Team of Experienced Professionals
License application procedures in Central and Eastern Europe are complex
and typically involve lengthy competition against numerous other parties,
including major media companies. The Company has assembled an experienced team
of professionals who have successfully led the Company through complex licensing
processes in several locations in Central and Eastern Europe and who are seeking
broadcast rights in other markets of Central and Eastern Europe. Leonard M.
Fertig, President and Chief Executive Officer of the Company, has been active in
obtaining broadcast licenses for the Company and its strategic partners in
Central and Eastern Europe since 1991. In addition, Ronald S. Lauder, Chairman
of the Company and former U.S. Ambassador to Austria, has been actively involved
in the affairs of Central and Eastern Europe for many years and plays an active
role in pursuing and maintaining licenses for the Company's operations. The
Company believes its management and dedicated licensing team provide a
competitive advantage in obtaining broadcast licenses. The Company also employs
experienced operating and financial managers and accesses international
technology, programming and funding to promote the successful development and
management of its broadcast operations.
OPERATIONS IN THE CZECH REPUBLIC: NOVA TV
General
Nova TV is the leading commercial television broadcaster in the Czech
Republic, broadcasting pursuant to a 12 year license awarded in February 1993.
Nova TV's signal reaches 99% of the Czech Republic's population of approximately
10.3 million, including approximately 4.0 million TV households. Nova TV
generated $109.2 million in net advertising revenues in 1996.
44
<PAGE>
As the first private national station serving the Czech Republic,
broadcasting a wide range of programming, including movies, comedies, dramatic
series, soap operas, news and sports, Nova TV has built and maintained
significant market share during its first three years of operations. According
to independent surveys undertaken by GFK/AISA, an independent polling agency,
for the period from January 1, 1996 through December 31, 1996, Nova TV achieved
an overall 67% audience share of the Czech Republic television market. Audience
share represents the percentage of televisions turned on at a particular time
which are tuned to a particular television station.
Programming
Nova TV's programming strategy is to appeal to a mass market audience. The
station broadcasts for 19 hours daily, including locally produced news, sports
(including exclusive coverage of the Czech Republic's national soccer league),
variety shows and other programming, as well as a broad range of popular films
and series from international distributors. In 1996, Nova TV produced
approximately 2,500 hours of original local programming, which primarily
consists of a daily breakfast show, news broadcasts and news related shows,
sports, game shows and music videos. In 1996, original local programming
produced by the Company, together with Czech films and other Czech origin
programming, comprised approximately 36% of Nova TV's broadcast time.
Nova TV has acquired exclusive broadcasting rights in the Czech Republic or
in the Czech language, to a number of successful American and Western European
programs and films produced by such companies as Canal+, Paramount Pictures,
Sony Pictures, Twentieth Century Fox, Walt Disney and Warner Bros. Nova TV, has
the rights to broadcast over 13,000 internationally released films and
television episodes during the next several years. Many of these films will not
have been released in the Czech Republic prior to being broadcast by Nova TV.
Nova TV has agreements with CNN, Reuters and WTN to receive foreign news reports
and film footage to integrate into its news programs. All foreign language
programs and films are dubbed into the Czech language.
Advertising
Nova TV derives its revenues principally from the sale of commercial
advertising time. In the Czech Republic most television advertising is sold
through independent agencies and media buying groups. Nova TV currently serves
over 200 advertisers, including such large multi-national advertisers as
Colgate-Palmolive, Jacobs Suchard, Procter & Gamble and Unilever. In 1996, no
single advertiser accounted for more than 10% of Nova TV's revenues.
Nova TV is permitted to broadcast advertising for up to 20% of its
broadcast time in any one hour, subject to an overall daily limit of 10% of
broadcast time. In addition, up to 60 minutes per day of broadcast time may be
used for 'direct sales' advertising. Its primary competitor, CT1, a public
television station, is restricted to 1% of daily broadcast time for advertising.
The Council for Radio and Television Broadcasting in the Czech Republic (the
'Czech Radio and Television Council') makes certain distinctions between private
and public broadcasters. For example, private broadcasters, such as Nova TV, are
permitted to interrupt programming with advertising, while public broadcasters
may not. As the television advertising market in the Czech Republic continues to
develop, the Company believes Nova TV is well positioned to capitalize on its
much larger inventory of available advertising time.
Competition
Nova TV competes principally with CT1 for audience, programming and
advertising. Nova TV competes on a more limited basis with CT2, a public network
of regional frequencies which reaches approximately 83% of the Czech Republic's
population and Prima TV, a privately owned and operated television station
serving Prague and several other metropolitan areas which include approximately
44% of the country's population. There are no other significant television
stations broadcasting Czech language programming to the Czech Republic. The
Company believes that, for various technical, political and financial reasons,
additional private national broadcast competition in the Czech Republic is
unlikely in the near future.
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Limited competition for viewers also comes from foreign stations
transmitted through cable and satellite television. At the present time,
approximately 14% of all Czech Republic households have cable television and
approximately 20% receive direct-to-home satellite television. The media
authorities in the Czech Republic have licensed several companies to provide
cable television services to the Czech Republic. The largest is Kable Plus, with
over 325,000 subscribers. Czech authorities have required cable operators to
carry all over-the-air broadcasting within their areas free of charge.
Nova TV competes for revenues with other media, such as newspapers, radio,
magazines, outdoor advertising, transit advertising, telephone directory
advertising and direct mail.
Regulation
Nova TV and the terms of the license pursuant to which it operates are
regulated by the Czech Radio and Television Council pursuant to recently amended
legislation. The license was granted by the Czech Radio and Television Council
to CET 21 for 12 years under terms which require CET 21 to cooperate with the
Company in operating Nova TV. CET 21 has given Nova TV the exclusive access to
the use of the license.
Under Czech legislation or the license pursuant to which Nova TV operates,
Nova TV is required to comply with certain restrictions on programming and
advertising, none of which the Company believes have had a material adverse
effect on Nova TV. If the Czech Republic becomes a member of the European Union,
Nova TV may be subject to additional program content regulation.
Regulations relating to the amount of advertising broadcast on television
in the Czech Republic provide that advertising on Nova TV cannot exceed 20% of
its broadcast time in any one hour subject to an overall limit on advertising of
10% of total daily broadcast time. In addition, up to 60 minutes per day of
broadcast time may be used for 'direct sales' advertising. Advertising is not
permitted during children's programming or the evening news. Restrictions on
advertising content include that (i) tobacco advertising is prohibited, (ii)
advertising targeted at children before or after children's programming is
prohibited if such advertising promotes behavior that would endanger the health,
physical or moral development of children, (iii) advertising of alcoholic
beverages is restricted but not prohibited and (iv) members of the news
department of Nova TV are prohibited from appearing in advertisements. There are
also restrictions on the frequency of advertising breaks within a program.
The Czech legislation pursuant to which CET 21 holds its license and
pursuant to which Nova TV operates contains certain provisions concerning the
relationship between the license holder and the broadcaster. The Czech Radio and
Television Council recently conducted administrative procedures to review these
relationships for all the private commercial broadcasting licenses granted
pursuant to Czech legislation, including the license granted to CET 21. These
procedures have been suspended. No determination adverse to Nova TV was made by
the Czech Radio and Television Council.
OPERATIONS IN THE CZECH REPUBLIC: RADIO ALFA
In February 1995, the Company entered into the first of a series of loan
and consulting agreements with Radio Alfa, one of two private Czech Republic
national radio broadcasters. The Company has advanced a total of approximately
Kc107,000,000 ($3,915,000) in loans to Radio Alfa under these agreements. In
addition to receiving interest under these loans, the Company receives a
consulting fee equal to 60% of the pre-tax profits of Radio Alfa and provides
management advisory services to the radio station. Recent changes in the Czech
broadcasting regulations have allowed the Company to directly hold an equity
interest in Radio Alfa. The Company has purchased a 62.0% interest in Radio Alfa
for a purchase price of Kc37,500,000 ($1,372,000). The Company has also paid
Kc11,300,000 ($413,000) in order to purchase a Kc17,300,000 loan ($633,000) from
one of the former shareholders of Radio Alfa. Certain of the Company's
outstanding loans to, and interest in, Radio Alfa are convertible into an
additional equity interest which, when combined with its current 62.0% interest,
would give the Company an 83.7% interest in Radio Alfa.
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Radio Alfa, which was awarded a license in January 1993, had been operating
as a 'news/information' station with an audience share of approximately 5%. In
October 1995, the Company relaunched Radio Alfa with a greater proportion of
entertainment-driven programming. Audience share was approximately 7.5% during
the fourth quarter of 1996. Radio competition in the Czech Republic is provided
by Czech public radio, one other national private radio station and over 40
local radio stations.
OPERATIONS IN ROMANIA: PRO TV
General
PRO TV is a national television broadcast network in Romania which
broadcasts its programming on, and sells advertising for, regional television
stations operated under licenses held by PRO TV, SRL and Media Pro, SRL. PRO TV
reaches approximately 55% of the Romanian population of 22.7 million, focusing
primarily on Romania's urban areas. PRO TV broadcasts from studios located in
Bucharest via digitally encoded satellite signals which deliver programming to
terrestrial broadcast facilities throughout Romania. The Company anticipates
that PRO TV will be able to increase its reach from current levels through
additional regional licenses which have been granted to entities currently
controlled by PRO TV, SRL and through affiliations with other local broadcasters
and agreements with cable carriers.
PRO TV broadcasts a wide range of programming, including movies, comedies,
dramatic series, talk shows, news and reports. Independent research from Gallup
Media in Romania shows that PRO TV is currently the top rated television station
in its broadcast area, with an average television viewer share of approximately
42% during prime time for all of 1996.
Media Pro International, through which PRO TV is operated, also operates
PRO FM, a radio network which is broadcast through owned and affiliated stations
to approximately 9.2 million people in Romania.
Programming
PRO TV's programming strategy is to appeal to a mass market audience. PRO
TV broadcasts 24 hours of programming daily except Monday, when PRO TV
broadcasts for 18 hours. Approximately 26% of PRO TV's programming is comprised
of locally produced programming, including, news, sports (including coverage of
Romania's soccer league), a breakfast show and current affairs shows.
PRO TV has secured exclusive broadcast rights in Romania to a large number
of successful American and Western European programs and films produced by such
companies as CBS, Granada, MCA, MGM, Paramount Pictures, Sony Pictures,
Twentieth Century Fox and Warner Bros. PRO TV's library includes over 2,000
feature films and approximately 5,000 television episodes. Many of these films
will not have been released in Romania prior to their broadcast on PRO TV. All
foreign language programs and films are subtitled in Romanian. PRO TV also
receives foreign news reports and film footage from Reuters and WTN to integrate
into its news programs.
Advertising
PRO TV derives revenues principally from the sale of commercial advertising
time, most of which is sold through independent agencies. Advertisers include
large multinational firms such as Coca-Cola, Colgate-Palmolive, Daewoo, Henkel,
Pepsi, Philip Morris, Procter & Gamble, Unilever and Wrigley.
PRO TV is permitted to broadcast advertising for up to 20% of its broadcast
time in any hour, subject to an overall daily limit of 15% of broadcast time. An
additional 5% of broadcast time may be used for 'direct sales' advertising. PRO
TV's primary competitor, TVR 1, a public broadcaster, is restricted to 7.5% of
daily broadcast time for advertising, and a maximum of 10% during any one hour.
Both private and public broadcasters are subject to restrictions on the
frequency of advertising breaks, as well as on the advertising of tobacco and
alcohol, but restrictions on public stations are more severe. For example,
private broadcasters can insert advertising during news programs while public
broadcasters cannot.
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Competition
Prior to the launch of PRO TV, TVR 1 was the dominant television station in
Romania with its coverage of the entire population, a popular news show and
limited entertainment programming. Other local competitors include public TVR 2,
with a 40% reach, and privately-owned Antena 1 and Tele 7 ABC, covering about
20% and 9% of the population, respectively.
Additional competitors include cable and satellite stations. PRO TV
competes for advertising revenues with other media, such as newspapers, radio,
magazines, outdoor advertising, telephone directory advertising and direct mail.
Regulation
Licenses for the television stations which show programming provided by PRO
TV and which broadcast advertising sold by PRO TV are regulated by the Romanian
Media Commission. In addition to its terrestrial television licenses which have
been granted for seven year periods expiring in 2001 and 2002, PRO TV has been
granted a seven year license to broadcast via satellite.
Under regulation established by the Romanian Media Commission, PRO TV and
the stations which broadcast programming and advertising provided by PRO TV are
required to comply with certain restrictions on programming and advertising.
These restrictions include the establishment of a target of at least 40% of
programming to be of Romanian origin for television operators, such as PRO TV,
which use satellite transmission.
Regulations relating to the amount of advertising broadcast on television
in Romania provide that advertising on PRO TV cannot exceed 20% of its broadcast
time in any one hour, subject to an overall limit on advertising of 15% of total
daily broadcast time. In addition, up to 5% of broadcast time may be used for
'direct sale' advertising. Regulations related to advertising content include
(i) restrictions related to tobacco and alcohol advertising, (ii) advertising
targeted at children or during children's programming must account for the
overall sensitivity of that age group and (iii) members of the news department
of PRO TV are prohibited from appearing in advertisements. There are also
restrictions on the placement of advertisements during programming.
Recent Developments
The Company owns a 95.0% equity interest in Unimedia which owns a 10.0%
equity interest in MobilRom. In December 1996, MobilRom was awarded one of two
national GSM cellular telephone licenses in Romania. The Company is currently
evaluating its plans with respect to its interest in MobilRom. The Company does
not anticipate exercising any managerial or operational control over MobilRom
although one of the Company's employees serves on MobilRom's Board of Directors.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
OPERATIONS IN SLOVENIA: POP TV
General
POP TV is a national television broadcast network in Slovenia which
provides its programming to, and sells advertising for, MMTV, Tele 59 and an
additional affiliate, TV Robin. POP TV reaches approximately 80% of the
population of Slovenia, including Ljubljana, the capital of Slovenia, and
Maribor, Slovenia's second largest city. POP TV currently is negotiating
affiliation agreements with other regional television broadcasters to expand its
broadcast reach in Slovenia.
POP TV broadcasts a wide range of programming, including movies, comedies,
dramatic series, talk shows, news and sports. Independent industry research
shows that in the areas of Slovenia in which POP TV can be seen POP TV had an
average television viewer share of approximately 49% for 1996, the largest
television market share in these areas.
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Programming
POP TV's programming strategy is to appeal to a mass market audience. POP
TV provides an average of 18 hours of programming daily. Local programming
includes a nightly news program and a daily game show.
POP TV has secured exclusive program rights in Slovenia to a large number
of successful American and Western European programs and films from many of the
major studios, including X-Files, ER, Friends, The Bodyguard, Forever Young and
Robin Hood: Prince of Thieves. Many of these films will not have been released
in Slovenia prior to their broadcast on POP TV. All foreign language programs
and films are subtitled in Slovenian.
Advertising
POP TV derives revenues principally from the sale of commercial advertising
time. Advertisers include large multinational firms such as Coca Cola, Henkel,
Johnson & Johnson and Wrigley. Private commercial television stations are
permitted to broadcast advertising for up to 20% of daily broadcast time
compared with 15% for public television stations in Slovenia. Both private and
public television broadcasters in Slovenia are subject to restrictions on the
frequency of advertising breaks, as well as on the advertising of tobacco and
alcohol.
Competition
Historically, the television market in Slovenia has been dominated by SLO
1, a public television station. SLO 1 is entertainment oriented while the other
public station, SLO 2, focuses on information and culture. SLO 1 reaches 97% of
the Slovenian population, and SLO 2 reaches 96% of the Slovenian population. Two
private television stations which compete with POP TV in Slovenia have achieved
a relatively small share of the market. In July 1996, the Company, together with
MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in
Kanal A, a privately owned television station in Slovenia in competition with
POP TV, which agreement would increase POP TV's broadcast reach to 85%. There is
currently an injunction in effect preventing the completion of the Kanal A
Agreement. See 'Business--Litigation.'
POP TV also competes with foreign television stations, particularly
Croatian, Italian, German and Austrian stations. Cable penetration at 32% is
relatively high compared with other countries in Central Europe and
approximately 32% of households have satellite dishes. In addition, POP TV
competes for revenues with other media, such as newspapers, radio, magazines,
outdoor advertising, telephone directory advertising and direct mail.
Regulation
The licenses granted to MMTV and Tele 59 have been granted for 10 year
terms expiring in 2003. Under Slovenian television regulations, POP TV and its
affiliate stations are required to comply with a number of restrictions on
programming and advertising. These restrictions include that 10% of the
station's broadcast time must be internally produced programming, certain films
and other programs may only be broadcast between 11:00 pm and 6:00 am, and POP
TV news editors, journalists and correspondents must not reflect a biased
approach toward news reporting.
Regulations relating to the amount of advertising broadcast on television
in Slovenia provide that advertising on POP TV cannot exceed 20% of its daily
broadcast time. Advertising is not permitted during news, documentary and
children's programming which is not in excess of 30 minutes or during religious
programming. There are also restrictions on the frequency of advertising breaks
during films and other programs. Restrictions on advertising content include a
prohibition on tobacco advertising and on the advertising of alcoholic beverages
other than low alcohol content beer.
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Recent Developments
In March 1997, the Company consummated the Additional Pro Plus Purchase.
After giving effect to the Additional Pro Plus Purchase, the Company currently
owns 78.0% of the equity in Pro Plus, but has an effective economic interest of
85.3% as a result of its right to 33.0% of the profits of MMTV and 33.0% of the
profits of Tele 59. Tele 59 currently owns a 21.0% equity interest in Pro Plus,
and MMTV currently owns a 1.0% equity interest in Pro Plus. The Company, which
owns 10.0% of the equity of each of Tele 59 and MMTV, has acquired an option to
increase its equity interest in MMTV in conjunction with the Additional Pro Plus
Purchase. Pursuant to the Additional Pro Plus Purchase, the Company also has
acquired a 20.0% interest in Meglic Telekom, d.o.o., a start-up venture in
Slovenia involved in cable television and telecommunications.
OPERATIONS IN THE SLOVAK REPUBLIC: MARKIZA TV
General
Markiza TV, in which the Company owns an 80% economic interest, was
launched as a national television station in the Slovak Republic on August 31,
1996. According to third party estimates, Markiza TV reaches approximately 79%
of the Slovak Republic's population of 5.4 million, including virtually all of
its major cities. The Company intends to increase Markiza TV's broadcast reach
by adding additional transmitters or affiliates. According to independent
industry research, Markiza TV had an average television viewer share of
approximately 51% for its broadcast reach areas for the portion of 1996 during
which it broadcast, representing the highest market share in these areas.
Programming
Markiza TV's programming strategy is to appeal to a mass market audience.
Markiza TV provides an average of 18 hours of programming daily. Approximately
47% of Markiza TV's programming is locally produced, including news, current
affairs, game shows, variety shows and a weekly sitcom.
Markiza TV has secured exclusive broadcast rights in the Slovak Republic to
a large number of top rated United States and European programs produced by
major studios including BBC, MCA, Twentieth Century Fox, and Warner Bros.
Markiza TV's library includes over 1,000 films and nearly 3,000 television
episodes. All foreign language programming is dubbed in either Slovak or Czech.
Markiza TV also receives foreign news reports and film footage from CNN, Reuters
and WTN, which it integrates into Markiza TV's news programs.
Advertising
Markiza TV derives revenues principally from the sale of commercial
advertising time. Advertisers include large multinational firms such as Henkel,
Jacobs Suchard, Master Foods, Nestle, Procter & Gamble, Unilever and Wrigley.
Private commercial television stations are permitted to broadcast advertising
for up to 10% of total daily broadcast time and up to 20% of broadcast time in
any single hour.
Competition
The Slovak Republic is served by two public television stations, STV1 and
STV2, which dominated the ratings until Nova TV began broadcasting in 1994. Nova
TV's signal reaches a portion of the Slovak Republic where it had a 17% audience
share in 1996. Markiza TV also competes with VTV, a private satellite
broadcaster; public television stations located in Austria, the Czech Republic
and Hungary, which stations' signals reach the Slovak Republic; additional
foreign private television stations; and foreign satellite stations. Competitors
have indicated a possibility of legal action to challenge the Company's
partnership arrangements with Markiza TV in connection with the formation of
STS.
Regulation
Markiza TV's broadcast operations are subject to regulations imposed by the
Act on Radio and Television Broadcasting, the Act on Advertising and conditions
contained in the license granted by the Council of the Slovak Republic for
Broadcasting and Television Transmission (the 'Slovak Television Council'). The
license to operate Markiza TV was granted by the Slovak Television Council to
the
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Company's local partner in STS, for a period of 12 years under terms which
require the Company's local partner to enter into a partnership with the Company
to found STS.
Under the license pursuant to which Markiza TV operates, Markiza TV is
required to comply with several restrictions on programming. These restrictions
include that of Markiza TV's monthly broadcast time: 40% must be Slovak
production (increasing to a minimum of 51% within three years from commencement
of broadcasting); 10% must be programming for children; broadcasts of first
performance films and series must have a minimum of 47% European production (of
which there must be a minimum of 8% Slovak production) and no more than 45%
United States production; and no more than 40% of foreign first performance
films and series may be in the Czech language (decreasing to 20% by the fourth
year of broadcasting). Markiza TV's programming is required to be consistent
with the Slovak Constitution and not promote violence, hate, intolerance, the
intentional use of indecent language or immoral behavior. Programming
endangering the psychological or moral growth of children and youth cannot be
broadcast between 6:00 am and 10:00 pm, and Markiza TV's news broadcasts must be
objective and balanced and clearly differentiate between opinion and news. If
the Slovak Republic becomes a member of the European Union, Markiza TV may be
subject to additional program content regulation.
Under both the license pursuant to which Markiza TV operates and Slovak
statutes, Markiza TV must comply with certain limitations in its broadcast of
advertising, none of which the Company believes will have a material adverse
effect on Markiza TV. Regulations relating to the amount of advertising
broadcast on Markiza TV provide that advertising may not exceed 20% of broadcast
time in any single hour, subject to an overall advertising limit of 10% of total
daily broadcast time. In addition, up to one hour daily, not exceeding 20% in
any one hour, may be used for 'direct sales' advertising. The news may not be
sponsored and news staff may not appear in advertisements. Restrictions on
advertising content include that (a) tobacco advertising is prohibited, (b)
advertising for children or in which children perform and which promotes
behavior endangering the health, psychological or moral development of children
is prohibited, and (c) advertising which endangers morals or consumer's interest
in health, safety and environmental protection are also prohibited. The
advertisement of beer is permitted, however, advertisement of other alcoholic
beverage remains prohibited. There are also restrictions on the frequency of
advertising breaks within a program.
Recent Developments
The Slovak parliament recently announced a tender procedure for the
privatization of STV2 under which bids were required to be submitted by the end
of February 1997. Markiza, the Company's local partner in Markiza TV, submitted
a bid for a television broadcast license to operate Markiza TV on the STV2
frequencies in exchange for its current frequencies because STV2 has a broadcast
reach greater than the current reach of Markiza TV. A successful bid by Markiza
for the television broadcast license on STV2 would have no effect on its
partnership with the Company.
OPERATIONS IN UKRAINE: STUDIO 1 + 1 GROUP
General
The Company owns a 50% economic interest in the Studio 1+1 Group, which has
the right pursuant to a ten-year television broadcast license held by a
Ukrainian-based member of the Studio 1+1 Group to broadcast programming and sell
advertising on Ukrainian National Channel Two ('UT-2'), one of Ukraine's public
television stations, for 63 hours per week, including during prime time. UT-2
reaches approximately 93% of Ukraine's population. The Studio 1+1 Group began
broadcasting on UT-2 in January 1997. Prior to that time, the Studio 1+1 Group
had been broadcasting programming for approximately 50 hours per week on
Ukrainian National Channel One ('UT-1') pursuant to a contractual, rather than
license, right, which contract was to expire in 2000. The Studio 1+1 Group was
required to relinquish its right to broadcast programming on UT-1 in order to
acquire the license to broadcast on UT-2.
The Company continues to hold a 30% equity interest in Gravis, a company
which operates two terrestrial television stations in the capital city of Kiev.
Gravis currently generates only limited revenues.
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Programming
The Studio 1+1 Group's programming strategy is to appeal to a mass market
audience. The Studio 1+1 Group has secured exclusive territorial or local
language broadcast rights in Ukraine to a large number of successful American
and Western European programs and films from many of the major studios,
including Paramount, Universal and Warner Bros. All foreign language programs
and films (other than those in the Russian language) are dubbed into the
Ukrainian language. During 1996, the Studio 1+1 Group broadcast primarily
foreign programming. During 1997, the Company intends to increase the percentage
of its programming that is locally produced, including talk shows and
entertainment shows.
Advertising
The Studio 1+1 Group derives revenues principally from the sale of
commercial advertising time. Advertisers include Coca-Cola, Master Foods,
Nestle, Procter & Gamble and Wrigley. The Studio 1+1 Group is permitted to sell
15% of its overall broadcast time for advertising. UT-2, like other
broadcasters, is subject to restrictions on the frequency of advertising breaks,
as well as on the advertising of tobacco and alcohol. Although television
advertising in Ukraine was only $20 million in 1996, the Company expects that
Ukraine's television advertising market will grow rapidly as Ukraine develops an
economy that fosters competition among providers of goods and services.
Competition
Ukraine is served by four television stations, including UT-1 and UT-2,
which are Ukrainian public stations, and ICTV, a private network. The Studio 1+1
Group, through UT-2, has a broadcast reach of 93% of the Ukrainian population.
UT-1 and ICTV reach 98% and 28% of Ukraine's population, respectively.
Regulation
The Studio 1+1 Group provides programming to UT-2 pursuant to a ten-year
television broadcast license expiring in December 2006. Broadcasts of the Studio
1+1 Group's programming and advertising on UT-2 are regulated by the State
Committee on Television and Radio of Ukraine and the National Council on
Television and Radio of Ukraine (the 'Ukraine National Council'). These agencies
enforce Ukraine's developing media laws, which include restrictions on the
content of programming and advertising and limitations on the amount and
placement of advertising in programs. The Company does not expect these
restrictions to have a material adverse impact on the Studio 1+1 Group.
Competitors and others opposed to the Ukraine National Council's award of
the UT-2 License have indicated a possibility of legal or administrative actions
to challenge the UT-2 License or a possibility of other action against the
Company in connection with the UT-2 License. However, the Company believes that
there is no basis for challenging its actions and that the Ukraine National
Council's decision to grant Studio 1+1 the UT-2 License would be upheld. There
can be no assurance, however, as to the outcome of such proceedings, if
initiated.
OPERATIONS IN POLAND
General
TVN acquired its initial interest in TV Wisla in September 1996, although
TV Wisla began broadcasting in December 1994. The Company owns a 33.0% interest
in TVN, which in turn, owns a 49% interest in TV Wisla. TV Wisla operates a
television station in southern Poland with a broadcast reach of approximately
7.8 million people. TVN holds an option to increase its ownership in TV Wisla to
76.2%. The Company anticipates that TV Wisla will become part of a national
Polish television broadcast network to be formed by the Company and ITI, the
Company's partner in TVN. See 'Operations in Poland--Recent Developments.'
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Programming
TV Wisla's programming strategy is to appeal to a mass market audience.
Currently, TV Wisla provides approximately 19 hours of programming per day. TV
Wisla has secured exclusive programming rights in Poland to such popular shows
as Falcon Crest, Star Trek: the Next Generation, Sudden Impact, Arthur, Batman
Returns, Rain Man and others from MGM, Mediaset, Paramount and Warner Bros.
Advertising
TV Wisla derives revenues principally from the sale of commercial
advertising time. Advertisers include a number of local, national and
international companies such as Benkiser, Henkel and S.C. Johnson. Restrictions
on advertising provide that advertising on TV Wisla may not exceed 15% of daily
broadcasting time and 12 minutes in any one hour.
Competition
Competition in Poland consists of two national public broadcast channels,
TVP 1 and TVP 2, with broadcast reaches of 98% and 96% of Poland's population,
respectively, Polsat, the largest private broadcaster, with a broadcast reach of
74%, and 11 regional public channels. Cable and satellite stations currently
have 20% and 14% market penetration respectively. Additional competition for
advertising revenues includes other media, such as newspapers, radio, magazines,
outdoor advertising, telephone directory advertising and direct mail.
Regulation
Television broadcasting in Poland is subject to regulations imposed by the
Act on Communications (the 'Polish Communications Act') and regulated by the
Polish National Radio and Television Council (the 'Polish Television Council').
The Polish Communications Act restricts the foreign ownership and voting power
of license holders to 33%. In addition, Polish nationals residing in Poland must
comprise the majority of the managing boards of such license holders.
The license granted to TV Wisla contains restrictions on programming and
advertising. Programming produced in Poland is required to account for 40% of
programming. In addition, TV Wisla must produce itself or commission at least
15% of annual programming, and programming produced by Polish producers not
associated with TV Wisla must account for 10% of annual programming.
Restrictions on advertising provide that advertising on TV Wisla may not
exceed 15% of daily broadcasting time and 12 minutes in any one hour.
The licenses recently awarded to TVN in northern Poland, Warsaw and Lodz
also contain restrictions on programming and advertising. Programming produced
in Poland is required to account for 30% of programming in 1997 and 1998, 35% in
1999 and 40% in 2000 and thereafter. In addition, TVN must produce itself or
commission at least 10% of annual programming, and programming produced by
Polish producers not associated with TVN must account for 15% of annual
programming.
Recent Developments
In February 1997, the Polish Television Council awarded television
broadcast licenses for northern Poland and television broadcast licenses
covering the cities of Warsaw and Lodz in Poland to TVN. The Company estimates
that these television broadcast licenses have a potential broadcast reach of
approximately 11 million people. The Company and ITI, its partner in TVN, intend
to develop a national television broadcast network in Poland, which will
broadcast programming and sell advertising through affiliate stations, including
TV Wisla and those broadcasting under the television broadcast licenses awarded
to TVN in northern Poland, Warsaw and Lodz. The Company anticipates owning a 50%
interest in this television broadcast network, which the Company anticipates
will be launched in the fourth quarter of 1997. The network is expected to
broadcast 19 hours of acquired and self-produced programming daily. The Company
intends to broadcast the television network signal through terrestrial
transmitters as well as via digitally encoded satellite signals. The Company
expects to expand the signal to reach 80-85% of the population of Poland. These
are forward-looking statements. The timing of this launch and the potential
reach of the network depend upon the timely completion of broadcast facilities,
sourcing programming, obtaining access to transmitters and recruiting and
retaining qualified staff.
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OPERATIONS IN GERMANY: THE GERMAN STATIONS
General
The Company owns interests in four regional television stations operating
in Germany: PULS (formerly known as 1A Berlin), the Nuremberg Station, the
Leipzig Station and the Dresden Station. The German Stations reach an aggregate
of approximately 9.0 million people including the capital city of Berlin.
Germany is served on a nationwide basis by three major over-the-air private
commercial television stations and two major over-the-air public television
stations. German television broadcasters include several other private
television stations, regional members of the public network ARD, providers of
regional windows, and television stations delivered only by cable or satellite.
Recent Developments
The partners of PULS are currently in negotiations with potential new
investors in PULS. A new investor would be expected to acquire a significant
equity interest in PULS, either as a co-investor with the Company or as a sole
investor, which may result in a change in the Company's equity interest in PULS.
A new investor would be expected to assume responsibility for PULS' operations.
The outcome of ongoing negotiations with potential new investors could either
result in a decrease of the Company's future funding obligations to PULS or
require the Company to make additional capital investments in PULS. Such an
investment by a new investor also could result in a material reduction of the
carrying value of the Company's equity investment in PULS, which was $12.6
million as of December 31, 1996, and a corresponding charge against the
Company's earnings in the period incurred. Regardless of whether a transaction
with a strategic investor is consummated, there is no assurance that the Company
may not have to take a reduction of all or a portion of the carrying value of
PULS. In addition, a reduction of the carrying value of PULS, or other factors,
might cause the Company to reduce all or part of the carrying value of the
Company's investments in FFF and SFF, which were $6.1 million and $1.6 million,
respectively, as of December 31, 1996.
Programming
The German Stations currently broadcast a 'total local' programming
schedule which consists of in-depth local coverage of news and events in their
respective regions. The objective of 'total local' is to provide an alternative
to the public and private national broadcasters by being uniquely responsive to
the distinct regional tastes of local viewers.
PULS's program schedule currently consists of 7 hours of original
programming per day. On most days, this 7 hour schedule is repeated once during
the day (with some news broadcasts repeated more than once). The Nuremberg
Station broadcasts original programming for 4.5 hours each day and repeats this
programming. The program schedules of the Leipzig Station and the Dresden
Station consist of 2.5 hours of original programming per day and repeats this
programming. In addition, there is a commercial videotext service which
broadcasts the remainder of the day on the Nuremberg Station, the Leipzig
Station and the Dresden Station.
Advertising
The German Stations have local sales forces which work closely with local
advertising agencies and customers in their regions. Advertisers on the German
Stations include area department stores, food chains, furniture stores and
automobile dealers.
Competition
The German Stations compete primarily with three over-the-air private
commercial national television stations, SAT.1, RTL and PRO 7, and two
over-the-air public national television stations, ZDF and ARD (an association of
regional public broadcasters). Under applicable regulations, the public
television stations may broadcast advertising only before 8:00 pm., Monday
through Saturday, and they are limited to an annual average of 20 minutes of
advertising per day. The German Stations also compete with approximately 25
stations delivered through cable or satellite.
Each of the German Stations also competes with other media, such as
newspapers, radio, magazines, outdoor advertising, transit advertising,
telephone directory advertising and direct mail.
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Some of their competitors are public operations or are larger and have greater
financial, marketing and other resources than the German Stations.
Regulation
The German Stations, and the terms of the licenses pursuant to which they
operate, are regulated by the German states in which they are situated. These
regulations are based on an inter-state treaty and, therefore, generally are
similar in each state.
Under German regulations, the German Stations are required to comply with a
number of restrictions on programming and advertising, none of which the Company
believes has had a material adverse effect on these television stations. German
regulations prohibit programming that might offend public morals or that
violates measures designed to protect children. In addition, the majority of
programming consisting of films, series and documentary features is required to
be of European content. The license under which PULS operates requires that the
station broadcast at least 7 hours of non-repeated original programming each day
and that 30% of programming broadcast between 5:00 pm and 11:00 pm be of
regional character. In addition, PULS must cooperate with local independent
producers; it may not enter into arrangements favoring licensed productions over
programming produced or commissioned by the station. PULS also has agreed to
construct a second studio and establish further permanent and mobile facilities
in Potsdam, a city in the state of Brandenburg. Each of the licenses under which
the German Stations operates require regulatory approval to alter the overall
type and mix of programming broadcast on the stations.
Regulations relating to the amount of advertising broadcast on the German
Stations provide that advertising may not interrupt religious services, shows
for children, or news or political features of less than 30 minutes. Advertising
may be shown only after program segments of at least 20 minutes and movies
exceeding 45 minutes may be interrupted by advertising only once for each
complete block of 45 minutes. The total amount of advertising may not exceed 20%
of daily broadcast time, and spot advertising may not exceed 15% of daily
broadcast time or 20% of a given one hour period. Restrictions on advertising
content include prohibitions on advertising contrary to health, consumer safety
or the environment, on political and religious advertising and on advertising
employing persons who regularly present news or political features.
BROADCAST OPERATIONS UNDER DEVELOPMENT
The Company continues to pursue and develop opportunities for television
broadcasting throughout Central and Eastern Europe and other areas and continues
to evaluate the economic viability of commencing broadcast operations in such
areas. There can be no assurance that the Company will successfully pursue the
development of these broadcast operations or that these broadcast operations
will generate profits in the future. The Company, together with local partners,
is actively engaged in developing operations in Hungary, as discussed below.
Hungary
In January 1997, the Hungarian National Radio and Television Commission
(the 'Hungarian Television Commission') announced tender procedures for the
award of two national television broadcast licenses. Each license would be for a
ten-year term and would provide a broadcast reach of approximately 87% of the
population of Hungary. The Hungarian media law provides that consortiums bidding
for these licenses must consist of at least three entities. No entity will have
the right to own greater than 49% of any consortium and at least 26% of the
ownership interests must be owned by domestic entities. The Company recently
formed a consortium which submitted an application for these licenses. The
consortium includes MEDIA COM, which invests in and manages Hungarian
telecommunications and electronic media companies, InterCom, the largest film
and video distributor and cinema operator in Hungary and DDTV, a company managed
by Gyorgy Balo, who has been the Company's partner in 2002 Kft. The tender
procedures require awards to be announced within 60 days of the bid submission
date of April 10, 1997. If the Company's consortium is awarded one of these
licenses, it would be required to commence broadcasting 90 days thereafter.
Until recently, the Company owned 97.5% of 2002 Kft, a broadcasting company
in Hungary which has been awarded a local microwave (MMDS) license. If
developed, operations under the license would
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have a potential broadcast reach of approximately 200,000 homes in Budapest. As
a condition to bidding for one of the two national television broadcast
licenses, the Company reduced its ownership of 2002 Kft to 24.9%. The
satisfaction of this condition will not have a material adverse effect on the
Company. If the consortium is not awarded one of the two broadcast licenses, the
Company can exercise its option to increase its interest to 97.5%.
A subsidiary of 2002 Kft acquired Videovox, a company engaged in the
dubbing of foreign language programming, films, videos and commercials into
Hungarian, which was privatized by the Hungarian government in May 1996. In
December 1996, as part of a restructuring, CME BV acquired a direct 97.4%
interest in Videovox from 2002 Kft. The acquisition of Videovox is an integral
component of the Company's plans to develop broadcast operations in Hungary
because (i) a significant percentage of programming and films which the Company
likely would broadcast in Hungary will be of foreign origin and (ii) Videovox
owns a facility which can be converted into television studios.
Hungary has one of the more advanced economies in Central and Eastern
Europe with a relatively high GDP per capita estimated at $4,400 in 1996. The
Hungarian television advertising market grew 18% to $188 million in 1996.
Approximately 96% of households in Hungary have television and approximately 40%
of households have cable television, the largest cable penetration in the
region. Per capita television advertising expenditures are significantly greater
than the average in Central and Eastern Europe, but are still relatively low
when compared to Western Europe. The Company believes that as a market economy
continues to develop in Hungary, television advertising expenditures will
continue to grow.
PROGRAMMING SERVICES
Through CMEPS, the Company provides an array of program-related services to
its television operations in Central and Eastern Europe, including program
acquisition, production, distribution (including satellite transmission),
promotion, schedule advisory services, and coordination of viewer research.
Currently, CMEPS assists the Company's broadcast operations and broadcast
operations under development in obtaining programming from American and Western
European film and television studios. As the Company has expanded its broadcast
operations in Central and Eastern Europe, the Company has begun to use CMEPS to
reduce overall program costs by centralizing the purchase of rights to films and
programming. CMEPS will also create a program exchange service among the
Company's broadcast operations and will provide opportunities for co-production
and co-financing of programming among these broadcast operations. In addition,
CMEPS advises the Company's broadcast operations in connection with locally
produced programming.
SEASONALITY
The experience of the television industry is that advertising sales tend to
be lowest during the third quarter of each calendar year which includes the
summer holiday schedule (typically July and August) and highest during the
fourth quarter of each calendar year.
EMPLOYEES
As of December 31, 1996, (i) the Company had a central staff of 54
employees, (ii) Nova TV had 444 employees, (iii) PRO TV had approximately 659
employees, (iv) POP TV had approximately 147 employees, (v) Markiza TV had
approximately 380 employees, (vi) the Studio 1+1 Group had approximately 253
employees, (vii) TV Wisla had approximately 148 employees, (viii) Videovox had
approximately 71 employees, (ix) Radio Alfa had 26 employees, (x) PULS had
approximately 143 employees, (xi) the Nuremberg Station had approximately 79
employees and (xii) the Leipzig Station and the Dresden Station together had 94
employees. None of the Company's employees or the employees of any of its
Subsidiaries are covered by a collective bargaining agreement. The Company
believes that its relations with its employees are good, and that its
Subsidiaries' relations with their employees are good.
PROPERTIES
The Central European Media Enterprises Ltd. group of companies leases
office space in London, in three separate locations. One lease covers
approximately 4,347 square feet of space and expires in 2004, except that the
Company can terminate the lease at its option in 1999, subject to penalty. The
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second lease, for 2,205 square feet of office space in a nearby building,
expires in 2006. A third lease of 2,600 square feet of office space in another
nearby building expires in 1998.
Nova TV is party to a capitalized lease for a building in Prague for its
main studios and principal offices. The studios and offices total approximately
65,000 square feet. Modern studio facilities have been constructed in the
building. This capitalized lease provides for rental payments to be made
including principal and interest by Nova TV of $3,934,000 in each of 1997, 1998
and 1999. Through December 31, 1996, Nova TV has made principal payments of
$2,868,000 to be applied for the purchase of this facility. The term of the
lease is for one year, but is renewable for additional one year periods at the
option of Nova TV. PULS leases studios and offices, totalling approximately
40,000 square feet, located at the base of Berlin's government operated
broadcasting tower. This lease expires in December 1999. The Nuremberg Station
leases studios and offices, totalling approximately 37,000 square feet, in an
industrial center north of Nuremberg. This lease expires in 2001. CME BV has
entered into an agreement on behalf of Media Pro International for the purpose
of acquiring the facility in Bucharest which contains PRO TV's studios for a
purchase price of approximately $1.8 million. The Company owns a portion of a
building in Ljubljana which contains POP TV's studios and offices which occupy
2,000 square meters (approximately 21,528 square feet). Videovox owns the
building in Budapest in which its studios are located. The building contains
5,605 square meters (approximately 60,332 square feet). STS owns its principal
office facility in Bratislava which provides STS with 4,350 square meters of
office space (approximately 46,823 square feet).
In June 1995 the Company, through its wholly-owned subsidiary CMEPS,
obtained leasehold rights to a 33 Mhz transponder on the Eutelsat HB3 Satellite
which is scheduled to be launched in the fourth quarter of 1997. The Satellite
Transponder, which has been leased through British Telecommunications plc for a
12 year period, will give the Company's stations the capability of distributing
programs to their terrestrial television transmitters as well as to cable
television systems throughout the Central and Eastern European region. The
Company paid a deposit of $850,000 toward future transponder lease obligations.
The annual charge for the lease is approximately $4.4 million, beginning after
the launch of the satellite. The obligations of CMEPS under the transponder
lease are guaranteed by CME.
LITIGATION
In July 1996, the Company, together with MMTV and Tele 59, entered into an
agreement to purchase a 66% equity interest in Kanal A, a privately owned
television station in Slovenia (the 'Kanal A Agreement'). Scandinavian
Broadcasting System SA ('SBS'), which claims to have certain rights to the
equity of Kanal A pursuant to various agreements, has challenged the validity of
the Kanal A Agreement in a United Kingdom court. Both the Company and SBS have
been granted injunctions by the United Kingdom courts preventing SBS, in the
case of the Company, and the Company, in the case of SBS, from taking certain
actions either to enforce such entity's claim to equity in Kanal A or to block
the claim of the other entity to equity in Kanal A. The Company has instituted
action in a Slovenian court requesting that courts in Slovenia resolve these
claims.
Various competitors of PULS and the Nuremberg Station have instituted legal
action against the media authorities for Berlin-Brandenburg and the Nuremberg
area seeking to overturn their decisions to award broadcast licenses to PULS and
the Nuremberg Station, respectively. These actions were instituted in 1993 and
1994, and there have been no decisions in relation thereto in the last 12
months. Similar action has been instituted by other applicants for the licenses
awarded to the Company's local partner in Leipzig and Dresden. An unfavorable
decision in any of these actions could have an adverse effect on the Company.
One of the owners of CET 21 has filed a claim in the Regional Commercial
Court in Prague challenging the transfer by four other owners of CET 21 of a
portion of their interests in CET 21 to Vladimir Zelezny. This owner of CET 21
interests alleges that the proper procedures were not followed prior to the
interests being transferred to Dr. Zelezny. A preliminary injunction was sought
with respect to the transfer of these ownership interests and was denied by the
Czech Republic Court of Appeals. The underlying claim is still before the Court.
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company is not presently a party
to any such litigation which could reasonably be expected to have a material
adverse effect on its business or operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Certain information concerning executive officers and directors of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ronald S. Lauder................................ 53 Chairman of the Board of Directors
Leonard M. Fertig............................... 50 President, Chief Executive Officer and Director
John A. Schwallie............................... 34 Vice President--Finance and Chief Financial
Officer
Andrew Gaspar................................... 49 Director
Nicolas G. Trollope............................. 49 Vice President, Secretary and Director
Herbert S. Schlosser............................ 71 Director
Robert A. Rayne................................. 48 Director
</TABLE>
All of the current directors of the Company have served as directors since
1994 except for Mr. Rayne who became a director in 1996.
Ronald S. Lauder, Chairman of the Board of Directors of the Company, has
served as Chairman of Central European Development Corporation Ltd. ('CEDC')
since 1990, Chairman of RSL Investments, Inc. and Chairman of RSL
Communications, Ltd. ('RSLC'), an international telecommunications company,
since 1994. Mr. Lauder has served as Chairman of Estee Lauder International
since 1992 and Chairman of Clinique Laboratories, Inc., an Estee Lauder
division, since 1992. From 1986 until 1987, Mr. Lauder served as U.S. Ambassador
to Austria, having previously served as Deputy Assistant Secretary of Defense
for European and NATO Policy. Mr. Lauder currently serves as a director of The
Estee Lauder Companies Inc., The International Society for Yad Vashem, as
Chairman of the Board of Directors of The Museum of Modern Art and as President
of the Jewish National Fund.
Leonard M. Fertig, a Director of the Company, has served as President and
Chief Executive Officer of the Company since August 1995. Mr. Fertig served as
Vice President--Finance and Chief Financial Officer of the Company from its
inception in June 1994 until August 1995. Mr. Fertig is also President of CME
Programming and CME Development Corporation. Mr. Fertig was an independent
consultant to the media industry from 1989 until 1994. From 1985 until 1989, Mr.
Fertig was Executive Vice President and Chief Financial Officer of Reiss Media
Enterprises, a pay-per-view network. His experience includes over 20 years of
consulting, planning and management of businesses, including with American
Airlines and Capital Cities/ABC. Mr. Fertig also serves as a director of Nova
TV, PULS, Media Pro International, Pro Plus, various entities in the Studio
1 + 1 Group, STS and SFF.
John A. Schwallie has served as Vice President--Finance and Chief Financial
Officer of the Company since August 1995. Mr. Schwallie, a certified public
accountant, served as Financial Director of Nova TV from 1994 until August 1995.
From 1992 until 1993 Mr. Schwallie served as the Advisor to the Financial
Director of Prague Breweries, the second largest brewery in the Czech Republic.
During 1991, he served as the Assistant to the Regional Director of General
Atlantic, a London based multi-billion dollar privately held conglomerate,
operating retail outlets in Prague. Mr. Schwallie serves as a director of Media
Pro International and SFF, and director of the audit committee of Nova TV.
Andrew Gaspar, a Director of the Company, directed the activities of the
Company from 1991 through June 1994. Since its incorporation in June 1994 until
December 1996, Mr. Gaspar served as Vice President and Secretary of the Company.
Mr. Gaspar has been President of the general partner of R.S. Lauder, Gaspar &
Co., LP, a venture capital company and Vice Chairman of CEDC since 1991. Mr.
Gaspar has been a director and Vice Chairman of RSLC since 1994. From 1982 until
1991, Mr. Gaspar was a partner of Warburg, Pincus & Co., a venture capital firm,
in which Mr. Gaspar specialized in start-up ventures in the telecommunications
industry. Mr. Gaspar is Chairman of the Board and a director of Auto Info Inc.,
a financial services company.
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Nicolas G. Trollope, a Director of the Company, has served as Vice
President and Secretary of the Company since January 1997. Mr. Trollope has been
a partner with the law firm of Conyers, Dill & Pearman, Hamilton, Bermuda, since
1991. Mr. Trollope serves as a director of RSLC.
Herbert S. Schlosser, a Director of the Company, has served as a Senior
Advisor, Broadcasting and Entertainment to Schroder Wertheim & Co. Incorporated
since 1986. Mr. Schlosser serves as a consultant to the Company and receives a
fee for such services. Mr. Schlosser was Executive Vice President of RCA
Corporation from 1978 until 1985 and President of the National Broadcasting
Company (NBC) from 1974 until 1978. Mr. Schlosser is a director of United States
Satellite Broadcasting Company, Inc. and Data Broadcasting Corporation.
Robert A. Rayne, a Director of the Company, has been a director of London
Merchant Securities plc, a U.K. investment firm, since 1983. Mr. Rayne also is
Investment Director of Westpool Investment Trust plc. Mr. Rayne serves as a
director for several U.K.-based companies and in addition, serves on the Board
of Directors of Energy Ventures Inc.
OTHER MANAGEMENT
Vladimir Zelezny, 52, the General Director of Nova TV, has been associated
with Czech television for over 30 years. During this period, Dr. Zelezny was a
screenwriter for numerous television series and televised plays broadcast on
Czech television and served as an editor and a director for a government-owned
and operated Czech television station. Dr. Zelezny was involved actively in the
Velvet Revolution in 1989 in what was formerly Czechoslovakia.
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DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under an Indenture, dated as of April , 1997
(the 'Indenture'), between the Company and IBJ Schroder Bank & Trust Company, as
Trustee (the 'Trustee'). For purposes of this Description of the Notes, the term
'Company' refers only to Central European Media Enterprises Ltd., and does not
include its subsidiaries except for purposes of financial data determined on a
consolidated basis. The terms of the Notes include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust Indenture Act
of 1939 (the 'Trust Indenture Act') as in effect on the date of the Indenture. A
draft of the Indenture has been filed as an exhibit to the Registration
Statement referred to below under 'Available Information.' The following
summarizes the material provisions of the Indenture and is subject to, and
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definition therein of certain terms not otherwise defined herein.
The Notes are subject to all such terms and holders of the Notes are referred to
the Indenture and the Trust Indenture Act for a complete statement of such
terms. Wherever defined terms of the Indenture are referred to, it is intended
that such defined terms shall be incorporated herein by reference. Certain terms
used herein are defined below under '--Certain Definitions.'
The Notes will be unsecured subordinated obligations of the Company limited
to an aggregate principal amount of $125,000,000 (or $143,750,000 if the
over-allotment option is fully exercised). The Company's Subsidiaries will have
no direct obligations to pay amounts due on the Notes and will not guarantee the
Notes on the Issue Date.
The Indenture and the Notes will not limit the amount of Indebtedness which
may be incurred or securities which may be issued, and will not contain any
restrictions on the payment of dividends or the repurchase of securities of the
Company or any financial covenants. The Indenture contains no covenants or other
provisions to afford protection to holders of Notes in the event of a highly
leveraged transaction or a change in control of the Company except to the extent
described under '--Repurchase at the Option of Holders Upon a Change of Control'
and '--Right to Require Repurchased Notes upon a Termination of Trading.'
PRINCIPAL MATURITY AND INTEREST
The Notes will be limited to $125,000,000 aggregate principal amount (or
$143,750,000 if the over-allotment option is exercised in full), will be
unsecured subordinated obligations of the Company, and will mature on ,
2004. The Notes will bear interest from , 1997 at the rate of %
per annum. Interest will be payable semiannually on and of
each year ('Interest Payment Dates'), commencing , 1997, to the
persons in whose names the Notes are registered at the close of business on the
day of or , as the case may be ('Regular Record Date'),
next preceding such Interest Payment Date. Interest will be computed on the
basis of a 360-day year composed of twelve 30-day months. Principal of, premium,
if any, and interest (including Additional Amounts (as defined below), if any),
on the Notes will be payable, and the Notes will be convertible and exchangeable
and transfers thereof will be registrable, at the office of the Trustee or the
office or agency of the Company maintained for such purpose in The City of New
York and at any other office or agency maintained by the Company for such
purpose, provided that at the option of the Company, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the Security Register. All payments of interest and principal will be made in
U.S. Dollars.
No service charge will be made for any registration or transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. The Company is
not required to (i) issue, register the transfer of, or exchange any Note during
a period beginning at the opening of business 15 days before the days of the
mailing of a notice of redemption and ending at the close of business on the
date of such mailing, or
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(ii) register the transfer of or exchange any Note selected for redemption in
whole or in part, except the unredeemed portion of Notes being redeemed in part.
The Notes will be issued only in registered form without coupons in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
ADDITIONAL AMOUNTS
Except to the extent required by law, any and all payments of, or in
respect of, any Note shall be made free and clear of and without deduction for
or on account of any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
imposed by Bermuda, or any other jurisdiction under the laws of which the
Company is organized ('Other Jurisdiction') or any political subdivision of or
any taxing authority in Bermuda or in any Other Jurisdiction ('Bermudian Taxes'
or 'Other Taxes,' respectively). If the Company shall be required by law to
withhold or deduct any Bermudian Taxes or Other Taxes from or in respect of any
sum payable under a Note, the sum payable by the Company, as the case may be,
thereunder shall be increased by the amount ('Additional Amounts') necessary so
that after making all required withholdings and deductions, the holder shall
receive an amount equal to the sum that it would have received had no such
withholdings and deductions been made; provided that any such sum shall not be
paid in respect of any of the following Bermudian Taxes or Other Taxes to a
holder (an 'Excluded Holder') (a) any tax, withholding, assessment or other
governmental charge which would not have been imposed but for (i) the existence
of any present or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power over,
such holder, if such holder is an estate, trust, partnership or corporation) and
Bermuda or Other Jurisdiction including, without limitation, such holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having had a permanent establishment
therein or (ii) the presentation of a Note (where presentation is required) for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later; (b) any estate, inheritance, gift, sale, transfer or
personal property tax; (c) any tax, assessment or other governmental charge that
is withheld by reason of the failure to timely comply by the holder or the
beneficial owner of the Note with a request in writing of the Company (i) to
provide information concerning the nationality, residence or identity of the
holder or such beneficial owner or (ii) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which, in the case of
(i) or (ii), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a precondition
to exemption from or reduction of all or part of such tax, assessment or other
governmental charge; provided, however, that this clause (c) shall not apply to
the Company's obligation to pay Additional Amounts if the completing and filling
of the information described in (i) above or the declaration or other claim
described in (ii) above would be materially more onerous in form, in procedure
or in substance of information disclosed, in comparison to the information
reporting requirements imposed under U.S. tax law with respect to Forms 1001,
W-8 and W-9; or (d) any combination of items (a), (b), and (c) above; nor shall
Additional Amounts be paid with respect to any payment of the principal of, or
any interest on, any Note to any holder who is not the sole beneficial owner of
such Note or is a fiduciary or partnership, but only to the extent that a
beneficial owner, a beneficiary or a settlor with respect to a fiduciary or a
member of the partnership would not have been entitled to the payment of the
Additional Amount had the beneficial owner, beneficiary, settlor or member of
such partnership received directly its beneficial or distributive share of the
payments.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company will be obligated to pay
Additional Amounts with respect to such payment, the Company will deliver to the
Trustee an Officers' Certificate stating the fact that such Additional
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Amounts will be payable and the amounts so payable and will set forth such other
information necessary to enable such Trustee to pay such Additional Amounts to
holders on the payment date.
At the date of this Prospectus, no Bermudian Taxes are imposed, and
therefore no Additional Amounts would be payable in respect of such taxes, in
respect of any sum payable by the Company as principal of, premium or interest
on the Notes.
In addition, the Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
in respect of the creation, issue and offering the Notes payable in Bermuda, the
United States or any political subdivision thereof or taxing authority of or in
the foregoing. The Company will also pay and indemnify the Trustee and the
holders of the Notes from and against all court fees and taxes or other taxes
and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the Trustee
or the holders to enforce the obligations of the Company under the Notes and the
Indenture.
CONVERSION RIGHTS
The Notes will be convertible into shares of Class A Common Stock of the
Company (the 'Common Shares') at any time after 60 days following the Issuance
of the Notes through Maturity, unless previously redeemed (except as set forth
in the following sentence) prior to Maturity, initially at the conversion price
stated on the cover page hereof. The right to convert Notes called for
redemption will terminate at the close of business on the Business Day
immediately preceding a Redemption Date and will be lost if not exercised prior
to that time. See 'Optional Redemption.'
Notes surrendered for conversion during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except Notes called for
redemption on a Redemption Date within such period) must be accompanied by
payment in next day funds of an amount equal to the interest thereon which the
registered Holder is to receive on such Interest Payment Date. No other
adjustment for interest or dividends is to be made upon conversion. Fractional
shares of Common Stock will not be issued upon conversion, but in lieu thereof,
the Company will pay a cash adjustment based upon market price. As a result of
the foregoing provisions, Holders that surrender Notes for conversion on a date
that is not an Interest Payment Date will not receive any interest for the
period from the Interest Payment Date next preceding the date of conversion to
the date of conversion or for any later period, even if the Notes are
surrendered after a notice of redemption has been given (except for the payment
of interest on Notes called for redemption on a Redemption Date or repurchasable
on a Repurchase Date between a Regular Record Date and the Interest Payment Date
to which it relates, as provided above). No other payment or adjustment for
interest, or for any dividends in respect of Common Stock, will be made upon
conversion.
The conversion price will be subject to adjustment upon the occurrence of
any of the following events: (a) the payment of dividends and other
distributions in shares of Common Stock on any class or series of Capital Stock
of the Company, (b) subdivisions and combinations of Common Stock, (c)
distributions to all holders of Common Stock of evidence of indebtedness, shares
of any class or series of its Capital Stock or other assets (including
securities, but excluding any dividend, distribution or issuance referred to in
clause (a), (b) or (d) or dividends or distributions of cash), (d) the issuance
to all holders of Common Stock of shares of Common Stock, rights, options or
warrants entitling such holders to subscribe for or purchase shares of Common
Stock, or securities convertible into or exchangeable for Common Stock for a
consideration per share less than the Current Market Price per share (determined
as provided in the Indenture) to the extent that the below market portion of
such issuances (together with the below market or above market portions (as the
case may be) of all other below market issuances and above market tender or
exchange offers) is greater than 12.5% of the Company's Total Market
Capitalization of the Common Stock, (e) distributions consisting exclusively of
cash to all holders of Common Stock in an aggregate amount that, together with
(i) other all-cash distributions made within the preceding 12 months to all
holders of Common Stock and (ii) the aggregate of any cash and the fair market
value of other consideration paid in respect of any tender
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offer by the Company or any Subsidiary for the Common Stock consummated within
the preceding 12 months, exceeds 12.5% of the product of the then Current Market
Price of the Common Stock times the number of shares of Common Stock then
outstanding on the record date of such distributions, (f) the consummation of a
tender or exchange offer made by the Company or any Subsidiary for shares of
Common Stock or the purchase by the Company of shares of Common Stock in the
open market to the extent the above market portion of such tender or exchange
offers (together with the below market or above market portions (as the case may
be) of all other above market tender or exchange offers and all below market
issuances) is greater than 12.5% of the Company's Total Market Capitalization,
(g) certain reclassifications and (h) certain other events that could have the
effect of depriving holders of the Notes of the benefit of all or a portion of
the conversion rights in respect of any Note. The foregoing provisions for
adjustment will be subject to certain exceptions, as set forth in the Indenture.
In the case of certain consolidations or mergers to which the Company is a party
or the conveyance or transfer of the Properties and assets of the Company
substantially as an entirety, each Note then outstanding shall, without the
consent of any holders of Notes, become convertible only into the kind and
amount of securities, cash and other Property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Stock into which the Note might have been converted immediately
prior to such consolidation, merger, conveyance or transfer. In the event that
such holder of Common Stock failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other Property receivable upon
such consolidation, merger, conveyance or transfer (provided that if the kind or
amount of securities, cash and other Property so receivable is not the same for
each non-electing share), then the kind and amount of securities, cash and other
Property so receivable by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares.
No adjustment in the conversion price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the conversion price; provided, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment. Moreover,
no adjustment in the conversion price shall be required for any transaction in
which holders of Notes are to participate on a basis and with notice that the
Company's Board of Directors determines to be fair and appropriate in light of
the basis and notice on which holders of Common Stock participate in the
transaction.
Certain antidilution adjustments could have tax consequences for holders of
the Notes. See 'Certain Tax Considerations--Constructive Distributions.'
In addition to the foregoing adjustments, the Company will be permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Stock or,
if that is not possible, to diminish any income taxes that are otherwise payable
because of such event. Fractional Shares of Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment based
upon the then closing price at the close of business on the day of conversion.
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SUBORDINATION OF NOTES
The Notes will be subordinated and subject, to the extent and in the manner
set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness. Senior Indebtedness is defined to include the principal of, and
premium, if any, and interest on and other amounts due on any Indebtedness,
whether now outstanding or hereafter created, incurred, assumed or guaranteed by
the Company, for money borrowed from others (including obligations under Capital
Lease Obligations or purchase money Indebtedness) or in connection with the
acquisition by the Company or a Subsidiary of any other business or entity, or
in respect of letters of credit or bid, performance or surety bonds issued for
the account or on the credit of the Company or a Subsidiary, and, in each case,
all renewals, extensions and refundings thereof, other than (i) any such
Indebtedness as to which, in the instrument creating or evidencing the same, it
is provided that such Indebtedness is not superior in right of payment to the
Notes, (ii) if such Indebtedness or obligation is non-recourse to the Company,
(iii) any conditional sale contract or any account payable or other Indebtedness
created or assumed by the Company in the ordinary course of business in
connection with the obtaining of materials, inventories or services, (iv)
Indebtedness of the Company to any Affiliate and (v) the Notes. At December 31,
1996, the Company had approximately $55,096,000 of outstanding Indebtedness that
would have constituted Senior Indebtedness under the Indenture. The Indenture
does not limit the amount of Senior Indebtedness or other Indebtedness that the
Company or its Subsidiaries may incur.
In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors as such, or to
its Property, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, or in the event of any
assignment for the benefit of creditors of the Company and any marshaling of
assets of the Company, the holders of all Senior Indebtedness of the Company
will be entitled to receive payment in full of the principal of, premium, if
any, and interest, including interest accruing after the commencement of any
such proceeding, on all Senior Indebtedness of the Company, before the holders
of the Notes will be entitled to receive any payment in respect of the Notes.
Upon the maturity of any Senior Indebtedness of the Company by lapse of time,
acceleration or otherwise, such Senior Indebtedness of the Company shall first
paid in full (to the same extent as provided in the preceding sentence), or
provided for, before any payment is made by the Company, directly or indirectly
on the Notes. Upon the happening of any event of default with respect to any
Senior Indebtedness of the Company, as defined therein or in the instrument
under which it is outstanding, permitting the holders to accelerate the maturity
thereof, then, unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no payment shall be made by the Company,
directly or indirectly, on the Notes. By reason of such subordination, in the
event of insolvency, creditors of the Company who are not holders of Senior
Indebtedness of the Company (or who are holders of the Notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company and holders of
Senior Indebtedness of the Company may recover more, ratably, than the holders
of the Notes.
The Notes are obligations exclusively of the Company and not of its
Subsidiaries. Because the operations of the Company are conducted through
Subsidiaries, the cash flow and the consequent ability to service Indebtedness
and other liabilities of the Company, including the Notes, are dependent upon
the earnings of its Subsidiaries and the distribution of those earnings to the
Company or upon loans or other payments of funds by those Subsidiaries to the
Company. The Subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes, whether by dividends, loans or other payments. In addition, the payment
of dividends and the making of loans and advances to the Company by its
Subsidiaries may be subject to statutory or contractual restrictions, and
dividends paid by a Subsidiary that does not consolidate with the Company for
tax purposes will be subject to taxation.
The Notes will be effectively subordinated to all Indebtedness and other
liabilities, including current liabilities and commitments under leases, if any,
of the Company's Subsidiaries. At December 31, 1996, the Company's Subsidiaries
had indebtedness and other liabilities (other than Indebtedness of such
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Subsidiaries that is guaranteed by the Company on a senior basis and included in
Senior Indebtedness) of approximately $105,052,000. Any right of the Company to
receive assets of any of its Subsidiaries upon liquidation or reorganization of
such Subsidiary (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subject to any liens held by other creditors in the
assets of such Subsidiary and subordinated to any Indebtedness of such
Subsidiary senior to that held by the Company. In addition, any minority
stockholder of such Subsidiary would be entitled to participate in the assets of
such Subsidiary on the same terms as the Company (except to the extent that the
Company itself is recognized as a creditor).
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to
, 2000 except as provided in '--Optional Tax Redemption'.
Thereafter, the Notes will be redeemable upon not less than 30 nor more than 60
days' notice by mail at any time on or after , 2000, as a whole
or in part, at the election of the Company, at a Redemption Price equal to the
percentage of the principal amount set forth below if redeemed in the 12-month
period beginning of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------- -----------
<S> <C>
2000....................................................... %
2001....................................................... %
2002....................................................... %
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in each case with accrued and unpaid interest (including Additional
Amounts, if any) to the redemption date (subject to the right of holders of
record on Regular Record Dates to receive interest due on an Interest Payment
Date).
OPTIONAL TAX REDEMPTION
The Notes may be redeemed at the option of the Company, in whole but not in
part, upon not less than 30 nor more than 60 days' notice given as provided in
the Indenture at a redemption price equal to the principal amount thereof, plus
accrued and unpaid interest (including Additional Amounts, if any), if, as a
result of any change in or amendment to the laws or any regulations or rulings
promulgated thereunder of Bermuda or any Other Jurisdiction or any political
subdivision thereof or any authority thereof or having power to tax therein, or
any change in the application or official interpretation of such laws or
regulations, or any change in administrative policy or assessing practice of the
applicable taxing authority, which change or amendment becomes effective on or
after the date of this Prospectus, the Company is or would be required on the
next succeeding Interest Payment Date to pay Additional Amounts with respect to
the Notes and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company. The Company will also
pay to holders on the redemption date any Additional Amounts payable in respect
of the period ending on the redemption date.
Prior to the publication of any notice of redemption pursuant to this
provision, which in no event will be given earlier than 90 days prior to the
earliest date on which the Company would be required to pay such Additional
Amounts were a payment in respect of the Notes then due, the Company shall
deliver to the Trustee an Officers' Certificate stating that (i) the obligation
to pay such Additional Amounts cannot be avoided by the Company taking
reasonable measures and (ii) an opinion of counsel, independent of the Company
and approved by the Trustee, to the effect that the Company has or will become
obligated to pay such Additional Amounts as a result of such change or
amendment. Such notice, once delivered by the Company to the Trustee, will be
irrevocable.
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MANDATORY REDEMPTION
Except as set forth under '--Repurchase at the Option of Holders upon a
Change of Control,' and '--Right to Require Repurchase of Notes upon a
Termination of Trading,' the Company is not required to make mandatory
redemption payments or sinking fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each holder
of Notes shall have the right to require the Company to repurchase all or any
part (equal to $1,000 principal amount or an integral multiple thereof) of such
holder's Notes pursuant to an irrevocable and unconditional offer described
below (the 'Change of Control Offer') at a purchase price (the 'Change of
Control Purchase Price') equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, and Additional Amounts, if any, thereof, to
any Change of Control Payment Date.
A 'Change in Control' will occur when: (i) all or substantially all of the
assets of the Company and its Subsidiaries taken as a whole are sold as an
entirety to any Person or related group of Persons; (ii) there shall be
consummated any consolidation or merger of the Company (A) in which the Company
is not the continuing or surviving corporation (other than a consolidation or
merger with a Wholly-Owned Subsidiary of the Company in which all shares of
Common Stock outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to which
the shares of Common Stock are converted into cash, securities or other
Property, in each case other than a consolidation or merger of the Company in
which the holders of the Common Stock immediately prior to the consolidation or
merger have, directly or indirectly, at least a majority of the shares of Common
Stock of the continuing or surviving corporation immediately after such
consolidation or merger, or (iii) any Person or any Persons acting together
which would constitute a 'group' for purposes of Section 13(d) of the Exchange
Act, together with any Affiliates thereof, other than Permitted Holders acquire
'beneficial ownership' (as defined in Rule 13d-3 under the Exchange Act) of at
least 50% of the total voting power of all classes of Capital Stock of the
Company entitled to vote generally in the election of directors of the Company.
Notwithstanding clause (iii) of the foregoing definition, a Change in Control
will not be deemed to have occurred solely by virtue of the Company, any
Subsidiary, any employee share purchase plan, share option plan or other share
incentive plan or program, retirement plan or automatic dividend reinvestment
plan or any substantially similar plan of the Company or any Subsidiary or any
person holding securities of the Company for or pursuant to the terms of any
such employee benefit plan, filing or becoming obligated to file a report under
or in response to Schedule 13D or Schedule 14D-1(or any successor schedule, form
or report) under the Exchange Act disclosing beneficial ownership by it of
shares of securities of the Company, whether at least 50% of the total voting
power referred to in clause (iii) of the foregoing definition or otherwise. A
recapitalization or a leveraged buyout or similar transaction involving members
of management or their Affiliates will constitute a Change in Control if it
meets the foregoing definition.
Within 15 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) shall mail a notice to each holder stating,
among other things: (1) that a Change of Control Offer is being made pursuant to
the covenant in the Indenture entitled 'Repurchase at the Option of Holders upon
a Change of Control' and that all Notes properly tendered will be accepted for
payment; (2) the Change of Control Purchase Price and the purchase date (the
'Change of Control Payment Date'), which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed; (3) that any Notes or
portions thereof not properly tendered will continue to accrue interest and
Additional Amounts, if applicable, from and after the Change of Control Payment
Date; (4) that holders electing to have any Notes or portions thereof purchased
pursuant to a Change of Control Offer will be required to surrender the Notes,
with the form entitled 'Option of Holder to Elect Purchaser' on the reverse of
the Notes completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (5) that holders will be entitled to withdraw their
election if the Payment Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes
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delivered for purchase, and a statement that such holder is withdrawing his
election to have such Notes or portions thereof purchased; (6) that holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Note or Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof; and (7) the instructions and any other information
necessary to enable holders to accept a Change of Control Offer or effect
withdrawal of such acceptance.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of any
Notes pursuant to a Change of Control Offer.
On the Change of Control Payment Date, the Company will (1) accept for
payment Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) irrevocably deposit with the Paying Agent in immediately
available funds an amount equal to the Change of Control Purchase Price in
respect of all Notes or portions thereof so tendered, and (3) deliver, or cause
to be delivered, to the Trustee the Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof tendered to the Company and
accepted for payment. The Paying Agent shall promptly mail to each holder of
Notes so accepted payment in an amount equal to the Change of Control Purchase
Price for such Notes and the Trustee shall promptly authenticate and mail to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each new Note shall be in a
principal amount of $1,000 or any integral multiple thereof. The Company will
announce publicly the results of a Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The existence of the holders' right to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter a
third party from acquiring the Company in a transaction that constitutes a
Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to pay the Change of
Control Purchase Price for all Notes tendered by holders seeking to accept the
Change of Control Offer. The right to require the Company to repurchase Notes as
a result of the occurrence of a Change of Control could create an event of
default under Senior Indebtedness of the Company, as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions of
the Notes. See '--Subordination of Notes.' In addition, instruments governing
other Indebtedness of the Company or any Subsidiary may prohibit the Company or
such Subsidiary from purchasing, or providing funds to permit the Company to
purchase, any Notes prior to their Maturity, including pursuant to a Change of
Control Offer. In the event that a Change of Control Offer occurs at a time when
the Company does not have sufficient available funds to pay the Change of
Control Purchase Price for all Notes tendered pursuant to such offer or at a
time when the Company is prohibited from purchasing the Notes (and the Company
is unable either to obtain the consent of the holders of the relevant
Indebtedness or to repay such Indebtedness), an Event of Default would occur
under the Indenture. In addition, one of the events that constitutes a Change of
Control under the Indenture is a sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company or the Company and its
Subsidiaries taken as a whole. The Indenture will be governed by New York law,
and there is no established definition under New York law of 'substantially all'
of the assets of a corporation. Accordingly, if the Company were to engage in a
transaction in which it disposed of less than all of its assets, a question of
interpretation could arise as to whether such disposition was of 'substantially
all' of its assets and whether the Company was required to make a Change of
Control Offer.
The foregoing provisions with respect to a Change of Control would not
necessary permit holders of Notes to require that the Company repurchase or
redeem Notes in the event of a takeover, recapitalization or similar
restructuring or in the event of a highly leveraged transaction.
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RIGHT TO REQUIRE REPURCHASE OF NOTES UPON A TERMINATION OF TRADING
In the event of any Termination of Trading (as defined below) occurring
after the Issue Date and on or prior to Maturity, each holder of Notes will have
the right, at the holder's option, to require the Company to repurchase all or
any part of such holder's Notes on the date (the 'Repurchase Date') that is 30
days after the date the Company gives notice of the Termination of Trading as
described below at a price (the 'Repurchase Price') equal to 100% of the
principal amount thereof, together with accrued and unpaid interest, if any, and
Additional Amounts, if any, thereon to the Repurchase Date. On or prior to the
Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Notes which are to
be repaid on or promptly following the Repurchase Date.
On or before the 15th day after the occurrence of a Termination of Trading,
the Company is obligated to mail to all holders of Notes a notice of occurrence
of such Termination of Trading, the Repurchase Date, the date by which the
repurchase right must be exercised, the Repurchase Price for Notes and the
procedures which the holder must follow to exercise this right. To exercise the
repurchase right, the holder of a Note must deliver, on or before the close of
business on the Repurchase Date, irrevocable written notice to the Company (or
an agent designated by the Company for such purpose) and to the Trustee of the
holder's exercise of such right, together with certificates evidencing the Notes
with respect to which the right is being exercised, duly endorsed for transfer.
Such written notice is irrevocable.
A 'Termination of Trading,' shall occur if the Class A Common Stock (or
other Common Stock into which the Notes are then convertible) are neither listed
for trading on a U.S. national securities exchange nor approved for trading on
the Nasdaq National Market or any other established automated over-the-counter
trading market in the United States or, if the Company is a Foreign Private
Issuer (as defined in Rule 3b-4(c) under the Exchange Act) on the principal
securities exchange on which such Common Stock is listed or admitted to trading
in a Designated Offshore Securities Market (as defined in Rule 902(a) under the
Securities Act); provided, however, that a suspension of trading that lasts no
longer than 30 trading days shall not be considered to be a Termination of
Trading.
Failure by the Company to provide timely notice of Termination of Trading,
as provided for above or the failure of the Company to repurchase Notes as a
result of the occurrence of a Termination of Trading could create an Event of
Default under the Senior Indebtedness of the Company, as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions of
the Notes. See '--Subordination of Notes.' Failure by the Company to repurchase
the Notes when required will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions. In
addition, instruments governing other Indebtedness of the Company or any
Subsidiary may prohibit the Company or such Subsidiary from purchasing, or
providing funds to permit the Company to purchase, any Notes prior to their
maturity, including pursuant to a repurchase offer upon a Termination of
Trading. The Company's ability to pay cash to the holders of Notes pursuant to a
repurchase offer upon a Termination of Trading may be limited by certain
financial covenants contained in the other then existing Indebtedness of the
Company or its Subsidiaries.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of Notes
pursuant to an offer to repurchase upon a Termination of Trading.
REPORTS
The Indenture provides that, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Company were subject thereto, such documents to be filed with the
Commission on or prior to the respective dates (the 'Required Filing Dates') by
which the Company would have been required to file
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them. The Company shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
Security Register, without cost to such holders, copies of all reports that the
Company provides to its shareholders, and (ii) file with the applicable Trustee,
copies of the annual reports, quarterly reports and other documents (without
exhibits) which the Company has filed or would have filed with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act, any successor provisions
thereto or this covenant. The Company shall not be required to file any report
with the Commission if the Commission does not permit such filing.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange or
conversion of the Notes, as expressly provided for in the Indenture) as to all
outstanding Notes upon the mandatory conversion thereof or when (a) either (i)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or repaid and Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (except lost, stolen or
destroyed Notes which have been replaced or paid) (A) have become due and
payable, (B) will become due and payable at their Maturity within one year, (C)
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, or (D) are delivered to the Trustee
for conversion in accordance with the Indenture, and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest (including Additional Amounts, if any) on the
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
Maturity or redemption, as the case may be; (b) the Company has paid all other
sums payable under the Indenture by the Company; (c) no Default or Event of
Default under the Indenture or the Notes shall have occurred and be continuing
on the date of such deposit or shall occur as a result thereof; and (d) the
Company has delivered to the Trustee an Officers' Certificate and an opinion of
counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any holder of the Notes, enter into one or more
indentures supplemental to the Indenture, (1) to evidence the succession of
another Person to the Company and the assumption by such successor of the
covenants and obligations of the Company in the Indenture and the Notes; (2) to
add to the covenants of the Company, for the benefit of the holders, or to
surrender any right or power conferred upon the Company by the Indenture; (3) to
add any additional Events of Defaults; (4) to provide for uncertificated Notes
in addition to or in place of certificated Notes; (5) to evidence and provide
for the acceptance of appointment under the Indenture of a successor Trustee;
(6) to add security for such Notes; (7) to cure any ambiguity in the Indenture,
to correct or supplement any provision in the Indenture which may be
inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under such Indenture; provided such
actions shall not adversely affect the interests of the holders in any material
respect; (8) to make provision with respect to the conversion rights of the
holders of the Notes in the event of a consolidation, merger or sale of assets
involving the Company, as required by the Indenture; or (9) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
With the consent of the holders of not less than two-thirds in aggregate
principal amount of the outstanding Notes, the Company and the Trustee may enter
into one or more indentures supplemental
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to the Indenture for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or modifying in any
manner the rights of the holders; provided that no such supplemental indenture
shall, without the consent of the holder of each outstanding Note, (1) change
the Maturity of the principal of, or any installment of interest on, any Note,
or reduce as applicable, the principal amount thereof (or premium, if any), or
the interest thereon (including Additional Amounts, if any) that would be due
and payable upon Maturity thereof, or change the place of payment where, or the
coin or currency in which, any Note or any premium or interest (including
Additional Amounts, if any) thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the maturity thereof;
(2) reduce the percentage in principal amount of the outstanding Notes, the
consent of whose holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture
or certain Defaults thereunder; (3) make any change in the subordination
provisions of the Notes that would adversely affect the holders of the Notes;
(4) adversely affect the right of the holders of Notes to convert such Notes;
(5) modify the obligations of the Company to make offers to purchase Notes upon
a Change of Control or, in the case of a Termination of Trading of the Common
Shares of the Company, the obligation of the Company to make an offer to
repurchase the Notes; or (6) modify any provision of this paragraph (except to
increase any percentage set forth herein).
The holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of the holders of all the Notes, waive any past
Default under the Indenture and its consequences, except Default in the payment
of the principal of (or premium, if any) or interest (including Additional
Amounts, if any) of any Notes, or in respect of a covenant or provision hereof
which under the proviso to the prior paragraph cannot be modified or amended
without the consent of the holder of each outstanding Note affected.
EVENTS OF DEFAULT
Each of the following is an 'Event of Default' under the Indenture (except
where otherwise expressly indicated):
(a) default in the payment of interest (or Additional Amounts, if any) on
any Note issued pursuant to the Indenture when the same becomes due and
payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on) any
Note issued pursuant to the Indenture at its Maturity, upon optional
redemption, required repurchase (including pursuant to a Change of
Control Offer, a repurchase offer upon a Termination of Trading of the
Common Shares) or otherwise or the failure to make an offer to purchase
any Note as required;
(c) the Company fails to perform or comply with the provisions described
under '--Repurchase at the Option of the Holders upon a Change of
Control' '--Consolidation, Merger, Conveyance, Lease or Transfer,' or
'--Right to Require Repurchase of Notes upon a Termination of Trading.'
(d) default in the performance, or breach, of any covenant of the Company
in the Indenture (other than a covenant addressed in clauses (a), (b)
or (c) above) and continuance of such Default or breach for a period of
30 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by holders of at least
25% of the aggregate principal amount of the outstanding Notes;
(e) The principal amount of any Indebtedness of the Company is not paid
when due within the applicable grace period, if any, or such
Indebtedness is accelerated by the holders thereof and, in either case,
the principal of such unpaid or accelerated Indebtedness exceeds $15
million and such acceleration is not rescinded or such Indebtedness is
not paid or discharged within (30) days after written notice to the
Company as provided in the Indenture;
(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company in an uninsured or unindemnified
aggregate amount in excess of $15 million which is
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not discharged, waived, appealed, stayed, bonded or satisfied for a
period of 60 consecutive days; or
(g) certain events in bankruptcy, insolvency or reorganization of the
Company or any Material Subsidiary.
In any Event of Default (other than certain events of Default specified in
clause (g) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount of the Notes may declare the aggregate principal amount of,
premium, if any, and any accrued and unpaid interest (and Additional Amounts, if
any) on all such Notes then outstanding to be immediately due and payable by a
notice in writing to the Company (and to the Trustee if given by holders of the
Notes), and upon any such declaration, all amounts payable in respect of the
Notes will become and be immediately due and payable. If any Event of Default
relating to the Company specified in clause (g) above occurs, the aggregate
principal amount of, premium, if any, and any accrued and unpaid interest (and
Additional Amounts, if any) on the Notes then outstanding shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of the Notes. Under certain circumstances, the holders
of a majority in aggregate principal amount of the outstanding Notes by notice
to the Company and the Trustee may rescind an acceleration and its consequences.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the holders of all such
Notes waive any existing Default or Event of Default under the Indenture and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest (and Additional Amounts, if any) on, premium, if any,
on or the principal of, the Notes. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the holders, unless such holders have offered to the
Trustee reasonable security or indemnity. Subject to the provisions of the
Indenture and applicable law, the holders of a majority in aggregate principal
amount of the Notes at the time outstanding have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
applicable Trustee, or exercising any trust or power conferred upon such
Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within 5
days after becoming aware of any Default or Event of Default under the Indenture
to deliver to the Trustee a statement describing such Default or Event of
Default, its status and what action the Company is taking or proposes to take
with respect thereto.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its Properties and assets as an
entirety to, any Person or Persons, and the Company will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the Properties and assets of the Company, to any other
Person or Persons, unless at the time of and after giving effect thereto (a)
either (i) if the transaction or series of transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person formed by such consolidation or into which the
Company is merged or to which the Properties and assets of the Company are
transferred (any such surviving Person or transferee Person being the 'Surviving
Entity') (A) shall be a corporation organized and existing under the laws of
Bermuda, the United States of America, any state thereof or the District of
Columbia or any country that is a member state of the European Union, (B) shall
expressly assume by a supplemental indenture executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture and (C) shall have provided for
conversion rights described under '--Conversion Rights'; (b) immediately before
and immediately after giving effect to such transaction or series of
transactions, no Default or Event of
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Default shall have occurred and be continuing; and (c) certain other conditions
under the Indenture are met.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease assignment or other disposition
and the supplemental indenture in respect thereof comply with the requirements
under the Indenture.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if the successor corporation had been named as the Company therein.
GOVERNING LAW
The Notes will be governed by, and construed in accordance with, the laws
of the State of New York, without giving effect to applicable principles of
conflicts of law.
THE TRUSTEE
IBJ Schroder Bank & Trust Company will be the Trustee under the Indenture
and its current address is One State Street, New York, New York 10004.
CONSENT TO JURISDICTION AND SERVICE
The Indenture provides that the Company will irrevocably appoint
Corporation Service Company, 375 Hudson Street, New York, New York 10014, as its
agent for service of process in any suit, action or proceeding with respect to
the Indenture and that any such action may be brought in any federal or state
court located in New York County and that the Company will submit to the
jurisdiction of such courts.
CURRENCY INDEMNITY
The U.S. Dollar is the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes and the Indenture,
including damages. Any amount received or recovered in a currency other than
U.S. Dollars (whether as a result of a judgment or order of a court of any
jurisdiction or the enforcement thereof, in the winding up or dissolution of the
Company or otherwise) by any holder in respect of any sum expressed to be due to
it from the Company shall only constitute discharge of the Company to the extent
of the U.S. Dollar amount which the recipient is able to purchase with the
amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that U.S.
Dollar amount is less than the U.S. Dollar amount expressed to be due to the
recipient under any Note, the Company shall indemnify the holder against the
cost of making any such purchase. For the purposes of this paragraph, it will be
sufficient for the holder to certify that it would have suffered a loss had an
actual purchase of U.S. Dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of U.S.
Dollars on such date had not been practicable, on the first date on which it
would have been practicable). To the extent permitted by applicable law, these
indemnities constitute a separate and independent obligation from the Company
shall give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any holder and shall continue in full
force and effect despite any other judgment, order, claim or proof for a
liquidated amount in respect of any sum due under any Note or any other judgment
or order.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture, except where the context otherwise indicates. Reference is made to
the Indenture for the full definition of all such terms, as well as any
capitalized terms used herein for which no definition is provided.
'Affiliate' means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. For purposes of this definition, 'control' (including, with correlative
meanings, the terms 'controlling,' 'under common control with,' and 'controlled
by'), and as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of Voting
Stock, by agreement or otherwise; provided that beneficial ownership of 10% or
more of the Voting Stock of a Person (on a fully diluted basis) shall be deemed
to be control.
'Board of Directors' means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
'Capital Lease Obligation' of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right of use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles that are applicable at the date of determination.
'Capital Stock' in any Person means any and all shares, interests,
participation or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
'Closing Price' on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or any other national securities exchange or, if such shares
of Capital Stock are not listed or admitted to trading on such exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on such automated quotation system
but the issuer is a Foreign Private Issuer (as defined in Rule 3b-4(c) under the
Exchange Act) and the principal securities exchange on which such shares are
listed or admitted to trading is a Designated Offshore Securities Market (as
defined in Rule 902(a) under the Securities Act), the average of the reported
closing bid and asked prices regular way on such principal exchange, or, if such
shares are not listed or admitted to trading on any national securities exchange
or quoted on such automated quotation system and the issuer and the principal
securities exchange to not meet such requirements, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm that is selected from time to time by the Company for
that purpose and is reasonably acceptable to the Trustee.
'Common Stock' includes any stock of any class of any Person which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of such person
and which is not subject to redemption by such person, including, without
limitation, the Company's Class A Common Stock and Class B Common Stock. Subject
to the provisions of the Indenture, however, shares issuable on conversion of
the Notes shall include only shares of the class designated as Class A Common
Stock of the Company at the date of the Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which are not subject to redemption by the Company; provided,
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the
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total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Indebtedness' means, with respect to any Person, whether recourse is to
all or a portion of the assets of such Person, and whether or not contingent,
(i) any obligation of such Person for money borrowed, (ii) any obligation of
such Person evidenced by bonds, debenture, notes, guarantees or other similar
instruments, including, without limitation, any such obligations incurred in
connection with acquisition of Property, assets or businesses, excluding trade
accounts payable made in the ordinary course of business, (iii) any
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business, which in either
case are not more than 60 days overdue or which are being contested in good
faith), (v) any Capital Lease Obligation of such Person, and (vi) any obligation
of the type referred to in clauses (i) through (v) of this definition of another
Person and all dividends and distributions of another Person the payment of
which, in either case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise.
'Issue Date' means the date on which the Notes are first authenticated and
delivered under the Indenture.
'Material Subsidiary' means a Subsidiary which is consolidated on the
Company's financial statements, if the Company's and its other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of
such Subsidiary, including its Subsidiaries, exceeds 10 percent of the total
assets of the Company and its Subsidiaries consolidated for the most recently
completed fiscal year.
'Maturity' means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at stated maturity, on the Change of Control Payment Date or
purchase date established pursuant to the terms of the Indenture with regard to
a Change of Control Offer, or an offer to repurchase upon Termination of Trading
of the Common Shares of the Company, as applicable, or by declaration of
acceleration, call for redemption or otherwise.
'Permitted Holders' means each beneficial owner of the Issuer's Class B
Common Stock on the Issue Date and their respective families and Affiliates.
'Person' means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization, government or any
agency or political subdivision thereof or other entity.
'Preferred Stock' means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
'Property' means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
'Subsidiary' means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries of such Person, or (iii)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner.
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'Total Market Capitalization' of any Person means, as of any day of
determination, the sum of (a) the consolidated indebtedness of such Person and
its Subsidiaries on such day, plus (b) the product of (i) the aggregate number
of outstanding shares of Common Stock of such Person on such day (which shall
not include any options or warrants on, or securities convertible or
exchangeable into, shares of Common Stock of such Person other than, in the case
of the Company, any shares of Preferred Stock of the Company, that, as of the
day of determination, cannot, pursuant to the terms thereof as in effect on the
date of the Indenture, be required to be redeemed by the Company in cash, and
(ii) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day, plus (c) the liquidation value of
any
outstanding shares of Preferred Stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (b) for the preceding sentence shall be determined
by the Company's Board or Directors in good faith and evidenced by a written
opinion as to such value issued by an investment banking firm or recognized
national standing.
'Trading Day' means, with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full day
of trading.
'Voting Stock' means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
'Wholly-Owned Subsidiary' means any Subsidiary, all of the outstanding
Capital Stock (other than directors' qualifying shares) of which are owned,
directly or indirectly, by the Company.
DESCRIPTION OF CAPITAL STOCK
The authorized share capital of the Company is 50,000,000 shares, which
consists of (i) 30,000,000 shares of Class A Common Stock, par value $.01 per
share (the 'Class A Common Stock'), 15,000,000 shares of Class B Common Stock,
par value $.01 per share (the 'Class B Common Stock') and (ii) 5,000,000 shares
of preferred stock, par value $.01 per share (the 'Preferred Stock'). At the
1997 annual meeting of the Company's shareholders to be held on May 2, 1997, the
Company's shareholders will be asked to approve an increase in the number of
authorized shares of the Class A Common Stock to 100,000,000 shares, resulting
in a total authorized share capital of the Company of 120,000,000 shares.
Currently 16,732,178 shares of Class A Common Stock and 7,149,475 shares of
Class B Common Stock are outstanding and no shares of Preferred Stock are
outstanding. The following statements are summaries of certain provisions of the
Company's Memorandum of Association, bye-laws and The Companies Act 1981 of
Bermuda. These summaries do not purport to be complete and are qualified in
their entirety by reference to the full Memorandum of Association and bye-laws
which have been incorporated by reference as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
CLASS A COMMON STOCK
The holders of the Class A Common Stock are entitled to one vote per share
and are entitled to vote as a single class together with the holders of the
Class B Common Stock on all matters subject to shareholder approval, except that
the holders of the Class A Common Stock and the holders of the Class B Common
Stock will each vote as a separate class with respect to any proposed 'going
private' transactions between the Company and Ronald S. Lauder and any matter
requiring class voting by The Companies Act 1981 of Bermuda. The holders of the
outstanding shares of Class A Common Stock are entitled to receive dividends as
and when declared by the Board of Directors, pari passu with the holders of
Class B Common Stock, out of funds legally available therefor after the payment
of any dividends declared but unpaid on any shares of Preferred Stock then
outstanding. The holders of the Class A Common Stock have no preemptive or
cumulative voting rights and no rights to convert their shares of Class A Common
Stock into any other securities. All of the outstanding shares of the Class A
Common Stock and shares of Class A Common Stock issued by the Company in the
Offering, will be,
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fully paid and nonassessable. On liquidation, dissolution or winding up of the
Company, the holders of Class A Common Stock are entitled to receive, pari passu
with the holders of Class B Common Stock, pro rata the net assets of the Company
remaining after preferential distribution to holders of Preferred Stock and the
payment of all creditors and liquidation preferences, if any.
The transfer agent and registrar for the Class A Common Stock is American
Stock Transfer and Trust Company.
CLASS B COMMON STOCK
The holders of the Class B Common Stock are entitled to ten votes per share
and are entitled to vote as a single class together with the holders of the
Class A Common Stock on all matters which are subject to shareholder approval,
except that the holders of the Class A Common Stock and the holders of the Class
B Common Stock will each vote as a separate class with respect to any proposed
'going private' transactions between the Company and Ronald S. Lauder and any
matter requiring class voting by The Companies Act 1981 of Bermuda. The holders
of the outstanding shares of Class B Common Stock are entitled to receive
dividends as and when declared by the Board of Directors, pari passu with the
holders of the Class A Common Stock, out of funds legally available therefor
after the payment of any dividends declared but unpaid on any shares of
Preferred Stock then outstanding. The holders of the Class B Common Stock have
no preemptive or cumulative voting rights. The holders of the Class B Common
Stock have the right to convert their shares of Class B Common stock into shares
of Class A Common Stock at their election and on a one to one basis, and all
shares of Class B Common Stock will automatically convert into shares of Class A
Common Stock on a one to one basis when the number of shares of Class B Common
Stock represent less than 10% of the combined total number of shares of Class A
Common Stock and Class B Common Stock outstanding. All of the outstanding shares
of the Class B Common Stock are fully paid and nonassessable. Shares of Class B
Common Stock may be transferred only to other original holders of Class B Common
Stock or to members of the family of the original holder by gift, devise or
otherwise through laws of inheritance, descent, distribution or to a trust
established by the holder for the holder's family members, to corporations the
majority of beneficial owners of which are or will be owned by the holders of
Class B Common Stock and from corporations or partnerships which are the holders
of Class B Common Stock, to their shareholders or partners, as the case may be
(each a 'Permitted Transferee'). Any other transfer of Class B Common Stock is
void, although the Class B Common Stock may be converted at any time into Class
A Common Stock on a one to one basis and then sold, subject to the conditions
and restrictions of Rule 144. A transfer by an original holder of Class B Common
Stock which is either a corporation or a partnership of more than 50% of the
equity interest in such corporation or partnership to other than a Permitted
Transferee shall result in an automatic conversion of all shares of Class B
Common Stock held by such corporation or partnership into an equal number of
shares of Class A Common Stock. The Company is entitled to seek specific
enforcement of such conversion of shares of Class B Common Stock into shares of
Class A Common Stock upon the failure of any holder and/or transferee of shares
of Class B Common Stock to comply with such conversion. In such event, the
Company is entitled to recover from the holder and the transferee who failed to
comply with such conversion, jointly and severally, the court costs, reasonable
attorneys' fees and other costs and expenses incurred by it in connection with
the obtaining of such specific enforcement. On liquidation, dissolution or
winding up of the Company, the holders of Class B Common Stock are entitled to
receive, pari passu with the holders of the Class A Common Stock, pro rata the
net assets of the Company remaining after preferential distribution to holders
of Preferred Stock and the payment of all creditors and liquidation preferences,
if any.
A 'going private' transaction is any 'Rule 13e-3 Transaction,' as such term
is defined in Rule 13e-3 promulgated under the Securities Exchange Act between
the Company and (i) Ronald S. Lauder, (ii) any Affiliate of Mr. Lauder, as
defined below or (iii) any group consisting of Mr. Lauder or Affiliates of Mr.
Lauder.
An Affiliate of Ronald S. Lauder is (i) any individual or entity who or
that, directly or indirectly, controls, is controlled by, or is under common
control with, Mr. Lauder, (ii) any corporation or
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organization (other than the Company or a majority-owned subsidiary of the
Company) of which Mr. Lauder is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of voting
securities, or in which Mr. Lauder has a substantial beneficial interest, (iii)
any trust or other estate in which the Mr. Lauder has a substantial beneficial
interest or as to which Mr. Lauder serves as trustee or in a similar fiduciary
capacity or (iv) any relative or spouse of Mr. Lauder, or any relative of such
spouse, who has the same residence as Mr. Lauder.
PREFERRED STOCK
The Preferred Stock may be issued from time to time as determined by the
Board of Directors of the Company, without shareholder approval. Such Preferred
Stock may be issued in such series and with such preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors.
It is intended that Preferred Stock be issued, among other reasons, for
financing acquisitions, for raising additional capital, or for similar corporate
purposes. While the Board of Directors has no current intention of doing so, the
Board of Directors, without shareholder approval, could issue Preferred Stock
with voting and conversion rights which could adversely affect the benefit of
any voting power and the benefit of other rights of the holders of the Class A
Common Stock and which could be used as an anti-takeover measure by the Company
without any further action by the holders of Class A Common Stock. This may have
the effect of delaying, deferring or preventing a change of control of the
Company by increasing the number of shares necessary to gain control of the
Company. At the date of this Prospectus, the Board of Directors has not
authorized the issuance of any shares of Preferred Stock and the Company has no
agreements or understanding for the issuance of any shares of Preferred Stock.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Class A Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more shareholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions of the bye-laws
summarized in the succeeding paragraph, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in such shareholder's best interest, including
attempts that might result in a premium over the market price for the Class A
Common Stock held by shareholders.
The bye-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors, as well as for other shareholder proposals to be
considered at annual general meetings of shareholders. In general, notice of
intent to nominate a director or raise business at such meeting must be received
by the Company not less than 90 nor more than 120 days prior to the meeting, and
must contain certain specified information concerning the person to be nominated
or the matter to be brought before the meeting and concerning the shareholder
submitting the proposal.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain respects from laws
generally applicable to United States corporations and their shareholders. Set
forth below is a summary of certain significant provisions of The Companies Act
(including any modifications adopted pursuant to the Company's bye-laws)
applicable to the Company, which differ in certain respects from provisions of
Delaware corporate law. The following statements are summaries, and do not
purport to deal with all aspects of Bermuda law that may be relevant to the
Company and its shareholders.
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Interested Directors. The bye-laws provide that any transaction entered
into by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed at
the first opportunity at a meeting of directors, or in writing to the directors.
Under Delaware law no such transaction would be voidable if (i) the material
facts as to such interested director's relationship or interests are disclosed
or are known to the board of directors and the board in good faith authorizes
the transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be held
liable for any transaction for which such director derived an improper personal
benefit.
Merger and Similar Arrangements. The Company may acquire the business of
another Bermuda company similarly exempt from Bermuda taxes or a company
incorporated outside Bermuda and carry on such business when it is within the
objects of its Memorandum. The Company may amalgamate with another Bermuda
company or with a company incorporated in another jurisdiction which permits
such a company to amalgamate with a Bermuda company, subject to shareholder
approval. A shareholder may apply to a Bermuda court for a proper valuation of
such shareholder's shares if such shareholder is not satisfied that fair value
has been paid for such shares. The court ordinarily would not disapprove the
transaction on that ground absent evidence of fraud or bad faith. Under Delaware
law, with certain exceptions, any merger, consolidation or sale of all or
substantially all the assets of a corporation must be approved by the board of
directors and a majority of the outstanding shares entitled to vote. Under
Delaware law, a stockholder of a corporation participating in certain major
corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of the shares held by such stockholder (as
determined by a court or by agreement of the corporation and the stockholder) in
lieu of the consideration such stockholder would otherwise receive in the
transaction. Delaware law does not provide stockholders of a corporation with
voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other consideration (i) in exchange for the
assets of the business to be acquired, (ii) in exchange for the outstanding
stock of the corporation to be acquired or (iii) in a merger of the corporation
to be acquired with a subsidiary of the acquiring corporation.
Takeovers. Bermuda law provides that where an offer is made for shares of
another company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion as between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any shareholder
vote, may merge with any 90% or more owned subsidiary. Upon any such merger,
dissenting stockholders of the subsidiary would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum and bye-laws.
Furthermore, consideration would be given by the court to acts that are alleged
to constitute a fraud against the minority shareholders or where an act requires
the approval of a greater percentage of the Company's shareholders than actually
approved it. The winning party in such an action generally would be able to
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recover a portion of attorneys fees or fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney fees incurred in connection with such action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own wilful
default, wilful neglect, fraud or dishonesty. Bermuda law recently was amended
to permit such indemnification by a corporation for acts by a director or
officer involving wilful default or wilful negligence. The Company, however, has
not adopted, and has no present intention of adopting, this provision in its
bye-laws. Under Delaware law, a corporation may adopt a provision eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for breaches of the director's duty of loyalty, for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
law, for improper payment of dividends or for any transaction from which the
director derived an improper personal benefit. Delaware law has provisions and
limitations similar to Bermuda regarding indemnification by a corporation of its
directors or officers, except that under Delaware law the statutory rights to
indemnification may not be as limited.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda which will include the Memorandum
(including its objects and powers) and any alteration to the Memorandum and
documents relating to an increase or reduction of authorized capital. The
shareholders have the additional right to inspect the bye-laws, minutes of
general meetings and audited financial statements of the Company, which must be
presented to the annual general meeting of shareholders. The register of
shareholders of the Company is also open to inspection by shareholders without
charge, and to members of the public for a fee. The Company is required to
maintain its share register in Bermuda but may establish a branch register
outside Bermuda. The Company is required to keep at its registered office a
register of its directors and officers which is open for inspection by members
of the public without charge. Bermuda law does not, however, provide a general
right for shareholders to inspect or obtain copies of any other corporate
records. Delaware law permits any shareholder to inspect or obtain copies of a
corporation's shareholder list and its other books and records for any purpose
reasonably related to such person's interest as a shareholder.
CERTAIN PROVISIONS OF BERMUDA LAW
The Company has been designated as a non-resident under the Exchange
Control Act of 1972 (the 'Control Act') by the Bermuda Monetary Authority whose
permission for the issue of shares of Common Stock of the Company has been
obtained. This designation allows the Company to engage in transactions in
currencies other than the Bermuda dollar. Prior to the Offering, this Prospectus
will be filed with the Registrar of Companies in Bermuda in accordance with
Bermuda law.
In granting such permission and in accepting this Prospectus for filing,
neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda
accepts any responsibility for the financial soundness of the Company or of the
correctness of any of the statements made or opinions expressed in this
Prospectus.
The transfer of shares between persons regarded as resident outside Bermuda
for exchange control purposes and the issue of shares after the completion of
the Offering to or by such persons may be effected without specific consent
under the Control Act and regulations thereunder. Issues and transfers of shares
involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Control Act.
Non-Bermuda owners of the Company's shares of Common Stock are not
restricted in the exercise of the rights to hold or vote their shares. Because
the Company has been designated as a non-resident for Bermuda exchange control
purposes there are no restrictions on its ability to transfer funds in and
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out of Bermuda or to pay dividends to United States residents who are holders of
the Company's Common Stock, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.
The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.
As an 'exempted company,' the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of $50,000 without the consent of the Minister of
Finance of Bermuda; (3) the acquisition of securities created or issued by, or
any interest in, any local company or business, other than certain types of
Bermuda government securities of another 'exempted' company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Notes
under United States federal income tax laws and Bermuda tax laws. The discussion
does not deal with all possible tax consequences relating to the Company's
operations or to an investment in the Notes. In particular, the discussion does
not address the tax consequences under state, local and other (e.g., non-United
States federal, non-Bermuda) tax laws. Accordingly, each prospective investor
should consult his or her tax advisor regarding the tax consequences of an
investment in the Notes. The discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change. In this section of the Prospectus, the term the
'Company' includes only CME.
BERMUDA TAXATION
In the opinion of Conyers, Dill & Pearman, Bermuda counsel to the Company,
the following discussion correctly describes certain tax consequences to the
Company with respect to the Offering and with respect to ownership of the Notes
under Bermuda law.
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or holders of the Notes other than such
holders ordinarily resident in Bermuda. The Company is not subject to stamp or
other similar duty on the issue, transfer, conversion or redemption of the
Notes.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or the shares, the Notes or
other obligations of the Company, until March 28, 2016, except insofar as such
tax applies to persons ordinarily resident in Bermuda and holding such shares,
the Notes or other obligations of the Company, or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
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UNITED STATES FEDERAL INCOME TAXATION
In the opinion of Rosenman & Colin LLP, United States counsel to the
Company, the following correctly describes certain United States federal income
tax consequences to the Company and to a United States Investor making an
investment in the Notes. For purposes of this discussion, the term 'United
States Investor' includes a United States citizen or resident, a United States
corporation or partnership, a trust if a United States court is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust, and an estate that is subject to United States federal income tax on
its income regardless of source. The following discussion does not generally
address the tax consequences to a United States Investor who holds (or will
hold), directly or indirectly, shares in the Company giving the holder the right
to exercise 10% or more of the total voting power of the Company's outstanding
stock (a '10% Shareholder') or to persons who are not United States Investors.
Non-United States Investors and 10% Shareholders are advised to consult their
own tax advisors regarding the tax considerations incident to an investment in
the Notes. In addition, the summary does not address the United States federal
income tax treatment of certain types of United States Investors (e.g.,
individual retirement and other tax-deferred accounts, life insurance companies,
tax-exempt organizations, dealers in securities or currencies, persons who hold
Notes as part of a straddle or conversion transaction and persons whose
functional currency is not the United States dollar) who may be subject to tax
rules that differ significantly from those summarized below. The discussion
below as it relates to United States federal income tax consequences is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in United States federal income tax consequences different from those
discussed below. Prospective investors are advised to consult their own tax
advisors with respect to their particular circumstances and with respect to the
effect of state, local or foreign tax laws to which they may be subject.
Taxation of the Company and its Subsidiaries
In general, the Company and its foreign (non-United States) Subsidiaries
will be subject to United States federal income tax only to the extent they have
income which has its source in the United States or is effectively connected
with a United States trade or business. It is anticipated that the Company and
its foreign Subsidiaries will derive substantially all of their income from
foreign sources and that none of their income will be effectively connected with
a United States trade or business. In addition, it is anticipated that any
United States source income of the Company will be derived from investments the
interest on which will be exempt from United States federal income taxation. As
a result, the Company and its foreign Subsidiaries should be subject to little
or no United States federal income taxation. On the other hand, the domestic
(United States) Subsidiaries of the Company will be subject to United States
federal income taxation on their worldwide income (regardless of source),
subject to reduction by allowable foreign tax credits, and distributions by such
United States Subsidiaries to the Company or its foreign Subsidiaries generally
will be subject to United States withholding taxes.
Taxation of Noteholders
Stated Interest. A United States Investor using the accrual method of
accounting for tax purposes generally will be required to include interest in
income as such interest accrues on the Notes, while a cash basis United States
Investor generally will be required to include interest in income when interest
payments are received. It is expected that the Notes initially will be purchased
at a discount from their stated principal amount by the Underwriters, and then
will be sold by them to public investors at an amount equal to their stated
principal amount (or at a de minimis discount from the Notes' stated principal
amount). As a result, based upon applicable Treasury Regulations (which
generally provide that the purchase by underwriters for redistribution is
disregarded for purposes of determining original issue discount), the Notes
should not be treated as being issued with original issue discount.
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Market Discount. If a subsequent purchaser who is a United States Investor
purchases a Note for an amount that is less than its stated principal amount,
the amount of the difference, subject to a de minimis exception, will be 'market
discount.' The market discount rules generally provide that if such subsequent
purchaser thereafter disposes of the Note (including by means of a gift), the
lesser of the gain recognized (or appreciation, in the case of a gift) or the
portion of the market discount that accrued while the Note was held by such
subsequent purchaser will be treated as ordinary income at the time of the
disposition. Unless the United States Investor elects otherwise, the accrued
market discount generally would be the amount calculated by multiplying the
market discount by a fraction, the numerator of which is the number of days the
Note has been held by the United States Investor and the denominator of which is
the number of days after the United States Investor's acquisition of the Note up
to and including its maturity date. The market discount rules also provide that
unless such United States Investor elects to include market discount in income
on a current basis, then such United States Investor may be required to defer a
portion of any interest expense that would otherwise be deductible on any
indebtedness incurred or continued to purchase or carry the Note until such
holder disposes of the Note in a taxable transaction.
The Notes provide that they may be redeemed, in whole or in part, before
maturity. If some or all of the Notes are redeemed, each holder of a Note
acquired at a market discount would be required to treat the principal payment
as ordinary income to the extent of any accrued market discount on such Note.
A United States Investor of a debt instrument acquired at a market discount
may elect to include the market discount in income as the discount thereof
accrues, either on a straight line basis or, if elected, on a constant interest
basis. The current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service (the 'IRS'). If a United States Investor
elects to include market discount in income in accordance with the preceding
sentence, the foregoing rules with respect to the recognition of ordinary income
on a sale or certain other dispositions of such Note and the deferral of
interest deductions on indebtedness related to such Note would not apply.
Amortizable Bond Premium. If a holder purchases a Note for an amount
greater than its stated principal amount, such holder will be considered to have
purchased the Note with 'amortizable bond premium' equal in amount to such
excess (to the extent such excess is not attributable to the conversion feature
of the Note). Such United States Investor may elect to amortize such premium
using a constant yield method determined by reference to such holder's basis in
the Note over the remaining term of the Note and offset interest otherwise
required to be included in gross income in respect of the Note during any
taxable year by the amortized amount of such excess for the taxable year. A
United States Investor who elects to amortize bond premium must reduce its tax
basis in the related Note by the amount of the aggregate deductions allowable
for amortizable bond premium. An election to amortize bond premium would apply
to amortizable bond premium on all taxable bonds held at or acquired after the
beginning of the United States Investor's taxable year for which the election is
made, and may be revoked only with the consent of the IRS.
Disposition. In general, a United States Investor will recognize gain or
loss upon the sale, exchange, redemption or other taxable disposition of the
Note measured by the difference between (i) the amount of cash and the fair
market value of property received and (ii) the United States Investor's adjusted
tax basis in the Note (including increases resulting from any market discount
previously included in income by such holder and decreases resulting from any
bond premium amortized over the term of the Note). Except as described above
under 'Market Discount,' any such gain or loss will generally be long-term
capital gain or loss, provided the Note is a capital asset in the hands of the
holder and had been held for more than one year. If the Company is determined to
be a passive foreign investment company, it is possible that a disposition of
the Notes at a gain would be subject to the special rules applicable to gains
realized on the securities of such a company. See discussion below under heading
'Passive Foreign Investment Companies.'
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Conversion. A United States Investor will not recognize gain or loss on
the conversion of a Note solely into the Class A Common Stock of the Company
except with respect to cash in lieu of fractional shares and except to the
extent that the shares issued upon conversion are treated as attributable to
accrued interest on the Notes. To the extent the Notes converted are subject to
accrued market discount, the amount of the accrued market discount will carry
over to the shares on conversion, and gain on the disposition of the shares will
be treated as ordinary income on such disposition to the extent of such accrued
market discount. To the extent that shares are received by a holder of a Note
without recognition of gain or loss, the holding period of the shares received
upon conversion of the Note will include the period during which the Note was
held, and the holder's aggregate basis in the shares received upon conversion of
the Note will be equal to the holder's aggregate basis in the Note exchanged
therefor (less a portion thereof allocable to any fractional share). A U.S.
holder of a Note will recognize gain or loss for federal income tax purposes on
the receipt of cash in lieu of a fractional share in an amount equal to the
difference between the amount of cash received and such holder's basis in such
fractional share. Except as described above under 'Market Discount,' such gain
or loss should be capital gain or loss, and should be long-term capital gain or
loss if the fractional share has been deemed held for more than one year. The
fair market value of shares received which is attributable to accrued interest
will be taxable as ordinary interest income.
Constructive Distribution
Under certain unlikely circumstances, an adjustment in the conversion price
of the Notes, pursuant to the terms of the Notes providing therefor, or the
absence of such an adjustment could cause a determination that there has been a
constructive, taxable distribution to a United States Investor under Section 305
of the Code, without there being a corresponding cash payment.
Taxation of Shareholders
A United States Investor receiving a distribution on the Class A Common
Stock into which the Notes are convertible generally will be required to include
such distribution in gross income as a dividend to the extent such distribution
is paid from the current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Distributions in
excess of the earnings and profits of the Company generally will first be
treated, for United States federal income tax purposes, as a nontaxable return
of capital to the extent of the United States Investor's basis in the Class A
Common Stock and then as gain from the sale or exchange of a capital asset,
provided that the Class A Common Stock constitutes a capital asset in the hands
of the United States Investor. Dividends received on the Class A Common Stock by
United States corporate shareholders will not be eligible for the corporate
dividends received deduction.
A United States Investor will be entitled to claim a foreign tax credit
with respect to income received from the Company only for foreign taxes (such as
withholding taxes), if any, imposed on dividends paid to such United States
Investor and not for taxes, if any, imposed on the Company or on any entity in
which the Company has made an investment. (Special rules may apply, however, in
the case of a United States corporation that is a 10% Shareholder.) It is not
anticipated, however, under current Bermuda law that any such withholding taxes
would be imposed by Bermuda on distributions made by the Company to a United
States Investor. Distributions with respect to the Class A Common Stock that are
taxable as dividends generally will constitute income from sources without the
United States for purposes of determining the limitation on the allowable
foreign tax credits. The overall limitation on foreign taxes eligible for credit
is calculated separately with respect to specific classes of income. For this
purpose, dividends distributed by the Company to United States Investors
generally will constitute 'passive income' for purposes of applying the foreign
tax credit limitations.
With certain exceptions, gain or loss on the sale or exchange of the Class
A Common Stock will be treated as United States source gain or loss and will be
capital gain or loss if the Class A Common Stock is held as a capital asset.
Such capital gain or loss generally will be long-term capital gain or loss if
the United States Investor's holding period for the Class A Common Stock is more
than one year at the time of the sale or exchange.
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Various Code provisions impose special taxes in certain circumstances on
United States or foreign corporations and their United States stockholders. The
following is a summary of certain provisions which could have an adverse impact
on the Company and the United States Investors.
Personal Holding Companies
A corporation that is a personal holding company ('PHC') is subject to a
39.6% tax on its undistributed personal holding company income. In general, a
PHC is a corporation (i) more than 50% of the stock of which measured by value
is owned, directly or indirectly, by five or fewer individuals (without regard
to their citizenship or residence) and (ii) which receives 60% or more of gross
income, as specifically adjusted, from certain passive sources. For purposes of
this ownership test, pension plans and certain other tax-exempt organizations
are treated as 'individuals'. For purposes of this gross income test, income of
a foreign corporation means generally only taxable income derived from United
States sources or income that is effectively connected with a United States
trade or business.
At the present time, it is not likely that more than 50% of the outstanding
shares of the Common Stock of the Company or of the shares of its corporate
Subsidiaries by value will be owned, directly or indirectly, by five or fewer
individuals. In any event, since it is anticipated that the Company and its
foreign corporate Subsidiaries will derive substantially all of their income
from foreign sources that will not be effectively connected with a United States
trade or business, the Company believes that neither the Company nor any of such
Subsidiaries will satisfy the foregoing income test and therefore none of them
should be classified as a PHC. In addition, since it is anticipated that the
Company's United States Subsidiaries will derive most or all of their income
from non-passive sources, the Company further believes that such Subsidiaries
will not satisfy the foregoing income test and, thus, will not be classified as
PHCs. The Company intends to manage its affairs and the affairs of its
Subsidiaries so as to attempt to avoid or minimize the imposition of the
personal holding company tax, to the extent consistent with its other business
goals.
Foreign Personal Holding Companies
In general, if the Company or any of its foreign corporate Subsidiaries
were to be classified as a foreign personal holding company ('FPHC'), the
undistributed foreign personal holding company income (generally, the taxable
income, with certain adjustments) of the Company or such Subsidiary would be
imputed to all of the United States Investors who were deemed to hold the
Company's stock or the stock of such Subsidiary on the last day of its taxable
year. Such income would be taxable to such persons as a dividend, even if no
cash dividend were actually paid. United States Investors who dispose of their
Class A Common Stock prior to such date generally would not be subject to tax
under these rules. In certain circumstances, if the Company were to become an
FPHC, United States Investors who acquire Class A Common Stock from decedents
would be denied the step-up of the income tax basis for such Class A Common
Stock to fair market value at the date of death which would otherwise have been
available and instead would have a tax basis equal to the lower of the fair
market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are United States citizens or residents, directly or
indirectly, own more than 50% of the corporation's stock (measured by either
voting power or value, as opposed to only value as in the case of the PHC
ownership test described above) (the 'stockholder test') and (ii) the
corporation receives at least 60% of its gross income (regardless of source), as
specifically adjusted, from certain passive sources (the 'income test'). After a
corporation becomes an FPHC, the income test percentage for each subsequent
taxable year generally is reduced to 50%.
At the present time, it is likely that five or fewer individuals who are
United States citizens or residents will, directly or indirectly, own a
beneficial interest of more than 50% of the voting power of the outstanding
Common Stock of the Company and of the shares of certain of its foreign
corporate Subsidiaries for purposes of the FPHC rules. Accordingly, the Company
believes that the stockholder test will likely be met with respect to the
Company and such Subsidiaries. The Company believes, however, that none of its
foreign corporate Subsidiaries (except possibly for CME BV) should be classified
as an FPHC because each of these Subsidiaries should not satisfy the foregoing
income test.
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The Company also believes that CME BV, an indirect wholly-owned subsidiary of
the Company organized to hold and operate the Company's investments in its
Central and Eastern European and German broadcast operations, should not satisfy
the income test and should not be an FPHC because it will derive most of its
gross income from its equity interest in entities treated as partnerships for
United States federal income tax purposes under the recently issued 'check the
box' Treasury Regulations making entity classification essentially elective. In
particular, Nova TV, having made the election to be treated as a partnership
should be a partnership and not an association taxable as a corporation for
United States federal income tax purposes. As a result, the income of such
entity (as well as other entities owned by CME BV, each also having made the
election to be treated as a partnership) should 'flow through' to CME BV, and
the Company believes that substantially all of such income will not be
considered passive income for purposes of the FPHC rules. If, on the other hand,
these entities were nevertheless considered to be corporations and not
partnerships for United States federal income tax purposes, then distributions,
if any, to CME BV from these entities out of their current or accumulated
earnings and profits would result in passive income to CME BV and may cause CME
BV to be treated as an FPHC. In any event, it is possible that CME BV, itself,
will hereafter determine to make the election to be treated as a partnership for
United States federal income tax purposes, and, upon the effective date of such
election, if made, all risk of FPHC status for CME BV will be eliminated.
It is anticipated that the Company upon lending the proceeds in whole or in
part to CME BV will realize substantial amounts of interest income causing the
Company to be classified as a FPHC. However, the Company, by reason of its
substantial interest costs and other expenses, is not expected in the near term
to have any undistributed FPHC income. Generally, the Company intends, to the
extent possible and to the extent consistent with its other business goals, to
manage its affairs and the affairs of its Subsidiaries so as to avoid or
minimize having income that would be imputed to the United States Investors
under these FPHC rules. Furthermore, if CME BV determines to make the election
to be treated as a partnership, payments from CME BV to the Company with respect
to the inter-company loan will lose their character as interest so that little
or no income of the Company will be passive for purposes of the FPHC rules and
the risk of FPHC status for the Company should be eliminated.
Passive Foreign Investment Companies
If 75% or more of the gross income of the Company (taking into account,
under an income 'look-through' rule, the Company's pro rata share of the gross
income of any company of which the Company is considered to own 25% or more of
the stock by value) in a taxable year is passive income, or if at least 50% of
the average percentage of assets of the Company (generally determined based upon
the fair market value or, if the Company were a controlled foreign corporation
(see discussion below), based upon the adjusted tax bases of the Company's
assets, also taking into account, under an asset 'look-through' rule, the
Company's pro rata share of the assets of any company of which the Company is
considered to own 25% or more of the stock by value) in a taxable year produce
or are held for the production of passive income, the Company would be
classified as a 'passive foreign investment company' ('PFIC') for that taxable
year and generally for all subsequent taxable years. Passive income for purposes
of the PFIC rules generally includes dividends, interest and other types of
investment income and generally would include amounts derived by reason of the
temporary investment of excess funds. If the Company were a PFIC, each
shareholder who was a United States Investor (regardless of the percentage of
stock owned) would, upon certain distributions by the Company and upon
disposition of the Class A Common Stock at a gain, be liable to pay tax plus an
interest charge. The tax would be determined by allocating such distribution or
gain ratably to each day of the United States Investor's holding period for the
Class A Common Stock. The amount allocated to years prior to the taxable year of
the distribution or disposition would be taxed at the highest marginal rates for
ordinary income for such years (if the Company was a PFIC during such years).
The United States Investor would also be liable for interest on the amount of
such additional tax due with respect to such prior years in which the Company
was a PFIC. The amount allocated to the current taxable year and any non-PFIC
years would be taxed in the same manner as other ordinary income earned in the
current taxable year.
85
<PAGE>
Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate Subsidiary of the Company may be attributed in whole or in
part to a United States Investor, and such United States Investor may be taxed
under the PFIC rules with respect to such distributions or dispositions.
If the Company were to become a PFIC, United States Investors who acquire
Class A Common Stock from decedents could be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead could have a tax
basis equal to the lower of the fair market value or the decedent's basis.
The above results can be eliminated if a United States Investor elects to
treat the Company as a 'qualified electing fund' ('QEF') for United States
federal income tax purposes. A stockholder of a QEF is required for each taxable
year in which the QEF is a PFIC to include in income a pro rata share of the
ordinary income of the QEF as ordinary income and a pro rata share of the net
capital gain of the QEF as long-term capital gain. If a United States Investor
in a PFIC has made a QEF election for all years that such United States Investor
has held Class A Common Stock, gain on the sale of such stock generally will be
characterized as capital gain and the denial of basis step-up at death and the
interest charge (as well as the other PFIC tax consequences) described above
would not apply.
The Company believes that it is not now a PFIC and intends to manage its
business so as to attempt to avoid PFIC status in the future. The Company will
notify United States Investors in the event that it concludes that it will be
treated as a PFIC for any future taxable year to enable United States Investors
to consider whether to elect to treat the Company as a QEF for United States
federal income tax purposes. In addition, the Company will, at the request of a
United States Investor who elects to have the Company treated as a QEF, comply
with the applicable information reporting requirements.
Controlled Foreign Corporations
If 10% Shareholders, who are also United States persons, own, in the
aggregate, directly or indirectly, more than 50% (measured by voting power or
value) of the shares of a foreign corporation, that foreign corporation would be
a controlled foreign corporation ('CFC'). If a foreign corporation is
characterized as a CFC, then some portion of the undistributed income of the
foreign corporation may be imputed to such 10% Shareholders, and some portion of
the gains recognized by such 10% Shareholders on the disposition of their shares
in the foreign corporation (which would otherwise qualify for capital gains
treatment) may be converted into ordinary dividend income. At the present time,
it is likely that 10% Shareholders who are also United States persons would be
deemed to own more than 50% of the voting power of the outstanding Common Stock
of the Company and, thus, that the Company would be characterized as a CFC. If
the Company were to be classified as a CFC, however, the CFC rules referred to
above would only apply with respect to such 10% Shareholders. In future years,
the Company would continue to be characterized as a CFC as long as 10%
Shareholders who were also United States persons were deemed to own more than
50% of the voting power or value of the Company's outstanding Common Stock. In
addition, as discussed above, if the Company were a CFC, the asset test to
determine whether the Company would be a PFIC would be made by comparing the
relative adjusted tax bases of the Company's assets and not the relative fair
market values of such assets, making it more difficult for the Company to manage
its affairs so as to avoid PFIC status.
United States Information Reporting and Backup Withholding
Under current United States federal income tax law, generally payments of
interest and dividends made to, and the proceeds of sales before maturity by,
certain U.S. persons are subject to information reporting, and a 'back-up'
withholding tax at a rate of 31%, if such persons fail to supply correct
taxpayer identification numbers and certain other information in the required
manner. Payments of interest and dividends to a holder of Notes or Class A
Common Stock of the Company (a) made by mail or wire transfer to an address in
the United States, (b) made by a paying agent, broker or other intermediary in
the United States or (c) made by a United States broker or by a custodian,
nominee or agent that is (i) a United States person, (ii) a controlled foreign
corporation for United States tax
86
<PAGE>
purposes, or (iii) a foreign person 50% or more of whose gross income is from a
United States trade or business (hereinafter, any of the persons described in
(i), (ii) and (iii) shall be referred to as a 'United States Controlled Person')
to such holder outside the United States may be subject to United States
information reporting requirements. Payments of interest and dividends received
by non-U.S. holders generally would be exempt from these reporting requirements,
but such non-U.S. holders may be required to comply with certification and
identification procedures in order to prove their exemption from the reporting
requirements and from backup withholding with respect to payments of interest.
Treasury regulations currently in effect do not require backup withholding with
respect to dividends paid by a foreign corporation such as the Company.
The payment of proceeds of the disposition of Notes or Common Stock by a
holder to or through the United States office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31%, unless
the holder either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption. The payment of proceeds of the
disposition by a holder of Common Stock to or through a non-U.S. office of a
broker will generally not be subject to backup withholding and information
reporting. However, information reporting (but not backup withholding) may apply
to such a holder who sells a beneficial interest in Notes or shares through a
non-United States branch of a United States broker, or through a non-United
States office of a United States Controlled Person, in either case unless the
holder establishes an exemption or the broker has documentary evidence in its
files of the holder's status as a non-U.S. person.
Any amounts withheld under the backup withholding rules from payment to a
holder will be refunded (or credited against the holder's United States federal
income tax liability, if any) provided that the required information is
furnished to the United States Internal Revenue Service.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has a total of 23,881,653 shares of capital stock outstanding.
Of the shares, 16,271,715 shares of Class A Common Stock are freely tradeable
without restriction or registration under the Securities Act. 49,700 shares of
Class A Common Stock are subject to volume restrictions under the Securities
Act. All of the remaining 7,560,238 shares of capital stock are 'restricted'
securities as that term is defined by Rule 144 as promulgated under the
Securities Act, of which 6,502,580 shares currently may be sold under Rule 144
volume restrictions. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including an affiliate, is entitled to
sell in 'broker's transactions' or to market makers, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Class A Common Stock or (ii) the average weekly
trading volume in the shares of Class A Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale, provided
that at least two years have elapsed since such shares were acquired from the
Company and subject to certain other limitations and restrictions. A person who
is not deemed to have been an affiliate of the Company at any time during the
three months preceding a sale would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above, provided that at
least three years have elapsed since the shares were acquired from the Company.
Sales of 'restricted securities' by affiliates, even after a three-year holding
period, are subject to the volume limitations described above. The Securities
and Exchange Commission has adopted changes to Rule 144 which will take effect
in April 1997. Such changes will reduce the two year holding requirement
described above to one year and reduce the three year holding requirement
described above to two years.
The Company and certain of the Company's officers, directors and
shareholders holding an aggregate of 347,046 shares of Class A Common Stock,
5,915,382 shares of Class B Common Stock and options and warrants to purchase up
to 760,000 additional shares of Class A Common Stock have agreed that, for a
period of 120 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, pledge, offer to sell, contract to sell, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Class A Common Stock or Class B
Common Stock or any
87
<PAGE>
securities convertible into, exchangeable or exercisable therefor, except shares
purchased in the public market and grants and exercises of options under the
1994 Stock Option Plan and the 1995 Stock Option Plan, without the prior written
consent of the Representatives on behalf of the Underwriters. For a description
of the restriction on sales contained in the Underwriting Agreement relating to
the Offering, see 'Underwriting.'
Following the Offering, sales of substantial amounts of Class A Common
Stock (including shares of the Class A Common Stock issuable upon the conversion
of the Class B Common Stock or the exercise of options) in the public market
under Rule 144 or otherwise, or even the potential of such sales, could
adversely affect the prevailing market price of the Class A Common Stock and
impair the Company's ability to raise capital through the sale of equity
securities.
UNDERWRITING
The Underwriters named below have severally agreed, subject to certain
conditions, to purchase from the Company the aggregate number of Notes set forth
opposite their respective names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------- ----------------
<S> <C>
Schroder Wertheim & Co. Incorporated...................
Prudential Securities Incorporated.....................
Smith Barney Inc. .....................................
----------------
Total............................................. $125,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all the Notes offered hereby (other than Notes that may be
purchased under the over-allotment option), if any are purchased. Schroder
Wertheim & Co. Incorporated, Prudential Securities Incorporated and Smith Barney
Inc., as representatives of the several Underwriters (the 'Representatives'),
have advised the Company that the Underwriters propose to offer the Notes to the
public initially at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters propose initially to allow a concession
not in excess of % of the principal amount of the Notes to certain dealers,
including the Underwriters; that the Underwriters and such dealers may initially
allow a discount of not in excess of % of the principal amount of the Notes
to other dealers; and that the public offering price and the concession and
discount to dealers may be changed by the Representatives after the initial
public offering.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of the Underwriting Agreement,
to purchase up to an additional $18,750,000 aggregate principal amount of the
Notes at the public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only to cover over-allotments, if any, in the sale of the
Notes in the Offering. To the extent that the Underwriters exercise this option,
each Underwriter will be committed, subject to certain conditions, to purchase
the Notes in an aggregate principal amount proportionate to such Underwriter's
initial commitment.
The Notes are a new issue of securities with no established trading market
although the Notes will be listed on the Nasdaq SmallCap Market, subject to
official notice of issuance. The Company has been advised by the Underwriters
that they intend to make a market in the Notes, but they are not obligated to do
so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the Notes.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
88
<PAGE>
The Company and its directors, officers, certain 5% shareholders and
certain other shareholders have agreed not to sell or otherwise dispose of any
shares of Class A Common Stock or Class B Common Stock for a period of 120 days
after the date of this Prospectus without the prior written consent of the
Representatives.
The Representatives have advised the Company that, pursuant to Regulation
M, certain persons participating in the Offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may have the effect of stabilizing or maintaining the market
price of the Notes or the Common Stock at a level above that which might
otherwise prevail in the open market. A 'Stabilizing Bid' is a bid for or the
purchase of the shares of Common Stock or the Notes on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Notes or
Common Stock. A 'Syndicate Covering Transaction' is the bid for or the purchase
of Notes on behalf of the Underwriters to reduce a short position incurred by
the Underwriters in connection with the Offering. A 'Penalty Bid' is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
Offering if the Notes originally sold by such Underwriter or syndicate member
are purchased by the Representatives in a syndicate covering transaction and
have therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq SmallCap Market or the Nasdaq National Market or
otherwise and if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon by Conyers,
Dill & Pearman, counsel for the Company. Rosenman & Colin LLP, United States
counsel for the Company, will pass upon the Notes being binding obligations of
Central European Media Enterprises Ltd. Certain other legal matters will be
passed upon for the Company by Rosenman & Colin LLP, United States counsel for
the Company, and Conyers, Dill & Pearman, Bermuda counsel for the Company.
Certain legal matters will be passed upon for the Underwriters by Akin, Gump,
Strauss, Hauer & Feld L.L.P.
EXPERTS
The Consolidated Financial Statements of the Company included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the 'Commission'). Reports, proxy statements and other information
filed by the Company may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary
Plaza, Washington, DC 20549 and at certain regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, DC 20549 at prescribed rates.
The Class A Common Stock is listed on the Nasdaq National Market and reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, NW, Washington, DC
20006. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission and the address of such site is
(http://www.sec.gov).
89
<PAGE>
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, with respect to the Notes
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Notes offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules thereto. The Registration Statement can be inspected without charge at
the principal office of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549.
Statements made in this Prospectus concerning the provisions of any
document or agreement are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by this
reference.
The Company furnishes its shareholders with annual reports containing
financial statements audited by its independent public accountants and files
with the Securities and Exchange Commission quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-24796) pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed pursuant to Section 13 of the Exchange Act.
2. The description of the Class A Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on September
14, 1994.
3. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of this Offering.
Any statement incorporated herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in a supplement to this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as to modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents which are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such document).
Requests for such documents should be directed to the offices of the Company
located at 18 D'Arblay Street, London W1V 3FP England, telephone number
44-171-292-7900.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996.............................................................................................. F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the period from December 31, 1993 to
December 31, 1996..................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.............................................................................................. F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central European Media Enterprises Ltd.:
We have audited the accompanying consolidated balance sheets of Central European
Media Enterprises Ltd. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Central European Media
Enterprises Ltd. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with United States generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
March 24, 1997
F-2
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
($000S)
<TABLE>
<CAPTION>
NOTE DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. 4 $ 53,210 $ 78,507
Investments in marketable securities....... 4 10,652 2,896
Restricted cash............................ 5 4,216 2,749
Accounts receivable (net of allowances of
$1,105, $3,200)......................... 32,475 37,342
Program rights costs....................... 4 9,219 12,675
Value-added tax recoverable................ 733 182
Amounts due from unconsolidated
affiliates.............................. 13 -- 1,066
Advances to affiliates..................... 13 953 4,119
Other short-term assets.................... 7 -- 850
Prepaid expenses........................... 5,270 5,773
-------- --------
TOTAL CURRENT ASSETS.................... 116,728 146,159
Investment in unconsolidated affiliates...... 12,433 56,599
Investments.................................. -- 3,600
Loans to affiliates.......................... 13 6,272 17,766
Property, plant & equipment (net of
depreciation of $10,281, $22,317).......... 6 51,699 58,982
Program rights costs......................... 4 10,496 14,266
Broadcast license costs and other intangibles
(net of amortization of $1,007, $1,579).... 4 2,365 3,097
License acquisition costs (net of
amortization of $54, $854)................. 4 4,723 3,923
Goodwill..................................... 4 1,510 35,338
Organization costs (net of amortization of
$507, $950)................................ 4 1,337 934
Development costs (net of allowance of
$4,373, $996).............................. 4 10,127 19,105
Deferred taxes............................... 8 559 868
Other assets................................. 7 3,778 4,493
-------- --------
TOTAL ASSETS............................ $222,027 $365,130
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
($000S)
<TABLE>
<CAPTION>
NOTE DECEMBER 31,
--------------------
1995 1996
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................... $ 12,956 $ 18,775
Accrued liabilities........................ 9,804 17,010
Duties and other taxes payable............. 288 3,312
Income taxes payable....................... 8 15,946 9,948
Current portion of obligations under
capital leases.......................... 12 2,111 1,794
Current portion of credit facilities....... 10 2,661 7,106
Investments payable........................ -- 1,955
Advances from affiliates................... 13 2,687 606
-------- --------
TOTAL CURRENT LIABILITIES............... 46,453 60,506
Deferred income taxes........................ 8 2,317 2,142
Obligations under capital leases............. 12 8,747 7,120
Long-term portion of credit facilities....... 10 6,766 22,488
Investments payable.......................... -- 14,633
Other liabilities............................ 173 305
Minority interest in consolidated
subsidiaries............................... 4 18,635 8,616
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value:
authorized: 5,000,000 shares; issued and
outstanding: none....................... -- --
Class A Common Stock, $0.01 par value:
authorized: 30,000,000 shares; issued
and outstanding: 10,294,549 shares at
December 31, 1995, and 16,664,143 shares
at December 31, 1996.................... 103 167
Class B Common Stock, $0.01 par value:
authorized: 15,000,000 shares; issued
and outstanding: 8,078,297 shares at
December 31, 1995, and 7,191,475 shares
at December 31, 1996.................... 81 72
Additional paid-in capital................. 187,997 330,315
Class A Treasury stock of $0.01 par value,
at cost: 176,872 shares at December 31,
1995 and none at December 31, 1996...... (2,476) --
Accumulated deficit........................ (48,001) (78,004)
Cumulative currency translation
adjustment.............................. 1,232 (3,230)
-------- --------
TOTAL SHAREHOLDERS' EQUITY.............. 138,936 249,320
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $222,027 $365,130
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
NOTE 1994 1995 1996
---- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues.......................... $ 64,389 $121,113 $170,114
Discounts and Agency Commissions........ (10,823) (22,194) (34,129)
-------- -------- --------
Net revenues............................ 4 53,566 98,919 135,985
Station Expenses:
Other operating costs and expenses.... 21,907 28,972 50,188
Amortization of programming rights.... 10,403 16,319 21,599
Depreciation of station fixed assets
and other intangibles.............. 3,773 7,251 13,314
-------- -------- --------
Total station operating costs and
expenses........................... 36,083 52,542 85,101
Selling, general and administrative
expenses........................... 6,009 7,725 21,357
Corporate Expenses:
Corporate operating costs and
development expenses............... 3,699 10,669 15,782
Stock compensation charge............. 15 5,833 858 --
Amortization of goodwill and allowance
for development costs.............. 985 3,442 2,940
Capital registration tax.............. 8(b) -- 1,375 809
-------- -------- --------
10,517 16,344 19,531
Operating income........................ 957 22,308 9,996
Equity in loss of unconsolidated
affiliates............................ 14 (13,677) (14,816) (17,867)
Interest and other income............... 179 1,238 2,876
Interest expense........................ (1,992) (4,959) (4,670)
Foreign currency exchange (loss)/gain... 4 (245) 324 (2,861)
-------- -------- --------
(Loss) income before provision for
income taxes.......................... (14,778) 4,095 (12,526)
Provision for income taxes.............. 8 (3,331) (16,340) (16,405)
-------- -------- --------
Loss before minority interest........... (18,109) (12,245) (28,931)
Minority interest in income/loss of
consolidated subsidiaries............. (2,396) (6,491) (1,072)
-------- -------- --------
NET LOSS................................ $(20,505) $(18,736) $(30,003)
-------- -------- --------
-------- -------- --------
Per share data:......................... 4
Net loss per share...................... $ (1.28) $ (1.55)
-------- --------
-------- --------
Weighted average number of common shares
outstanding (000s).................... 14,678 19,373
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996
($000S)
<TABLE>
<CAPTION>
CLASS CLASS CUMULATIVE
A B ADDITIONAL CURRENCY
COMMON COMMON PAID-IN TREASURY DEFERRED ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL STOCK COMPENSATION DEFICIT(1) ADJUSTMENT TOTAL
------ ------ ---------- -------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ -- $ -- $ 12,500 $ -- $ -- $ (8,760) $ (276) $ 3,464
Capital contributed by Shareholders,
net of related costs of $7,681...... 59 81 73,120 -- -- -- -- 73,260
Services contributed by Shareholders.... -- -- 169 -- -- -- -- 169
Stock compensation charge
(Note 15)............................. -- -- 9,167 -- (3,334) -- -- 5,833
Foreign Currency Translation
Adjustment............................ -- -- -- -- -- -- 410 410
Net loss................................ -- -- -- -- -- (20,505) -- (20,505)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1994.............. 59 81 94,956 -- (3,334) (29,265) 134 62,631
Capital contributed by Shareholders
including $6,500 loan converted,
less related costs of $5,426........ 44 -- 93,041 -- -- -- -- 93,085
Stock compensation charge
Charge.............................. -- -- -- -- 858 -- -- 858
Reduction in stock compensation
charge
(Note 15)......................... -- -- -- (2,476) 2,476 -- -- --
Foreign Currency Translation
Adjustment.......................... -- -- -- -- -- -- 1,098 1,098
Net loss.............................. -- -- -- -- -- (18,736) -- (18,736)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1995.............. 103 81 187,997 (2,476) -- (48,001) 1,232 138,936
Retirement of Treasury Stock.......... (2) -- (2,474) 2,476 -- -- -- --
Capital contributed by Shareholders,
less related costs of $8,177(2)..... 66 (9) 144,792 -- -- -- -- 144,849
Foreign Currency Translation
Adjustment.......................... -- -- -- -- -- -- (4,462) (4,462)
Net loss.............................. -- -- -- -- -- (30,003) -- (30,003)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1996.............. $167 $ 72 $330,315 $ -- $ -- $ (78,004) $ (3,230) $249,320
------ ------ ---------- -------- ------------ ----------- ----------- --------
------ ------ ---------- -------- ------------ ----------- ----------- --------
</TABLE>
- ------------------
(1) Of the accumulated deficit of $78,004,000 at December 31, 1996, $50,248,000
represents accumulated losses in unconsolidated affiliates.
(2) Includes transfers between Class A and Class B Common Stock in the year.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000S)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................... $(20,505) $(18,736) $(30,003)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of unconsolidated
affiliates............................... 13,677 14,816 17,867
Depreciation & amortization (excluding
amortization of barter programs)......... 14,176 23,705 33,288
Minority interest in income (loss) of
consolidated subsidiaries................ 2,396 6,491 1,072
Services contributed by shareholders....... 169 -- --
Valuation allowance for development
costs.................................... 985 3,388 714
Stock compensation charge.................. 5,833 858 --
Changes in assets & liabilities:
Accounts receivable........................ (12,950) (18,176) (4,881)
Related party receivable................... 263 115 --
Program rights paid........................ (13,417) (24,040) (24,072)
Value-added tax recoverable................ 1,121 (710) 551
Dividends paid to minority shareholders.... -- (612) (3,575)
Advances to affiliates..................... -- (337) (3,334)
Production costs........................... 355 -- --
Prepaid expenses........................... (673) (1,780) (415)
Other assets............................... (5) (3,639) (1,838)
Accounts payable........................... 646 1,180 3,931
Accrued liabilities........................ 2,698 6,197 7,227
Income & other taxes payable............... 3,699 13,223 (3,151)
-------- -------- --------
Net cash provided by (used in) operating
activities............................. (1,532) 1,943 (6,619)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated affiliates.... (19,268) (19,220) (52,977)
Investments................................ -- -- (3,600)
Investments in marketable securities....... (7,725) (2,927) 7,756
Restricted cash............................ (1,072) (2,616) 1,467
Acquisition of fixed assets................ (13,298) (23,196) (17,801)
Acquisition of minority shareholders'
interest................................. -- -- (5,607)
Purchase of business....................... -- (1,510) (4,895)
Payments for license acquisition costs..... -- (4,777) --
Payments for organization costs............ -- (1,032) (48)
Payments for broadcast license costs and
other intangibles........................ (790) (760) (1,295)
Development costs.......................... (2,175) (12,325) (18,936)
-------- -------- --------
Net cash used in investing activities.... (44,328) (68,363) (95,936)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities.......................... 14,398 (6,140) 3,045
Payments under capital leases.............. -- (1,570) (1,636)
Loans to affiliates........................ (1,396) (6,272) (16,705)
Advances received from affiliates.......... 7,457 2,687 --
Loans received from affiliates............. 3,546 -- --
Repayment of advances from affiliates...... (7,216) -- --
Repayment of advances by affiliates........ (9,336) -- (2,081)
Shareholder loans.......................... 6,500 -- --
Capital contributed by shareholders........ 73,260 86,585 144,849
Other liabilities.......................... -- 173 137
Investments by minority shareholders in
consolidated subsidiaries................ -- 2,000 --
-------- -------- --------
Net cash provided by financing
activities............................. 87,213 77,463 127,609
-------- -------- --------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON
CASH....................................... (281) 165 243
Net increase in cash and cash
equivalents............................ 41,072 11,208 25,297
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 930 42,002 53,210
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period..... $ 42,002 $ 53,210 $ 78,507
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL INFORMATION
Cash paid for interest................... $ 1,891 $ 4,942 $ 4,590
-------- -------- --------
-------- -------- --------
Income taxes............................. $ -- $ 2,922 $ 22,048
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda corporation ('CME'), was
formed in June 1994. Through its predecessor companies, CME has been in
operation since 1991. CME, together with its subsidiaries (CME and its
subsidiaries are collectively referred to as the 'Company'), develops, owns and
operates national and regional commercial television stations and networks in
Central and Eastern Europe and regional commercial television stations in
Germany.
In the Czech Republic, as of December 31, 1996, the Company owned an 88%
economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ('Nova TV'),
the leading private national television station in the Czech Republic. On August
1, 1996, the Company increased its economic interest in Nova TV to 88% from 66%
through the acquisition of a 22% economic interest in Nova TV from Ceska
Sporitelna Bank ('CS') (the 'Additional Nova TV Purchase'). The Company is in
the process of registering the Additional Nova TV Purchase pursuant to Czech
law. On an ongoing basis, after giving effect to the Additional Nova TV
Purchase, the Company is entitled to 88% of the total profits of Nova TV and has
86% of the voting power in Nova TV. CET 21 had a 12% equity interest in Nova TV.
During 1996, the Company entered into an agreement to lend the General Director
of Nova TV funds to finance his purchase of shares in CET 21 in order to
increase his ownership in CET 21. In March 1997, the Company acquired an
additional 5.2% interest in Nova TV through the retirement of the loan (Note
16). In 1995, in the Czech Republic, the Company entered into loan ('Radio Alfa
Loan') and consulting agreements with Radio Alfa ('Radio Alfa'), one of two
private Czech Republic national radio broadcasters. Radio Alfa was re-launched
in October 1995. The Radio Alfa Loan may be converted into an equity interest in
Radio Alfa of up to 21.7%. During December 1996, the Company purchased a 62%
ownership interest from Radio Alfa's other shareholders for a purchase price of
Kc37,500,000 ($1,372,000). If the Radio Alfa Loan is converted to an equity
interest, the Company would have an 83.7% equity ownership interest in Radio
Alfa.
In Romania, the Company and two local partners, Adrian Sarbu and Ion Tiriac
operate PRO TV, a commercial television network launched in December 1995,
through Media Pro International S.A. ('Media Pro International'). The Company
holds a 77.5% equity interest in Media Pro International, although the Company's
partners hold options exercisable through October 1997 which, if exercised,
would reduce the Company's interest to not less than 66%. In September 1996, the
Company acquired a 95% equity interest in Unimedia SRL ('Unimedia'), which
acquired a 10% equity interest in a consortium, MobilRom, which obtained one of
two GSM licenses in Romania in December 1996 and is expected to commence
operations in June 1997.
In Slovenia, the Company launched POP TV in December 1995 together with
MMTV d.o.o. Ljubljana ('MMTV') (formerly known as Boutique MMTV) and Tele 59
d.o.o. Maribor ('Tele 59'), through the formation of Produkcija Plus d.o.o.
('Pro Plus'). POP TV provides programming to and sells advertising for MMTV,
Tele 59 and an additional affiliate, Robin TV. The Company owns 58% of the
equity of Pro Plus, but has an effective economic interest of 72%, as a result
of a 33% economic interest in MMTV and a 33% economic interest in Tele 59, each
of which have a 21% interest in Pro Plus. In July 1996, the Company, together
with MMTV and Tele 59 entered into an agreement to purchase a 66% equity
interest in Kanal A (Note 12).
In the Slovak Republic, the Company has an 80% economic and a 49% voting
interest in Slovenska Televizna Spolocnost s.r.o. ('STS') which launched Markiza
TV as a national television station on August 31, 1996.
In Hungary, the Company holds a 97.4% ownership interest in Videovox Studio
Limited Liability Company ('Videovox'), a Hungarian dubbing and production
company acquired in May 1996.
The Company owns a 58% non-controlling interest in PULS ('PULS'), a
regional television station based in Berlin, Germany. The Company owns a 50%
interest (non-voting profit participation) in Franken Funk & Fernsehen GmbH
('FFF'), which owns 74.8% of a regional television station in
F-8
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND BUSINESS--(CONTINUED)
Nuremberg, Germany, NMF Neue Medien Franken GmbH and Co., K.G. ('NMF'). The
Company has a 49% non-controlling interest, and a 50% economic interest in
Sachsen Funk und Fernsehen GmbH, Germany ('SFF') which owns a 33.33% equity
interest in Sachsen Fernsehen Betriebs KG, which operates regional television
stations in Leipzig and Dresden, Germany. The partners of PULS have retained a
financial advisor and are currently in discussions with potential investors in
PULS. Such an investor would be expected to acquire a significant equity
interest in PULS and assume responsibility for PULS' operations. Such an
investment would be anticipated to significantly dilute the Company's equity
investment in PULS and to decrease the Company's future funding obligations to
PULS. Such investment also could result in a material reduction of the net
realizable carrying value of the Company's equity investment in PULS, which was
$12,591,000 as of December 31, 1996, and a corresponding charge against the
Company's earnings in the period incurred. Regardless of whether a transaction
with a strategic investor is consummated, there is no assurance that the Company
may not have to take a reduction of all or a portion of the net realizable
carrying value of PULS. A reduction of the net realizable carrying value of
PULS, or other factors, might cause the Company to reduce all or part of the net
realizable carrying value of the Company's investments in FFF and SFF, which
were $6,069,000 and $1,561,000, respectively, as of December 31, 1996. As of
December 31, 1996 and as of the date of the financial statements, the Company
does not consider the value of PULS, FFF and SFF to be impaired, based on
discussions with potential investors to date.
In Poland, the Company together with the Polish media group ITI, formed TVN
Sp.z.o.o. ('TVN'). ITI holds 67% of the equity in TVN and the Company holds the
remaining 33%. In February 1997, TVN was awarded television broadcast licenses
for Northern Poland and the cities of Warsaw and Lodz in Poland. Also in 1996,
TVN exercised an option pursuant to which it acquired a 49% interest in
Televisja Wisla Sp.z.o.o. ('TV Wisla'), which operates a television station in
southern Poland.
In Ukraine, the Company recently acquired a 50% interest in a group of
companies (collectively, the 'Studio 1+1 Group'), which has the right through
2006 to broadcast programming and sell advertising on one of Ukraine's public
television stations, UT-2. The Company's investment in the Studio 1+1 Group of
$17,029,000, as of December 31, 1996, is classified in development costs in the
accompanying financial statements. The Studio 1+1 Group has not had material
operations through December 31, 1996.
2. PRO FORMA RESULTS OF ACQUISITIONS
The unaudited pro forma effects of the Additional Nova TV Purchase, as if
this transaction occurred at the beginning of 1995, are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net revenues ($000).... $98,919 $135,985
Net loss ($000)........ (21,260) (33,110)
Net loss per share..... (1.45) (1.71)
</TABLE>
This pro forma information includes the effects of the amortization of
goodwill related to the transaction, as well as interest expense associated with
related borrowings. The operations of Videovox were not material in 1995 or
1996.
3. FINANCING OF OPERATING AND CAPITAL NEEDS
In 1994, the Company raised cash contributions of $73,260,000 from
shareholders, primarily from its initial public offering, which raised
$76,475,000 from the issue of 5,462,500 shares of Class A Common Stock, less
underwriting costs and issue and other related expenses of approximately
$7,681,000.
F-9
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
3. FINANCING OF OPERATING AND CAPITAL NEEDS--(CONTINUED)
In 1995, the Company raised cash contributions of $92,000,000 from a public
offering of common stock, less underwriting costs and issue and other related
expenses of approximately $5,426,000, from the issue of 4,000,000 shares of
Class A Common Stock.
In 1996, the Company raised cash contributions of $151,800,000 from a
public offering of common stock, less underwriting costs and issue and other
related expenses of approximately $8,177,000, from the issue of 5,520,000 shares
of Class A Common Stock.
Proceeds from the above public offerings and other equity raised have been
used to fund the Company's activities and to repay certain loans and advances
from affiliates. The Company had cash of $78,507,000 and marketable securities
of $2,896,000 at December 31, 1996 to enable it to finance its future
activities.
Dividends from Consolidated Subsidiaries and Unconsolidated Affiliates
The Company conducts all of its operations through subsidiaries.
Accordingly, the primary internal source of the Company's cash available for
operations will ultimately be dividends and other distributions from its
subsidiaries. Each of these subsidiaries was formed under the laws of, and has
its operations in, a country other than Bermuda, the jurisdiction of the
Company. In addition, each of the operating subsidiaries receives the majority
of its revenues in the local currency of the jurisdiction in which it is
situated. As a consequence, the Company's ability to obtain dividends or other
distributions is subject to, among other things, restrictions on dividends under
applicable local laws and foreign currency exchange regulations of the
jurisdictions in which its subsidiaries operate.
The laws under which the Company's currently operating subsidiaries and
affiliates are organized provide generally that dividends may be declared by the
partners or shareholders out of yearly profits subject to the maintenance of
registered capital, required reserves and after the recovery of accumulated
losses. In the case of the Company's Dutch and Netherlands Antilles
subsidiaries, the Company's voting power is sufficient to compel the making of
distributions. The Company's voting power is sufficient to compel Nova TV to
make distributions. In the case of PRO TV, distributions may be paid from the
profits of PRO TV subject to a reserve of 5% of annual profits until the
aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can
compel PRO TV to make distributions. In the case of POP TV, the Company's voting
power is not sufficient to compel the payment of dividends. There are no legal
reserve requirements in Slovenia. In the case of Markiza TV, distributions may
be paid from net profits subject to an initial reserve requirement of 10% of net
profits until the reserve fund equals 5% of registered capital. Subsequently,
the reserve requirement is equal to 5% of net profits until the reserve fund
equals 10% of registered capital. The Company's voting power in Markiza TV is
not sufficient to compel the distribution of dividends. In the case of PULS, the
PULS Partnership Agreement provides that if profits are available for
distribution, 66 2/3% of the partnership interest may require that 40% of such
profits be placed in reserves until DM16,700,000 ($10,774,000) are reserved. All
profits in excess thereof must be distributed. The agreement relating to FFF
does not contain restrictions on distributions out of available profits. The
laws of countries where the Company is developing operations contain
restrictions on the payment of dividends.
General
While losses from operating and development activities are expected to
continue in 1997, management believes that the Company's liquidity and capital
resources at December 31, 1996, including the proceeds of the 1996 Offering,
potential corporate and local debt facilities, the financial commitments of
local majority and minority shareholders or partners in its various operating
entities, are adequate to fund existing operations through 1997. The Company
believes that its ability to raise funding through the public and private equity
and debt markets will provide funding for the Company's planned expansion in
1997.
F-10
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The significant accounting
policies are summarized as follows:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company's wholly-owned subsidiaries, and the accounts of Nova TV, PRO TV,
POP TV, Videovox, Radio Alfa and 2002 Kft as consolidated entities, and reflect
the interests of the minority owners of these companies. The accounts of PULS,
FFF, SFF, Markiza TV and TVN, in which the Company has non-controlling ownership
interests, are included in the accompanying consolidated financial statements as
investments in unconsolidated affiliates under the equity method. The Company's
investment in MobilRom is accounted for at the lower of cost or market value.
Acquisitions have been accounted for using the purchase method.
Cash and Cash Equivalents
Cash and cash equivalents includes unrestricted cash in banks and highly
liquid investments with maturities of less than three months when purchased.
Investments in Marketable Securities
The Company accounts for Investments in Marketable Securities under
Statement of Financial Accounting Standards (SFAS) No.115 'Accounting for
Certain Investments in Debt and Equity Securities'. In connection with the
adoption of this pronouncement, debt and equity securities held by the Company
that may be sold in response to changes in interest rates, prepayments, and
other factors have been classified as available-for-sale. Such securities are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of shareholders' equity (on an after tax
basis). Gains and losses on the disposition of securities are recognized on the
specific identification method in the period in which they occur. There were no
significant realized or unrealized gains or losses as of December 31, 1996 and
1995.
Revenue Recognition
Revenues primarily result from the sale of advertising time and are
recognized in the period in which advertising is aired.
Barter Transactions
Revenue from barter transactions (television advertising time provided in
exchange for goods and services) is recognized as income when commercials are
broadcast, and programming, merchandise or services received are charged to
expense or capitalized as appropriate when received or used. Barter revenues of
$2,841,000, $3,647,000 and $6,354,000 have been recognized for the years ended
December 31, 1994, 1995 and 1996, respectively.
The Company records barter transactions at the estimated fair market value
of the production or services received. In cases where bartered programs can
only be obtained through a barter agreement the Company values the barter at the
value of the asset given up. In other cases where the Company has elected to
enter into barter agreements as an alternate method of payment, strictly for
economic reasons, the Company values the barter agreement at the value of the
asset received. If merchandise or services are received prior to the broadcast
of a commercial, a liability is recorded. Likewise, if a commercial is broadcast
first, a receivable is recorded. At December 31, 1995 and 1996, barter
F-11
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
receivables were $587,000 and $361,000, and are included in accounts receivable
in the accompanying consolidated balance sheets.
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line and accelerated
methods over the estimated useful lives of the related assets (Note 6).
Assets Held Under Capital Leases
Assets held under capital leases are accounted for in accordance with SFAS
No. 13, 'Accounting for Leases', and recorded in Property, Plant and Equipment.
The related liability is included in obligations under capital lease.
Program Rights and Production Costs
Program rights acquired by the Company under license agreements and the
related obligations incurred are recorded as assets and liabilities when the
license period begins, and the assets are amortized to expense using
straight-line and accelerated methods based on the estimated period of usage,
ranging from one to five years. Amortization estimates for program rights are
reviewed periodically and adjusted prospectively. Program rights costs of
$44,896,000 in 1995 and $70,584,000 in 1996 are shown net of amortization of
$25,181,000 and $43,643,000 at December 31, 1995 and 1996, respectively.
Payments made for program rights in which the license period has not begun
before year end are classified as prepaid expenses and are $2,688,000 and
$2,854,000 at December 31, 1995 and 1996, respectively.
Production costs for self-produced programs are capitalized, and expensed
when first broadcast except where the programming has potential to generate
future revenues. When this is the case, production costs are capitalized and
amortized on the same basis as programming obtained from third parties.
Goodwill
Goodwill represents the Company's excess cost over the fair value of net
assets acquired and is being amortized on a straight-line basis over the
estimated useful life of the assets. Amounts recognized to date have been
amortized over periods ranging from 2 to 8 1/2 years from the original date of
acquisition.
During March 1995, the Financial Accounting Standards Board issued SFAS No.
121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of'. This statement establishes financial accounting and
reporting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995 and was adopted by the Company in 1996.
The effect of the adoption was not material.
F-12
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
License Acquisition Costs
License acquisition costs reflect the excess of the Company's investment
above the Company's share of net assets received from newly formed, consolidated
entities and reflect the amounts paid to secure exclusive rights to the
licenses. It is amortized over the lives of the related licenses which range
from 5 to 10 years. License acquisition costs are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amount of license acquisition costs may not be recoverable. At December
31, 1995 and 1996, $4,777,000 and $4,777,000, respectively, has been capitalized
and $54,000 and $854,000, respectively, has been amortized.
Broadcast License Costs and Other Intangibles
The costs of acquiring licenses to broadcast are capitalized and amortized
over the life of the related license. As of December 31, 1995 and 1996,
$1,804,000 and $1,756,000, respectively, has been capitalized in the
accompanying consolidated financial statements related to the Company's 12 year
broadcast license in the Czech Republic, and $392,000 and $534,000 has been
amortized through December 31, 1995 and 1996, respectively.
Other intangibles, which include the cost of acquiring software and other
intangible assets, are capitalized and amortized over their estimated useful
lives. At December 31, 1995 and 1996, $1,568,000 and $2,920,000, respectively,
has been capitalized, and $615,000 and $1,045,000, respectively, has been
amortized.
Organization Costs
The Company has capitalized $1,844,000 and $1,884,000 in costs incurred in
connection with the organization and incorporation of consolidated subsidiaries
at December 31, 1995 and 1996, respectively, which will be amortized over four
years. Amortization of $507,000 and $950,000 has been provided through December
31, 1995 and 1996, respectively.
Development Costs
In the course of its activities the Company incurs external costs in
connection with the development of new license opportunities for the Company.
These costs are capitalized and shown as an asset on the balance sheet where
separately identifiable. It is the Company's policy to account for these assets
at the lower of cost or estimated realizable value. As part of an ongoing review
of the valuation of such assets, management assesses their carrying value. If
this review indicates that the assets will not be recoverable through potential
future operations, the carrying values of these assets are reduced to their
estimated recoverable value by the recording of an allowance. As of December 31,
1995 and 1996, the Company had incurred capitalizable costs of $14,500,000 and
$20,101,000, respectively, which have been reduced by an allowance of $4,373,000
and $996,000, respectively. As a result of its review, management has determined
that such assets are fairly stated at December 31, 1995 and 1996.
Fair Value of Financial Instruments
Effective December 31, 1995, the Company accounts for the Fair Value of
Financial Instruments under SFAS No. 107, 'Disclosures about Fair Value of
Financial Instruments'. To meet the reporting requirements of SFAS No. 107, the
Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements when the fair value
is different from book value of those financial instruments. When the fair value
is equal to the book value, no additional disclosure is made. The Company uses
quoted market prices whenever available to calculate
F-13
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
these fair values. When quoted market prices are not available, the Company uses
standard pricing models for various types of financial instruments which take
into account the present value of estimated future cash flows. At December 31,
1995 and 1996, the carrying value of all financial instruments (primarily loans
payable and receivable) approximated fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
'Accounting for Income Taxes.' This statement requires a liability approach for
measuring deferred taxes based on temporary differences between the financial
statement and income tax bases of assets and liabilities existing at each
balance sheet date using enacted rates for the years in which the taxes are
expected to be paid or recovered.
Deferred income taxes are provided on temporary differences between
financial statement and taxable income. The primary sources of these differences
are depreciation, amortization and capital lease payments.
Foreign Currency Translation
The Company has applied the provisions of SFAS No. 52 'Foreign Currency
Translation' in translating the financial statements of its entities from German
marks ('DM'), Czech korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolars
('SIT'), Slovak korunas ('Sk'), Hungarian forints ('HUF'), Polish Zloty ('Zl')
and Ukrainian Hryvna ('Hrn') to U.S. dollars. Transactions denominated in
foreign currencies are recorded at the exchange rate in effect at the date of
the transaction.
The financial statements of Nova TV, POP TV, Markiza TV, Videovox, Radio
Alfa, 2002 Kft, TVN and certain Studio 1+1 Group entities, which operate in
economies that are considered non-highly inflationary, are measured using the
local currency as the functional currency. Income and expense items are
translated at average monthly rates of exchange. Gains and losses from currency
translations of these affiliates are included in net earnings. Assets and
liabilities of these affiliates are translated at the rates of exchange at the
balance sheet date. The resultant translation adjustments are included as
cumulative currency translation adjustment as a component of shareholders'
equity.
PRO TV and certain Studio 1+1 Group entities operate in economies
qualifying as highly inflationary. Accordingly, non-monetary assets and
liabilities are translated at historical exchange rates and monetary assets and
liabilities are translated at current exchange rates. Translation adjustments
are included in the determination of income.
Year end exchange rates and average exchange rates for the respective
periods are as follows:
<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
--------------------------- -----------------------------
AS OF YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ----------------
1995 1996 MOVEMENT 1995 1996 MOVEMENT
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00........ 26.60 27.33 2.7% 26.57 27.21 2.4%
German mark equivalent of $1.00......... 1.43 1.55 8.4% 1.44 1.50 4.2%
Hungarian forint equivalent of $1.00.... n/a 162 n/a n/a 151 n/a
Polish zloty equivalent of $1.00........ n/a 2.88 n/a n/a 2.70 n/a
Romanian lei equivalent of $1.00........ 2,578 4,035 56.5% 2,402(1) 3,204 33.4%
Slovak koruna equivalent of $1.00....... n/a 31.90 n/a n/a 31.14 n/a
Slovenian tolar equivalent of $1.00..... 125.99 141.48 12.3% 125.99(2) 136.45 8.3%
Ukrainian hryvna equivalent of $1.00.... n/a 1.89 n/a n/a 1.83(3) n/a
</TABLE>
F-14
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ------------------
(1) Average exchange rate from December 1, 1995 through December 31, 1995 only.
(2) Average exchange rate from December 15, 1995 through December 31, 1995 only.
(3) Hryvna became the currency of Ukraine in September 1996.
In the accompanying notes, $ equivalents of Kc, ROL, SIT, Sk, HUF, DM, Zl
and Hrn amounts have been included in brackets at December 31, 1995 or 1996
rates, as applicable, for illustrative purposes only. Future amounts are shown
at December 31, 1996 exchange rates.
Stock-Based Compensation
During October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, 'Accounting for Stock-Based Compensation'. This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation plans. However, SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. If the fair value based method of accounting is not
adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and
net income (loss) per common share in the notes to the financial statements. The
Company has elected to provide the necessary pro forma disclosures beginning in
1996 (Note 11).
Net Loss Per Share
Net loss per share was computed by dividing the Company's net loss by the
weighted average number of Common Shares (both Class A and Class B) and common
share equivalents outstanding during the years ended December 31, 1995 and 1996.
The impact of outstanding options and warrants has not been included in the
computation of net loss per share, as the effect of their inclusion would be
anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards board issued SFAS No.
128, 'Earnings Per Share'. This statement establishes standards for computing
and presenting earnings per share ('EPS'), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects potential
dilution from the exercise or conversion of securities into common stock or from
other contracts to issue common stock and is similar to the currently required
fully diluted EPS. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The Company does not
expect the impact of the adoption of this statement to be material to previously
reported EPS amounts.
F-15
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassifications
Certain reclassifications were made to prior period amounts to conform to
current period classifications.
5. RESTRICTED CASH
Restricted cash at December 31, 1995 and 1996 is $4,216,000 and $2,749,000,
respectively. Restricted cash at December 31, 1995 consists of (1) $1,600,000 of
cash restricted in connection with a DM2,000,000 letter of credit issued on
behalf of FFF ('FFF Letter of Credit') in relation to leasing commitments in
that entity, (2) $2,000,000 restricted in connection with an extended offer to
purchase an entity in Hungary and (3) $616,000 pledged on behalf of a loan
obtained by an affiliated entity in Romania. Restricted cash at December 31,
1996 consists of (1) $1,600,000 of cash restricted in connection with the FFF
Letter of Credit and (2) $1,149,000 held by the Romanian customs authority for
imports into Romania.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ------------------
LIVES 1995 1996
------ ------- -------
<S> <C> <C> <C>
YEARS $000 $000
Land and buildings held under capital
leases..................................... 25 17,899 19,803
Leasehold improvements....................... 4-15 3,873 3,894
Station machinery, fixtures and equipment.... 4-8 37,893 52,605
Other equipment.............................. 4-8 -- 3,754
Construction in progress..................... -- 2,315 1,243
------- -------
61,980 81,299
Less--Accumulated depreciation............... (10,281) (22,317)
------- -------
51,699 58,982
------- -------
------- -------
</TABLE>
F-16
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
$000 $000
Current:
Satellite transponder...................... -- 850
----- -----
----- -----
Long-term:
Advances for technical equipment........... 2,591 3,970
Satellite transponder...................... 850 --
Other...................................... 337 523
----- -----
3,778 4,493
----- -----
----- -----
</TABLE>
In June 1995 the Company, through CME Programming Services Inc., obtained
leasehold rights for a 12 year period to a 33 Mhz transponder on the Eutelsat
HB3 Satellite which the Company anticipates will be launched in the fourth
quarter of 1997. The Company paid a deposit of $850,000 toward future
transponder lease obligations. The annual charge for the lease is approximately
$4.4 million, beginning after the launch of the satellite and lease obligations
are guaranteed by CME.
8. INCOME AND CAPITAL TAXES PAYABLE
(a) Provision for income taxes relates primarily to the profits of Nova TV.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
$000 $000 $000
Current income taxes......................... 2,428 15,473 16,826
Deferred income taxes........................ 903 867 (421)
----- ------ ------
3,331 16,340 16,405
----- ------ ------
----- ------ ------
</TABLE>
Income taxes are provided on Nova TV profits, which cannot be offset
against losses incurred in PRO TV, POP TV, Videovox, PULS, FFF, SFF, TVN and
Markiza TV or against corporate costs incurred in other jurisdictions. The
effective income tax rate in the Czech Republic is 42%, 41% and 39% for the
years ended December 31, 1994, 1995 and 1996, respectively. Nova TV's net
operating losses brought forward from 1993 were fully utilized to offset profits
in 1994. These factors represent the difference between the Company's income tax
charge and the federal rate of income tax applied to the Company's loss before
tax.
At the present time no income, profit, capital or capital gain taxes are
levied in Bermuda and, accordingly, no provision for such taxes has been
recorded by the Company. In the event that such taxes are levied, the Company
has received an undertaking from the Bermuda Government exempting it from all
such taxes until March 28, 2016.
F-17
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
8. INCOME AND CAPITAL TAXES PAYABLE--(CONTINUED)
Deferred income tax assets relate to the following timing differences:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
$000 $000
Provisions against receivables............... 891 1,045
Accelerated amortization of programming
licenses................................... 529 856
Other........................................ 30 12
----- ------
1,450 1,913
Valuation allowance on deferred tax asset.... (891) (1,045)
----- ------
559 868
----- ------
----- ------
</TABLE>
A full valuation allowance is provided for provisions against receivables
in 1995 and 1996 due to the delay in obtaining a tax deduction for such amounts
in the Czech Republic.
Deferred income tax liabilities relate to the following timing differences:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
$000 $000
Depreciation and amortization................ 1,503 1,491
Lease payments............................... 595 382
Other........................................ 219 269
----- ------
2,317 2,142
----- ------
----- ------
</TABLE>
Net operating losses incurred in 1995 and 1996 in Germany, Romania,
Slovenia, Slovakia, Poland and Hungary are available for offset against taxable
income in those countries in the future. Net operating losses experienced in
these jurisdictions in certain years may not be fully available for offset
against taxable income in the future in those countries.
A valuation allowance has been provided for all net operating loss
carryforwards as it is more likely than not, for a variety of reasons, including
the uncertainties in the tax regimes, that they may not be utilized.
(b) Capital Registration Tax
Capital registration tax is payable on the contribution of capital to
certain subsidiaries of CME. It has been included within corporate expenses for
1995 and 1996, as it is not dependent upon the level of income, in the amount of
$1,375,000 and $809,000, respectively.
9. SHAREHOLDER LOAN
On September 9, 1994, the Company borrowed $6,500,000 from Ronald S. Lauder
(the 'Principal Shareholder Loan'), who is also a director of the Company. The
Principal Shareholder Loan was evidenced by an unsecured Term Promissory Note
due September 30, 1996, bearing interest at a rate of 10% per annum. In
addition, Mr. Lauder received warrants to purchase 250,000 shares of Class A
Common Stock at an exercise price of $16.10 per share. These warrants are
exercisable for five years, commencing one year after their date of issue.
Concurrent to the equity offering of 4,000,000 shares of Class A Common
Stock on November 9, 1995 (the '1995 Offering'), Mr. Lauder purchased 297,346
shares of Class A Common Stock at the
F-18
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
9. SHAREHOLDER LOAN--(CONTINUED)
price to the public in the 1995 Offering, less underwriting discounts and
commissions, in exchange for the Principal Shareholder Loan of $6,500,000.
Between October 2 and October 21, 1996 the Company borrowed up to
$14,000,000 from Mr. Lauder (the 'Lauder Loan'). The Lauder Loan was evidenced
by an unsecured Term Promissory Note due the earlier of (1) a public offering or
(2) October 1, 1998, bearing interest at a rate of LIBOR plus 2%. This loan was
repaid on November 14, 1996. In addition, Mr. Lauder received warrants to
purchase 70,000 shares of Class A Common Stock at an exercise price of $30.25
per share. The warrants are exercisable for four years commencing one year after
their date of issue.
10. LOAN AND OVERDRAFT OBLIGATIONS
Group loan obligations and overdraft facilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
$000 $000
<S> <C> <C> <C>
CME B.V.
Ceska Sporitelna Loan........................ (a) -- 16,464
Tele 59 Loan................................. (b) -- 903
Nova TV
Long-term investment loan.................... (c) 8,877 6,586
Line of credit loan.......................... (d) -- --
PRO TV
Operating bank loan.......................... (e) 250 --
Operating bank loan.......................... (e) 300 --
Line of credit............................... (f) -- 1,709
Long term loan............................... (g) -- 2,758
Overdraft facilities......................... (h) -- 969
POP TV
Unsecured short-term loans................... (i) -- 205
------ ------
9,427 29,594
Less current maturities...................... (2,661) (7,106)
------ ------
6,766 22,488
------ ------
------ ------
</TABLE>
CME B.V.
(a) On August 1, 1996, the Company entered into the Additional Nova TV Purchase
for the purchase of CS's 22% economic interest and virtually all of CS's voting
rights in Nova TV for a purchase price of Kc 1 billion ($36,590,000). The
Company has also entered into a loan agreement with CS to finance 85% of the
purchase price. The remainder of the purchase price of Kc150,000,000
($5,488,000) was paid by the Company on November 15, 1996. The CS loan was drawn
in August 1996 and will be drawn in April 1997 in the amounts of Kc450,000,000
($16,464,000) and Kc400,000,000 ($14,636,000), respectively, to fund purchase
payments due at those times, and the loan bears an interest rate of 12.9%
annually. Quarterly repayments on the loan are required in the amount of
Kc22,500,000 ($823,000) during the period from November 1997 through November
1998, Kc42,500,000 ($1,555,000) during the period from February 1999 through
August 2002, and Kc20,000,000 ($732,000) during the period from November 2002
through November 2003.
F-19
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
10. LOAN AND OVERDRAFT OBLIGATIONS--(CONTINUED)
(b) The Company entered into a loan agreement on November 21, 1996 with Tele 59
to finance a loan to Tele 59 from SKB banka d.d (SKB). The principal amount of
this loan is DM1,400,000 ($903,000). Under this agreement, the Company will
reimburse Tele 59 for payments made to SKB and Tele 59 is required to repay the
loan from the Company with any income received. The loan bears interest at 7.8%
per annum.
Nova TV
(c) The long-term investment loan was obtained from CS bank, an investor in Nova
TV, to be used for the purchase of equipment. The loan originally had a maximum
facility of Kc300,000,000 ($10,977,000) which was fully utilized at December 31,
1994. Principal payments of Kc60,000,000 ($2,195,000) are due on this loan each
year and were paid accordingly in 1995 and 1996. The loan bears interest at 2.5%
above the bank's prime rate (prime rate currently 12.5%). The long-term
investment loan is secured by the Nova TV's equipment, vehicles and 50% of its
receivables.
(d) The line of credit loan, also obtained from CS bank, has a maximum facility
of Kc250 million ($9,147,000) bearing interest of PRIBOR plus 0.5%. This
facility was unutilized at December 31, 1995 and 1996. The line of credit is
secured by the remaining 50% of receivables.
PRO TV
(e) In exchange for certain assets, PRO TV assumed two loans from an affiliated
entity, payable to Tiriac Bank, which is partially owned by a PRO TV investor.
These loans were repaid in 1996.
(f) The line of credit, obtained from Tiriac Bank, provides a maximum facility
of $2,000,000 bearing interest at 6 month LIBOR plus 5%. This line of credit is
substantially repayable by July 31, 1997 and is secured by assets with a book
value of $2,575,000
(g) The long-term loan, also obtained from Tiriac Bank, has a maximum facility
of $4,000,000, bearing interest at 6 month LIBOR plus 5%. This loan is payable
in monthly installments of $83,500 beginning July 31, 1997 through June 30,
2001, the final installment being $75,500. The loan is secured by assets
representing $3,357,000 and 70% of the assets purchased with the loan up to a
value of $2,800,000.
(h) Overdraft facilities are either secured by cash balances in lei or are
unsecured and are due within 1997.
POP TV
(i) The unsecured short-term loans consist of three separate facilities which
bear interest of Consumer Price Index plus 12%, three months' arithmetical
average of Slovene retail price increase ('TOM') plus 21%, and TOM plus 18%.
At December 31, 1996, maturities of debt are as follows:
<TABLE>
<CAPTION>
TOTAL
$000
------
<S> <C>
1997.... 7,106
1998.... 6,607
1999.... 9,416
2000.... 6,465
------
29,594
------
------
</TABLE>
F-20
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
11. STOCK OPTION PLAN
The Company adopted the 1994 Stock Option Plan in 1994 and the 1995 Stock
Option Plan in August 1995. Under the 1994 Stock Option Plan, the Compensation
Committee is authorized to grant options for up to 900,000 shares of the
Company's Class A Common Stock. Under the 1995 Stock Option Plan the
Compensation Committee is authorized to grant options for up to 1,200,000 shares
of the Company's Class A Common Stock. The Stock Option Plans allow grants to
consultants and non-affiliated directors. The maximum term of the options
granted under the Stock Option Plans is ten years. Options granted may be either
incentive stock options under the Internal Revenue Code of 1986, as amended (the
'Code'), or non-qualified stock options. Under the Stock Option Plans,
non-affiliated directors are automatically granted each year options to purchase
10,000 shares of Class A Common Stock. The Compensation Committee has granted
substantially all options to purchase the 900,000 shares of Class A Common Stock
created by the 1994 Stock Option Plan and 851,620 shares of Class A Common Stock
under the 1995 Stock Option Plan. The 1995 Stock Option Plan includes options to
purchase 117,000 shares of Class A Common Stock granted to the President and
Chief Executive Officer of the Company and 23,900 shares of Class A Common Stock
granted to the Vice President-Finance and Chief Financial Officer.
Under both plans the option exercise price equals the stock's market price
on date of grant. The 1994 plan options vest after two years and expire after
ten years. The 1995 plan was revised in February 1997 so that options granted
under this plan will vest after two years and will expire after ten years. This
change will be applied retrospectively and the following tables have been
prepared under the revised 1995 plan.
A summary of the status of the Company's two stock option plans at December
31, 1995 and 1996 and changes during the years is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
WTD. AVG. WTD. AVG.
EXERCISE OPTION EXERCISE OPTION
SHARES PRICE PRICE $ SHARES PRICE PRICE $
--------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
start of
year........ 354,500 6.10 0.20-14.00 1,049,600 13.81 0.20-20.00
Granted....... 756,600 16.44 14.00-20.00 636,800 21.51 20.75-21.75
Exercised..... (55,000) 0.20 0.20 (139,644) 8.78 0.20-14.63
Forfeited..... (6,500) 14.63 14.63 (12,653) 20.00 20.00
--------- ---------
Outstanding at
end of
year........ 1,049,600 13.81 0.20-20.00 1,534,103 17.41 0.20-21.75
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995 and 1996, 122,250 and 528,356 shares were exercisable,
respectively.
One of the Company's directors was awarded 25,000 options on August 3, 1995
which were granted outside of both the 1994 Amended and Restated Option Plan and
the 1995 Stock Option Plan. Half of his shares vested six months after issue and
the remainder after one year.
The Company accounts for these plans under APB No. 25, under which no
compensation cost is recognized for stock options granted to employees with an
exercise price at or above the prevailing market price on the date of the grant.
Had compensation cost for these plans been determined
F-21
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
11. STOCK OPTION PLAN--(CONTINUED)
consistent with the fair value approach required by SFAS No. 123, the Company's
net loss and net loss per common share would increase to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
-------- --------
<S> <C> <C> <C>
Net Loss ($000)................. As Reported (18,736) (30,003)
Pro Forma (20,197) (34,468)
Net Loss Per Common Share ($)... As Reported (1.28) (1.55)
Pro Forma (1.38) (1.78)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
the grants made January 1, 1995, August 3, 1995, August 10, 1995, August 14,
1995, October 17, 1995, December 15, 1995, January 2, 1996 and August 1, 1996
respectively: risk-free interest rates of 7.84%, 6.21%, 6.23%, 6.28%, 5.76%,
5.53%, 5.30% and 6.36%; expected dividend yields of 0% for each grant; expected
lives of 4 years for all grants; expected stock price volatility of 47.6% for
all grants.
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts because SFAS No. 123 does not apply to stock
options granted prior to January 1, 1995 and additional stock option grants are
anticipated in future years.
12. COMMITMENTS AND CONTINGENCIES
Litigation
In July 1996, the Company, together with MMTV and Tele 59, entered into an
agreement to purchase 66% of the shares of Kanal A, a private televison station
in Slovenia ('the Kanal A Agreement') for $3,000,000. Scandinavian Broadcast
Systems, S.A. ('SBS'), which purportedly has certain rights to the equity of
Kanal A pursuant to various agreements, has challenged the validity of the Kanal
A Agreement in a United Kingdom court. Both the Company and SBS have been
granted injunctions by the United Kingdom courts preventing SBS, in the case of
the Company, and the Company, in the case of SBS, from taking certain actions
either to enforce such entity's claim to equity in Kanal A or to block the claim
of the other entity to equity in Kanal A. The Company has instituted action in a
Slovenian court requesting that courts in Slovenia resolve these claims.
Payments made by the Company under these agreements totaled $1,000,000 and are
classified in developments costs at December 31, 1996. Management believes these
amounts will be collected, refunded or will result in an equity interest in
Kanal A.
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company is not presently a party
to any such litigation which management reasonably expect could have a material
adverse effect on its business or operations.
F-22
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Ownership and Financial Commitments--Existing Entities
The Company's ownership interests and financial commitments regarding
existing entities are as follows:
Nova TV
Current financing requirements are being met by cash generated from the
business. The Company does not anticipate that it will need to provide further
financing.
PRO TV
At December 31, 1996, the Company had contributed approximately $20,214,000
of which $2,750,000 is a short term loan. The Company is obligated to pay an
additional $536,000 to bring the paid in capital of PRO TV to $20,000,000.
Additional funding may be provided to PRO TV, on a temporary basis, until such
time as local debt financing can be obtained. Subsequent to December 31, 1996,
the Company has funded $4,050,000 to PRO TV.
The Company is entitled to 77.5% of the total profits of PRO TV, although
the Company's partners hold options which, if exercised, would reduce the
Company's stake of PRO TV's profits to not less than 66.0%. In addition, the
Company is entitled to a one-time preferred dividend of approximately $468,000
from PRO TV related to certain reorganization costs of an affiliated entity. The
Company would be entitled to receive a preferred dividend equal to any
additional future re-organizational costs paid for by the Company. PRO TV is
required to contribute 5% of net profits to a reserve fund until equal to at
least 20% of share capital.
UniMedia
At December 31, 1996, the Company had contributed $3,600,000 for a 10.0%
stake in MobilRom, a company which was awarded one of the mobile
telecommunication licenses in Romania. The Company's investment in MobilRom is
held by UniMedia which is owned 95.0% by the Company and 5.0% by Adrian Sarbu.
UniMedia is obligated to contribute a further $8,400,000 to MobilRom by June
1997, bringing UniMedia's total contribution to $12,000,000, representing 10% of
the equity capital of MobilRom.
POP TV
At December 31, 1996, the Company had funded approximately $28,196,000 to
POP TV, MMTV and Tele 59, which consists of $9,600,000 as equity, $17,346,000 as
a loan to POP TV and interest accrued on this loan of $1,250,000 at December 31,
1996. Further funding of the operations and capital needed for POP TV is
expected to be obtained from local debt financing, cash generated from the
business and additional funding by the Company. Additionally, local debt
financing may be used to partly repay the loan from the Company. Subsequent to
December 31, 1996, the Company has loaned an additional $1,500,000 to POP TV.
PULS
At December 31, 1996, the Company had contributed DM77,661,000
($50,104,000). Management estimates that DM11,000,000 ($7,097,000) in funding
will be required for the first half of 1997 of which DM2,500,000 ($1,613,000)
was funded since December 31, 1996. The Company's obligation to provide funding
to PULS will be based on its decisions to participate in future capital calls.
Funding beyond the percentage of ownership increases the Company's percentage of
ownership and accordingly the Company's share of profits or losses.
F-23
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
FFF
At December 31, 1996, the Company had contributed DM20,000,000
($12,903,000). Management estimates additional funding for operating and capital
needs in 1997 will be DM2,000,000 ($1,290,000). The Company has resolved to fund
these operations in 1997, of which DM860,000 ($555,000) has already been funded
during the first quarter of 1997. The Company's obligation to provide funding to
FFF will be based on its decisions to participate in future capital calls or
loans.
A partner in FFF is entitled to a one-time preferred distribution of
DM1,900,000 ($1,226,000) out of cumulative profits of FFF when the company has
achieved net positive retained earnings.
SFF
At December 31, 1996, the Company had contributed DM4,350,000 ($2,806,000).
Management estimates additional funding for operating and capital needs in 1997
will be DM3,000,000 ($1,935,000). The Company has resolved to fund these
operations for 1997 of which DM2,500,000 ($1,613,000) was funded in the first
quarter of 1997.
Radio Alfa
At December 31, 1996, the Company had agreed to contribute Kc107,000,000
($3,915,000) to Radio Alfa in the form of loans, a portion of which may be
converted into a 21.7% equity interest in Radio Alfa subject to the approval of
the Czech Radio and Television Council. At December 31, 1996, Kc101,400,000
($3,710,000) had been contributed. In the first quarter of 1997 the remaining
Kc5,600,000 ($205,000) was contributed. Further funding for operations and
capital is expected to be obtained from cash generated from the business and
additional funding provided by the Company.
Markiza TV
At December 31, 1996, the Company had contributed $38,323,000 to Markiza
TV. The Company is not required to provide any additional funding. It is
anticipated that any further funding for the project will be obtained from local
debt and cash generated from the business. The total funding of $38,323,000 was
contributed as $9,000,000 in loans and $29,323,000 in equity.
Poland
In Poland, the Company has entered into an alliance with the Polish media
group ITI, forming TVN Sp. z.o.o. ('TVN') which in May 1995 applied for
broadcast licenses in Poland. At December 31, 1996 the licenses had not been
formally awarded to TVN (See Subsequent Events Note 16). ITI holds 67.0% of the
equity in TVN and the Company holds the remaining 33.0%. During 1996, TVN
exercised an option to acquire a 49.0% interest in Telewizja Wisla Sp. z.o.o.
('TV Wisla'), which operates a television station in southern Poland. At
December 31, 1995 the Company had contributed $1,650,000 to TVN. During 1995 and
1996, the Company contributed an aggregate of $7,705,000 in equity to an
affiliated company of TVN. The Company is obligated to contribute an additional
$645,000 to this affiliate. At December 31, 1995, the Company's investment in
Poland was classified as development costs. These amounts are classified as
investments in Unconsolidated Affiliates at December 31, 1996.
The final funding requirements for the Polish project have not been agreed
with ITI but it is management's intention that the Company will fund the project
to approximately $40,000,000, with the remainder of the project funding to be
provided by local bank debt. At December 31, 1996, the Company had contributed
$11,500,000 to the Polish operations. Since December 31, 1996, the Company has
advanced an additional $1,555,000.
F-24
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Ukraine
In September 1996 the Company entered into an agreement to acquire a 50%
equity interest in the Studio 1+1 Group. At December 31, 1996 the Company has
contributed $17,029,000 to acquire this equity interest. In the first quarter of
1997 the Company contributed $2,000,000 as a loan. It is anticipated that the
project will require further funding of up to $3,000,000 in 1997 which will be
made through loans. The remainder of the funding required for the Studio 1+1
Group is anticipated to be raised through its operations.
The Studio 1+1 Group has the right, pursuant to a ten-year television
broadcast license held by a Ukrainian-based member of the Studio 1+1 Group, to
broadcast programming and sell advertising on UT-2. Competitors and others
opposed to the award of the license have indicated a possibility of legal or
administrative actions to challenge the license. However, the Company believes
that the grant of the license would be upheld. There can be no assurance,
however, as to the outcome of such proceedings, if initiated.
Videovox
Management anticipate that any future funding requirements for Videovox
will be met by cash generated from the business.
Licenses
The Company has no reason to believe that the licenses for stations will
not be renewed. However, no statutory or regulatory presumption exists for the
current license holder, and there can be no assurance that licenses will be
renewed upon expiration of their initial terms. The failure of any such licenses
to be renewed may adversely affect the results of the Company's operations.
Ownership and Financial Commitments--Future Expansion
The Company's ownership interest and financial commitments regarding
entities to be considered for future expansion are as follows:
Hungary
The Company owns 95.0% of the equity of 2002 Kft., which was awarded a
local microwave (MMDS) license in Budapest. The Company's business plan
contemplates commencing broadcast operations in Hungary in 1997. 2002 Kft. has
signed program contracts or deal memos which call for future payments of
approximately $8,900,000 in future periods. At December 31, 1996, approximately
$420,000 of program payments had been made. If the Company's Hungarian license
bid is unsuccessful, management believes that the program library from these
contracts or deal memos will be realised in Hungary through various possible
business arrangements or existing program contracts and deal memos may be
re-negotiated.
Other potential commitments
The Company is pursuing additional broadcast development opportunities in
other areas. In some of these countries and regions, the Company has entered
into preliminary understandings with local strategic and financial partners to
seek television broadcast licenses from the local government authorities.
Currency exchange rate fluctuation
The Company generates most of its revenues in German marks ('DM'), Czech
korunas ('Kc'), Slovenian tolars ('SIT'), Romanian lei ('ROL'), Slovak korunas
('Sk') Polish zloty ('Zl'), Ukrainian hryvna ('Hrn') and Hungarian forints
('HUF') and incurs expenses in those currencies, as well as in
F-25
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
British pounds and U.S. dollars. In addition, certain expenses, primarily for
programming, are incurred in U.S. dollars, and certain of the Company's capital
and operating commitments are in foreign currencies. Fluctuations in the value
of foreign currencies may cause U.S. dollar translated amounts to change in
comparison with previous periods. The Company has not hedged against
fluctuations in foreign currency rates. Due to the number of currencies
involved, the constantly changing currency exposures and the fact that all
foreign currencies do not fluctuate in the same manner against the U.S. dollar,
the Company cannot anticipate the effect of exchange rate fluctuations on its
financial condition.
Pension and other post-retirement benefits
The Company has no obligation to provide pension and other post-retirement
benefits.
Station Programming Rights Agreements
The Company had programming rights commitments for $13,179,000 and
$43,876,000 in respect of future programming which includes contracts signed
with license periods starting after December 31, 1995 and 1996, respectively.
Lease Commitments
In 1994 Nova TV purchased part of the buildings it currently occupies and
uses for its Prague television headquarters through a capital lease transaction
with a bargain purchase option with an affiliated entity from which it had
previously rented the property under the terms of an operating lease. In
accordance with the decision to purchase the property, the Company will continue
to make quarterly fixed and variable payments until the loan obligation on the
property has been repaid at which point title of the property will be
transferred to Nova TV. In accordance with the lease agreement, Nova TV must
also pay certain taxes, expenses and other amounts.
During November and December 1995, POP TV entered into 10 capital leases on
vehicles for employees accounted for as capital leases.
Minimum future obligations under capital leases, including interest, are
expected to be as follows:
<TABLE>
<CAPTION>
PAYMENTS DUE $000
- ---------------------------------------- -------
<S> <C>
1997.................................... 4,030
1998.................................... 4,023
1999.................................... 3,940
-------
11,993
Less: Amounts representing interest..... (3,079)
-------
Total................................... 8,914
Less current maturities................. (1,794)
-------
7,120
-------
-------
</TABLE>
For the fiscal years ended December 31, 1994, 1995 and 1996, the Company
paid aggregate rent on all facilities of $2,430,000, $340,000 and $1,776,000,
respectively. Future minimum lease payments at December 31, 1996 for
noncancelable operating leases with remaining terms in excess of one year
aggregate $3,564,000, and are payable as follows: 1997--$1,129,000;
1998--$700,000; 1999-- $486,000; 2000--$414,000; 2001--$192,000; 2002 and
thereafter in the aggregate--$643,000.
F-26
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
13. RELATED PARTY TRANSACTIONS
Contributed Services
Affiliates controlled by certain shareholders of the Company provide
various administrative services for the Company and its predecessors. Amounts
charged for the years ended December 31, 1994, 1995 and 1996, were $733,000,
$357,000 and $88,000, respectively, and are included in corporate operating
costs and expenses.
Amounts due from Unconsolidated Affiliates
During 1996, the Company made payments for programming, goods and services
and incurred costs on behalf of unconsolidated affiliates which totaled
$1,066,000 and are classified as amounts due from unconsolidated affiliates in
the accompanying consolidated balance sheets. These amounts are due from TVN,
Markiza TV, and PULS, and certain of the amounts will be applied toward future
capital contributions to these entities.
Advances to Affiliates
The Company has ongoing business relations with television and radio
service providers owned by the other equity holders in the various broadcast
operations, some of which are the only service providers in their respective
field; affiliation agreements, whereby funds are advanced to license holders for
expenses to be incurred on behalf of the Company and repaid from advertising
sales from regional windows, and has agreed to provide funding as part of the
original purchase agreement to license holding companies, as well as to pay
related party companies for services rendered by the General Directors. Under
affiliate agreements at December 31, 1995, the Company and POP TV had advances
to affiliates of $543,000 and $66,000, respectively. At December 31, 1996, PRO
TV and POP TV had advances to affiliates under affiliation agreements which
total $735,000 and $354,000, respectively.
At December 31, 1995 and 1996, PRO TV had $297,000, and $692,000
respectively, of advances to affiliates for future services to be provided. At
December 31, 1996, PRO TV and POP TV had advances to affiliates related to
financing arrangements to license holders which totaled $1,399,000 and $903,000,
respectively. These amounts are to be repaid to the Company from the license
holding companies.
Loans to Affiliates
Upon the initial contribution to the broadcast operations, the Company has,
at times, financed the other equity holders' capital contributions into the
broadcast operations, entered into certain business arrangements which are
beneficial to the broadcast operation, and provided funding to the broadcast
operations through loans. During 1995, the Company had contributed $2,000,000 in
share capital to PRO TV on behalf of Adrian Sarbu, which was outstanding at
December 31, 1995 and 1996.
Also during 1995, the Company made a $1,302,000 loan to InterMedia in order
to finance InterMedia's purchase of a majority equity interest in a construction
company owning PRO TV's television broadcast station which was outstanding at
December 31, 1995 and 1996. During 1996, the Company entered into an agreement
to lend the General Director of Nova TV funds totaling $5,200,000 to finance his
purchase of interests in CET 21 in order to increase his ownership in CET 21 to
60.0% (Note 16). During 1996, the Company provided a series of loans to Markiza
TV as part of the funding to the project. At December 31, 1996, $9,224,000 in
loans were due from Markiza TV. The loans bear an interest of 6% per annum and
are due in 2001.
In 1995, the Company had a loan to Radio Alfa of Kc79,000,000 ($2,970,000).
In 1996, such loans eliminate in consolidation.
F-27
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
Advances from Affiliates
From time-to-time, the Company has received financing from its majority
shareholder, Ronald S. Lauder, and services from related party affiliates and
has incurred charges under affiliation agreements and employment agreements. In
addition, during the initial start up of a particular station, the Company may
owe amounts to the other shareholders in connection to various purchase
agreements.
Prior to 1995, $7,216,000 was advanced by R.S. Lauder, Gaspar & Co., LP to
fund the acquisition of the Nuremberg Station, certain development expenses of
PULS and corporate overhead. The total amount of this advance was repaid prior
to December 31, 1995. These amounts were non-interest bearing.
Amounts outstanding at December 31, 1995 and 1996 related to affiliates who
provide various administrative services for the Company were $271,000 and
$22,500, respectively, and are included in advances from affiliates in the
accompanying consolidated balance sheets.
Interest of $757,000, $565,000 and $68,000 was charged to income in 1994,
1995 and 1996, respectively, in relation to these loans and the Principal
Shareholder Loan (refer to Note 8). At December 31, 1995, interest of $116,000
remained unpaid and is included in Advances from Affiliates in the accompanying
consolidated balance sheet.
The Company owed $1,766,000 and $450,000 to the other equity holders in PRO
TV and POP TV at December 31, 1995 in connection with the original purchase
agreements for these entities for shares or assets purchased.
At December 31, 1995, POP TV owed $84,000 under affiliation agreements. At
December 31, 1996, PRO TV and POP TV owed $193,000 and $385,000, respectively,
under affiliation agreements.
14. SUMMARY FINANCIAL INFORMATION FOR PULS, MARKIZA TV AND FFF
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------
PULS FFF PULS MARKIZA TV FFF
------- ------ ------- ---------- -------
$000 $000 $000 $000 $000
------- ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Current assets............. 6,938 2,538 3,235 10,896 2,694
Non-current assets......... 15,971 3,308 12,260 28,783 2,105
Current liabilities........ (5,678) (1,410) (3,996) (6,635) (1,270)
Non-current liabilities.... (9,081) (9,526) (6,305) (9,222) (11,923)
------- ------ ------- ---------- -------
Net assets (liabilities)... 8,150 (5,090) 5,194 23,822 (8,394)
------- ------ ------- ---------- -------
------- ------ ------- ---------- -------
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------
PULS FFF PULS MARKIZA TV FFF
------- ------ ------- ---------- -------
$000 $000 $000 $000 $000
------- ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Net revenues............... 3,371 4,410 3,248 7,462 4,736
Operating loss............. (24,387) (5,058) (18,812) (3,712) (3,585)
Net loss................... (24,204) (6,027) (18,785) (4,230) (3,823)
</TABLE>
The Company's share of the losses of PULS, Markiza TV and FFF accounted for
by the equity method were $10,279,000, $3,401,000 and $1,949,000, respectively,
for the year ended December 31,1996 (excluding $1,543,000 of goodwill
amortization in respect of PULS and license acquisition costs amortization of
$182,000 in respect of Markiza TV).
F-28
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
15. STOCK COMPENSATION CHARGE
Under the terms of the Company's contracts with its former President, the
Company issued 454,703 shares of Class A Common Stock to a trust nominated by
him. Ownership of 194,873 shares had vested by December 31, 1994. Upon the
former President's departure in August 1995, 194,872 shares remained unvested.
The Company and its former President agreed that 18,000 of these unvested shares
would vest on December 31, 1996 and the remaining 176,872 shares were forfeited
by the former President. In the year ended December 31, 1995, $858,000 was
recognized as the current expense to account for the vesting of 64,958 shares in
1995 under the original plan and for the recognition of the 18,000 unvested
shares, which no longer required additional services in order to vest. The
deferred compensation charge related to the remaining unvested shares of
$2,476,000 was recognized as treasury stock, and the treasury stock was retired
in 1996.
In addition, the Company granted 203,000 options to officers and employees
with an exercise price below market price in the year ended December 31, 1994.
The above transactions have resulted in stock compensation charges of
$5,833,000, $858,000 and $0 in the years ended December 31, 1994, 1995 and 1996,
respectively.
16. SUBSEQUENT EVENTS
1997 Nova TV Purchase
In March 1997, the Company (CME) acquired an additional 5.2% interest in
Nova TV through the retirement of a $5.2 million loan in exchange for such
interest (the '1997 Nova TV Purchase'). The Company is in the process of
registering the 1997 Nova TV purchase pursuant to Czech law. On an ongoing
basis, after giving effect to the 1997 Nova TV Purchase, the Company is entitled
to 93.2% of the total profits of Nova TV and has 91.2% of the voting power in
Nova TV.
Stock Options
Since December 31, 1996, 10,335 stock options for Class A Common Stock were
exercised at prices of $14.00--$20.00.
F-29
<PAGE>
[PHOTOS OF CME'S NEWS
OPERATIONS, SPORTS AND
OTHER LOCAL PROGRAMMING]
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 10
The Company...................................... 18
Use of Proceeds.................................. 23
Price Range of Common Stock...................... 23
Dividend Policy.................................. 23
Capitalization................................... 24
Selected Consolidated Financial
Data........................................... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 27
Business......................................... 38
Management....................................... 58
Description of Notes............................. 60
Description of Capital Stock..................... 75
Certain Tax Considerations....................... 80
Shares Eligible for Future Sale.................. 87
Underwriting..................................... 88
Legal Matters.................................... 89
Experts.......................................... 89
Available Information............................ 89
Information Incorporated by Reference............ 90
Index to Financial Statements.................... F-1
</TABLE>
$125,000,000
[LOGO]
CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.
% CONVERTIBLE SUBORDINATED
NOTES DUE 2004
SCHRODER WERTHEIM & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant's expenses in connection with the issuance of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 43,561
NASD filing fee.................................................................. 14,875
Printing and engraving........................................................... 175,000
Counsel fees and expenses........................................................ 300,000
Accountants' fees and expenses................................................... 120,000
Trustee fees..................................................................... 10,000
Blue Sky qualification fees and expenses......................................... 10,000
Transfer agent and registrar fees and expenses................................... 5,000
Nasdaq listing fee for listing of Notes.......................................... 10,000
Miscellaneous.................................................................... 161,564
--------
Total..................................................................... $850,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Bermuda law and the Company's Memorandum of Association and bye-laws,
the directors, officers, liquidators and auditors of the Company and their
heirs, executors and administrators are indemnified and held harmless out of the
assets of the Company from and against all actions, costs, charges, losses and
expenses which they or any of them, their heirs, executors or administrators,
shall or may incur or sustain by or by reason of any act done, concurred in or
omitted in or about the execution of their duty, or supposed duty, or in their
respective offices or trusts, and none of them shall be answerable for the acts,
receipts, neglects or defaults of the others of them or for joining in any
receipts for the sake of conformity or for any loss, misfortune or damage which
may happen in the execution of their respective offices or trusts, or in
relation thereto, provided that they are not entitled to indemnification in
respect of any willful negligence, willful default, fraud or dishonesty which
may attach to them.
ITEM 16. EXHIBITS.
The following documents are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
4.1 -- Specimen Certificate for Common Stock (incorporated by reference to Registration Statement on Form
S-1, Reg. No. 33-80344, where it appears as Exhibit 4.01)
4.2 -- Specimen Note
4.3 -- Form of Indenture
5.1 -- Opinion of Conyers, Dill and Pearman
5.2 -- Opinion of Rosenman & Colin LLP
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Conyers, Dill & Pearman (included in Exhibit Number 5.1)
23.2 -- Consent of Rosenman & Colin LLP (included in Exhibit Number 5.2)
23.3 -- Consent of Rosenman & Colin LLP
23.4 -- Consent of Arthur Andersen & Co. (included at page II-3)
25.1 -- Statement of Eligibility of Trustee
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification arising under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions described in Item 15, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered hereby, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Registration Statement of our report dated March 24, 1997, and to the
incorporation by reference in this registration statement of our reports dated
March 24, 1997, March 5, 1997, March 13, 1997, and March 4, 1996 (except for the
matters discussed in Note 3, as to which the date is March 5, 1997) included in
the Form 10-K of Central European Media Enterprises Ltd. for the year ended
December 31, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
April 17, 1997
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on April 18, 1997.
CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
By: /s/ JOHN A. SCHWALLIE
----------------------------------
John A. Schwallie
Vice President--Finance,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
* Chairman of the Board of Directors April 18, 1997
- ------------------------------------------
Ronald S. Lauder
* President, Chief Executive Officer and April 18, 1997
- ------------------------------------------ Director (Principal Executive Officer)
Leonard M. Fertig
/s/ JOHN A. SCHWALLIE Vice President--Finance and Chief April 18, 1997
- ------------------------------------------ Financial Officer (Principal Accounting
John A. Schwallie and Principal Financial Officer)
* Vice President, Secretary and Director April 18, 1997
- ------------------------------------------
Nicolas G. Trollope
* Director and Authorized U.S. April 18, 1997
- ------------------------------------------ Representative
Andrew Gaspar
* Director April 18, 1997
- ------------------------------------------
Herbert S. Schlosser
* Director April 18, 1997
- ------------------------------------------
Robert A. Rayne
*By /s/ JOHN A. SCHWALLIE
- ------------------------------------------
John A. Schwallie
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
4.2 -- Specimen Note
4.3 -- Form of Indenture
5.1 -- Opinion of Conyers, Dill & Pearman
5.2 -- Opinion of Rosenman & Colin LLP
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Conyers, Dill & Pearman (included in Exhibit Number 5.1)
23.2 -- Consent of Rosenman & Colin LLP (included in Exhibit Number 5.2)
23.3 -- Consent of Rosenman & Colin LLP
23.4 -- Consent of Arthur Andersen & Co. (included at page II-3)
25.1 -- Statement of Eligibility of Trustee
</TABLE>
<PAGE>
Central European Media Enterprises Ltd.
$125,000,000 Principal Amount of
% Convertible Subordinated Notes Due 2004
----------------------
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 1997
SCHRODER WERTHEIM & CO. INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
As Representatives of
the several Underwriters
named in Schedule I hereto
c/o Schroder Wertheim & Co. Incorporated
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Dear Sirs:
Central European Media Enterprises Ltd., a Bermuda company (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate $125,000,000 principal amount of % Convertible
Subordinated Notes Due 2004 (the "Notes") pursuant to the Indenture (the
"Indenture"), dated as of ,1997, between the Company and IBJ Schroder
Bank & Trust Company, as Trustee (the "Trustee"). The Notes to be sold by the
Company are herein referred to as the "Firm Securities." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional $18,750,000 principal amount of Notes (the "Option Securities"), on
the terms and for the purposes set forth in Section 2 hereof. The Firm
Securities and the Option Securities are herein collectively referred to as the
"Securities."
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) The Company meets the requirements for use of Form S-3
under the Securities Act of 1933, as amended (the "Act") and a
registration statement on Form S-3 (File No. 333-24365), and as a part
thereof a preliminary prospectus, in respect of the Securities, has
been filed with the Securities and Exchange Commission (the
"Commission") in the form heretofore delivered to you and, with the
exception of exhibits to the registration statement, to you for each of
the other Underwriters; if such registration statement has not become
effective, an amendment (the "Final Amendment") to such registration
statement, including a form of final prospectus, necessary to permit
such registration statement to become effective, will promptly be filed
by the Company with the Commission; if such registration statement has
become effective and any post-effective amendment to such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, which amendment or amendments shall
<PAGE>
be in form acceptable to you, the most recent such amendment has been
declared effective by the Commission; if such registration statement
has become effective, a final prospectus (the "Rule 430A Prospectus")
relating to the Securities containing information permitted to be
omitted at the time of effectiveness by Rule 430A of the General Rules
and Regulations of the Commission (the "Rules") under the Securities
Act of 1933, as amended (the "Act"), will promptly be filed by the
Company pursuant to Rule 424(b) of the Rules (any preliminary
prospectus filed as part of such registration statement being herein
called a "Preliminary Prospectus," such registration statement as
amended at the time that it becomes or became effective, or, if
applicable, as amended at the time the most recent post-effective
amendment to such registration statement filed with the Commission
prior to the execution and delivery of this Agreement became effective
(the "Effective Date"), including all documents incorporated by
reference into the Rule 430A Prospectus or the Prospectus and all
exhibits thereto and all information deemed to be a part thereof at
such time pursuant to Rule 430A of the Rules, being herein called the
"Original Registration Statement" and the final prospectus (including
all documents incorporated therein by reference) relating to the
Securities in the form first filed pursuant to Rule 424(b)(1) or (4) of
the Rules or, if no such filing is required, the form of final
prospectus included in the Original Registration Statement, together
with pricing-related information, a term sheet or an abbreviated term
sheet, being herein called the "Prospectus");
(b) The Company may also file with the Commission a
registration statement pursuant to Rule 462(b) of the Rules for the
purpose of registering certain additional Securities (any such
registration statement, including any preliminary prospectus or
prospectus incorporated therein at the time such registration statement
becomes effective, being herein called a "Rule 462(b) Registration
Statement", and together with the Original Registration Statement, the
"Registration Statement"), which shall be effective upon filing with
the Commission and copies of which shall be delivered to you, and with
the exception of exhibits, if any, to you for each other Underwriter;
(c) No order preventing or suspending the use of any
Preliminary Prospectus or Prospectus has been issued by the Commission,
and each Preliminary Prospectus and Prospectus, at the time of filing
thereof, conformed in all material respects to the requirements of the
Act and the Rules, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through you expressly for use therein;
(d) On the Effective Date and the date the Prospectus is filed
with the Commission, and when any further amendment or supplements
thereto become effective or are filed with the Commission, as the case
may be, and at the Time of Delivery (as defined in Section 4 hereof)
and on any Option Securities Delivery Date (as defined in Section 4
hereof), the Registration Statement, the Prospectus and such amendment
or supplements did and will conform in all material respects to the
requirements of the Act and the Rules as in effect on such date (or,
with respect to documents incorporated therein by reference, on the
date of filing of such document), and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading as of such dates (or, with respect to documents
incorporated by reference, on the date of filing of such document);
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein;
(e) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement; the
execution, delivery and performance by the Company of its obligations
under this Agreement have been duly and validly authorized by all
requisite corporate action of the Company; and this Agreement has been
executed and delivered by the Company and constitutes the
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legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms;
(f) Neither the Company nor any of its Subsidiaries has
sustained since December 31, 1996, any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, which loss or interference is
material to the Company and its Subsidiaries, taken as a whole; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been, and
prior to the Time of Delivery (as defined in Section 4 hereof) there
will not be, any change in the capital stock or any material increase
in short-term debt or long-term debt of the Company or any of its
Subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its Subsidiaries, taken as
a whole, otherwise than as set forth or contemplated in the Prospectus.
The term "Subsidiary" as used herein shall mean any person, firm,
partnership or corporation ("Legal Entity") in which the Company has a
direct or indirect equity or voting interest;
(g) The Company and its Subsidiaries have good and marketable
title to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all
liens, encumbrances and defects, except such as are described or
contemplated by the Prospectus, or such as would not, singly or in the
aggregate, have a material adverse effect on the Company and its
Subsidiaries taken as a whole, and any real property and buildings held
under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are
described or contemplated by the Prospectus or such exceptions as would
not, singly or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries taken as a whole;
(h) Each license pursuant to which the Company conducts its
broadcast operations ("License") has been duly and validly issued to
the Legal Entity specified in the Registration Statement as holding
such License pursuant to the licensing procedures of the jurisdiction
granting the same, and each such License is in full force and effect.
To the best of the Company's knowledge, except as disclosed in the
Prospectus, where broadcast properties are in operation, the broadcast
property to which each such License pertains is being operated
substantially in accordance with the terms of the applicable License
and the relevant legislation of the issuing jurisdiction or pursuant to
applicable exemptions or other relief therefrom, which exemptions or
other relief have been described in the Prospectus. To the best of the
Company's knowledge, at this time and as of the Time of Delivery (as
defined in Section 4 hereof), except as set forth or contemplated in
the Prospectus (i) no application, action or proceeding is or will be
pending for the modification of any License, (ii) no application,
action or proceeding is or will be pending or threatened that may
result in the revocation, modification, non-renewal or suspension of
any License, or the imposition of any administrative sanction, and
(iii) the issuance and sale of the Securities hereunder will not lead
to the revocation, modification, non-renewal or suspension of any
License, or the imposition of any administrative sanction;
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Bermuda,
with power and authority (corporate and other) to own its properties
and to conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any
business, so as to require such qualification (except where the failure
to so qualify would not have a material adverse effect on the Company
or the Company and its Subsidiaries considered as a whole); and each of
the Company's Subsidiaries has been duly incorporated or, if not a
corporation, duly organized, and is validly existing as a corporation
or other Legal Entity in good standing under the laws of its
jurisdiction of incorporation or organization, with power and authority
(corporate and other) to own or lease its properties and to conduct its
business as described in
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the Prospectus and has been duly qualified as a foreign corporation or
other Legal Entity for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases property, or conducts any business, so as to require such
qualification (except where the failure to so qualify would not have a
material adverse effect on the Company and its Subsidiaries considered
as a whole); and the Company has all necessary corporate power and all
governmental authorizations, permits and approvals required to own its
properties and conduct its business as described in the Prospectus;
(j) The Company has an authorized, issued and outstanding
capitalization as set forth in the Registration Statement, and all the
issued shares of Common Stock, par value $.01 per share, of the Company
(the "Common Stock") have been duly and validly authorized and issued,
are fully paid and non-assessable, are free of any preemptive or
similar rights, were issued and sold in compliance with the applicable
federal, foreign and state securities laws and conform in all material
respects to the description in the Prospectus; as of December 31, 1996,
except as set forth in the Company's consolidated financial statements
included in the Prospectus, there are no outstanding options, warrants
or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible or exchangeable or
exercisable for capital stock of the Company; there are no holders of
securities of the Company who, by reason of the filing of the
Registration Statement have the right (and have not waived such right)
to request the Company to include in the Registration Statement
securities owned by them; and all of the issued shares or other
interests in the capital of each Subsidiary of the Company as described
in the Prospectus as being owned by the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
are owned by the Company or one or more of the Company's Subsidiaries
free and clear of all liens, encumbrances, equities or claims, except
such as are described in the Prospectus or such as would not, singly,
or in the aggregate, have a material adverse effect on the Company and
its Subsidiaries, taken as a whole; and there are no outstanding
options, warrants or other rights calling for the issuance of, and
there are no commitments, plans or arrangements to issue, any shares of
capital stock of any Subsidiary or any security convertible or
exchangeable or exercisable for capital stock of any Subsidiary, except
such as are described in the Prospectus or such as would not, singly or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole;
(k) The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Indenture; the
execution, delivery and performance by the Company of its obligations
under the Indenture have been duly and validly authorized by all
requisite corporate action of the Company; and the Indenture has been
executed and delivered by the Company and constitutes the legal, valid
and binding obligation or the Company, enforceable against the Company
in accordance with its terms;
(l) The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Notes; the
execution, delivery and performance by the Company of its obligations
under the Notes have been duly and validly authorized by all requisite
corporate action of the Company; and the Notes, when authenticated by
the Trustee and delivered against payment therefore as provided herein,
will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms and
conform in an material respects to the description of the Notes in the
Prospectus and have been duly authorized for quotation subject to
official notice of issuance, on the Nasdaq Stock Market's SmallCap
Market;
(m) The shares of Common Stock to be issued upon conversion of
the Notes hereunder have been duly and validly authorized and, when
issued and delivered upon conversion of the Notes, will be duly and
validly issued, fully paid and non-assessable, will not be subject to
any lien, encumbrance, preemptive right or any other claim, will
conform in all material respects to the description of the Common Stock
in the Prospectus, and are duly authorized for quotation and will be
quoted, subject to official notice of issuance, on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market");
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(n) The performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or result
in a breach or violation of, any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the property or assets of
the Company or any of its Subsidiaries is subject, nor will such action
result in any violation of the provisions of the Memorandum of
Association or the bye-laws or any other equivalent corporate
governance document, in each case as amended, of the Company or any of
its Subsidiaries, or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its Subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any court or governmental agency or body is required for the
issue and sale of the Securities or the consummation of the other
transactions contemplated by this Agreement, except the registration
under the Act of the Securities, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Securities by the Underwriters;
(o) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its Subsidiaries is a party or of which any property of the Company
or any of its Subsidiaries is the subject, other than litigation
incident to the business conducted by the Company and its Subsidiaries
which will not individually or in the aggregate have a material adverse
effect on the financial position, stockholders' equity or results of
operations of the Company and its Subsidiaries considered as a whole;
and, except as set forth in the Prospectus, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened or contemplated by others;
and neither the Company nor any of its Subsidiaries is involved in any
labor dispute, nor, to the Company's knowledge, is any labor dispute
threatened;
(p) The Company and its Subsidiaries have such licenses,
permits and other approvals or authorizations of and from governmental
or regulatory authorities ("Permits") as are necessary under applicable
law to own their prospective properties and to conduct their respective
businesses in the manner now being conducted and as described in the
Prospectus; and the Company and its Subsidiaries have fulfilled and
performed all of their respective obligations with respect to such
Permits, and no event has occurred which allows, or after notice or
lapse of time, or both, would allow, revocation or termination thereof
or result in any other material impairment of the rights of the holder
of any such Permits;
(q) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged and in the jurisdictions in which
they conduct such businesses; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its Subsidiaries taken as a
whole, except as described in or contemplated by the Prospectus;
(r) Arthur Andersen & Co., who have certified certain
consolidated financial statements of (i) the Company and its
consolidated Subsidiaries, (ii) Slovenska Televizna Spolocnost, s.r.o
("STS" or the "Slovak Subsidiary"), (iii) 1A TV
Beteiligungsgesellschaft GmbH & Co. Betriebs KG ("PULS"), and (iv)
Franken Funk & Fernsehen GmbH ("FFF"), are independent public
accountants as required by the Act and the Rules;
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(s) The consolidated financial statements of the Company and
the financial statements of STS, PULS, and FFF and any other
unconsolidated associated company in which the Company has a financial
interest (the "Unconsolidated Associated Companies") included in the
Registration Statement (or incorporated by reference therein) and the
Prospectus present fairly the financial condition, the results of
operations and the cash flows of the Company (including its
predecessor), its consolidated Subsidiaries and the Unconsolidated
Associated Companies as of the dates and for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, except as
otherwise stated therein; and the other financial and statistical
information and data set forth in the Registration Statement and the
Prospectus is accurately presented and, to the extent such information
and data is derived from the financial statements and books and records
of the Company and its consolidated Subsidiaries, and the
Unconsolidated Associated Companies, no other financial statements are
required to be included in the Registration Statement (or incorporated
by reference therein) and the Prospectus;
(t) The Company is aware of no statutes or governmental
regulations, or any contracts or other documents that are required to
be described in or filed as exhibits to the Registration Statement
which are not described therein or filed or incorporated by reference
as exhibits thereto;
(u) The Company and its Subsidiaries own or possess adequate
patent rights or licenses or other rights to use patent rights,
inventions, trademarks, service marks, trade names and copyrights
necessary to conduct the general businesses now operated by them and
neither the Company nor any of its Subsidiaries has received any notice
of infringement of, or conflict with, asserted rights of others with
respect to any patent, patent rights, inventions, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate,
could materially adversely affect the business, operations, financial
condition, income or business prospects of the Company and its
Subsidiaries considered as a whole;
(v) In addition to the rights described in paragraph (u)
hereof, the Company and its Subsidiaries have rights under appropriate
binding agreements to broadcast the programming they currently
broadcast, and are scheduled to broadcast. To the best of the Company's
knowledge, broadcasting of these programs by the Company and its
Subsidiaries pursuant to the rights granted under such agreements does
not and will not violate any copyright or other laws relating to the
use of another party's intellectual property;
(w) Neither the Company nor any of its Subsidiaries is in
violation of any term or provision of its memorandum of association or
bye-laws or equivalent corporate governance documents, in each case as
amended to the date hereto, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of its
Subsidiaries, or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of its Subsidiaries,
the violation of which could have a material adverse effect on the
Company or any of its Subsidiaries;
(x) No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, bank loan or credit agreement,
lease or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them is bound, except
such as is disclosed in the Prospectus or such as would not, singly or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries taken as a whole;
(y) The Company and its Subsidiaries, other than the Romanian
Subsidiary (as defined below), have timely filed all necessary tax
returns and notices and have paid all federal, state, county, local and
foreign taxes of any nature whatsoever for all tax years through
December 31, 1996, to the extent such taxes have become due. The
Company has no knowledge, or any reasonable grounds to know, of any tax
deficiencies which would have a material adverse effect on the Company
or any of its Subsidiaries, taken
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as a whole; the Company and its Subsidiaries, other than the Romanian
Subsidiary, have paid all taxes which have become due, whether pursuant
to any assessments, or otherwise, and there is no further liability
(whether or not disclosed on such returns) or assessments for any such
taxes, and no interest or penalties accrued or accruing with respect
thereto, except as may be set forth or adequately reserved for in the
financial statements included in the Registration Statement; the
amounts currently set up as provisions for taxes or otherwise by the
Company and its Subsidiaries, other than the Romanian Subsidiary, on
their books and records are sufficient for the payment of all their
unpaid federal, foreign, state, county and local taxes accrued through
the dates as of which they speak, and for which the Company and its
Subsidiaries may be liable in their own right, or as a transferee of
the assets of, or as successor to any other corporation, association,
partnership, joint venture or other Legal Entity;*
(z) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences;
(aa) No labor disturbance by the employees of the Company or
any of its Subsidiaries exists or, to the best knowledge of the
Company, is imminent which might be expected to have a material adverse
effect on the business, properties, financial condition, results of
operations or prospects of the Company and its Subsidiaries considered
as a whole;
(ab) No stamp or other issuance or transfer taxes or duties
and no capital gains, income, withholding or other taxes are payable by
or on behalf of the Underwriters to Bermuda or to any political
subdivision or taxing authority thereof or therein in connection with
the sale and delivery by the Underwriters of the Securities to the
initial purchasers thereof;
(ac) The indemnification and contribution provisions set
forth in Section 8 hereof do not contravene Bermuda law or public
policy;
(ad) Neither the Company nor any of its Subsidiaries nor, to
the Company's knowledge, any employee or agent of the Company or any of
its Subsidiaries has made any payment of funds of the Company or any
Subsidiary or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus;
(ae) The Company is not an investment company or a company
controlled by an investment company within the meaning of the
Investment Company Act of 1940, as amended;
(af) Neither the Company nor any of its Subsidiaries will be a
Foreign Personal Holding Company ("FPHC") as defined in Section 552 of
the Internal Revenue Code of 1986, as amended (the "Code"), for its
taxable year ending December 31, 1997, and to the best of the Company's
knowledge, neither the Company nor any of its Subsidiaries will become
FPHCs in the future by reason of the nature of their income. In
addition, neither the Company nor any of its Subsidiaries will be a
Passive Foreign
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* The Romanian Subsidiary has failed to timely pay certain VAT and
related penalties and withholding taxes in Romania, which taxes and
penalties, if not paid or relieved following a successful appeal to
the Romanian taxation authorities, could have a material adverse
effect on the Romanian Subsidiary, but would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
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Investment Company ("PFIC"), as defined in Section 1296
of the Code, for its taxable year ending December 31, 1996, and to the
best of the Company's knowledge, neither the Company nor its
Subsidiaries will become PFICs in the future by reason of the nature of
their income or assets. The Company will take such reasonable efforts
as are necessary to structure its and its Subsidiaries' operations to
avoid any of them becoming an FPHC or a PFIC. Should the Company or any
of its Subsidiaries become a PFIC in any year, the Company will provide
sufficient information to its shareholders to enable them to elect to
have the PFIC treated as a qualified electing fund for purposes of
Section 1295 of the Code;
(ag) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted or that
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities, in each case as defined under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the General Rules and Regulations of the Commission thereunder;
(ah) The Company has validly and irrevocably submitted to the
jurisdiction of any U.S. Federal or State court located in the Borough
of Manhattan, the City of New York, and has designated Corporation
Service Company as its agent for service of process; and
(ai) The Indenture has been qualified under the Trust
Indenture Act of 1939, as amended.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the several Underwriters an aggregate principal
amount of $125,000,000 Firm Securities, and each of the Underwriters agrees to
purchase from the Company, at a purchase price of $______ per $1,000, the
respective aggregate principal amount of Firm Securities determined in the
manner set forth below. The obligation of each Underwriter to the Company shall
be to purchase that portion of the principal amount of Notes to be sold by the
Company pursuant to this Agreement as the number of Firm Securities set forth
opposite the name of such Underwriter on Schedule I bears to the total principal
amount of Firm Securities to be purchased by the Underwriters pursuant to this
Agreement, in each case adjusted by you such that no Underwriter shall be
obligated to purchase Firm Securities other than in multiples of $1,000. In
making this Agreement, each Underwriter is contracting severally and not
jointly.
In addition, subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to the Underwriters, as required (for the sole
purpose of covering over-allotments in the sale of the Firm Securities), up to a
principal amount of $18,750,000 of Option Securities at the purchase price per
$1,000 of the Firm Securities being sold by the Company as stated in the
preceding paragraph. The right to purchase the Option Securities may be
exercised by your giving 48 hours' prior written notice to the Company of your
determination to purchase all or a portion of the Option Securities. Such notice
may be given at any time within a period of 30 days following the date of this
Agreement. Option Securities shall be purchased severally for the account of
each Underwriter in proportion to the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule I hereto. No Option Securities
shall be delivered to or for the accounts of the Underwriters unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided. The respective purchase obligations of each
Underwriter shall be adjusted by you so that no Underwriter shall be obligated
to purchase Option Securities other than in multiples of $1,000. The
Underwriters may cancel any purchase of Option Securities at any time prior to
the Option Securities Delivery Date (as defined in Section 4 hereof) by giving
written notice of such cancellation to the Company.
3. Upon the authorization by you of the release of the Securities, the
Underwriters propose to offer the Securities for sale upon the terms and
conditions set forth in the Prospectus.
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4. Certificates in definitive form for the Firm Securities to be
purchased by each Underwriter hereunder shall be delivered by or on behalf of
the Company to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price therefor by certified or
official bank check or checks, payable in Federal or other same day funds, to
the order of the Company, for the purchase price of the Firm Securities being
sold by the Company in New York, New York, at 9:30 A.M., New York City time, on
______________, 1997, or at such other time, date and place as you and the
Company may agree upon in writing, such time and date being herein called the
"Time of Delivery."
Certificates in definitive form for the Option Securities to be
purchased by each Underwriter hereunder shall be delivered by or on behalf of
the Company to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price thereof by certified or
official bank check or checks, payable in Federal or other same day funds, to
the order of the Company, for the purchase price of the Option Securities, in
New York, New York, at such time and on such date (not earlier than the Time of
Delivery nor later than six business days after giving of the notice delivered
by you to the Company with reference thereto) and in such denominations and
registered in such names as shall be specified in the notice delivered by you to
the Company with respect to the purchase of such Option Securities. The date and
time of such delivery and payment are herein sometimes referred to as the
"Option Securities Delivery Date." The obligations of the Underwriters shall be
subject, in their discretion, to the condition that there shall be delivered to
the Underwriters on the Option Securities Delivery Date opinions and
certificates, dated such Option Securities Delivery Date, referring to the
Option Securities, instead of the Firm Securities, but otherwise to the same
effect as those required to be delivered at the Time of Delivery pursuant to
Section 7(d), 7(e), 7(f), 7(g), 7(h), 7(i), 7(j), 7(k), 7(l), 7(m), 7(n), 7(o),
7(p), 7(q), 7(r) and 7(t), provided, that if the Option Securities Delivery Date
and the Time of Delivery are the same, additional deliveries described by this
section shall not be required.
Certificates for the Firm Securities and the Option Securities so to be
delivered will be in good delivery form, and in such denominations and
registered in such names as you may request not less than 48 hours prior to the
Time of Delivery and the Option Securities Delivery Date, respectively. Such
certificates will be made available for checking and packaging in New York, New
York, at least 24 hours prior to the Time of Delivery and the Option Securities
Delivery Date.
5. The Company agrees with each of the Underwriters:
(a) If the Registration Statement has not become effective, to
promptly file the Final Amendment with the Commission and use its best
efforts to cause the Registration Statement to become effective; if the
Original Registration Statement has become effective, to promptly file
the Rule 430A Prospectus with the Commission in accordance with the
provisions of such rule; to make no further amendment or any supplement
to the Original Registration Statement or Prospectus or file any Rule
462(b) Registration Statement which shall be reasonably disapproved by
you after reasonable notice thereof; to advise you, promptly after it
receives notice thereof of the time when the Registration Statement, or
any amendment thereto, or any amended Registration Statement has become
effective or any supplement to the Prospectus or any amended Prospectus
or Rule 462(b) Registration Statement has been filed, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, of
the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or suspending any
such qualification to use promptly its best efforts to obtain
withdrawal of such order; (b) Promptly from time to time to take such
action as you may reasonably request to qualify the Securities for
offering and sale under the securities laws of such jurisdictions as
you may request and
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to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction, and
in each jurisdiction in which the Securities have been so qualified,
the Company will file such statements and reports as may be required by
the laws of such jurisdiction to continue each qualification in effect
for a period of not less than one year from the Effective Date;
(c) To deliver to you and, with the exception of exhibits, to
you for each other Underwriter, copies of the Original Registration
Statement, each Rule 462(b) Registration Statement, two of which will
be signed and will include all exhibits, each Preliminary Prospectus,
the Prospectus and all amendments or supplements thereto and all
documents incorporated by reference into the Registration Statement in
such quantities and in such form or forms as you may from time to time
reasonably request, and if delivery of a prospectus is required by law
in connection with sales of Securities at any time prior to the
expiration of nine months after the time of issue of the Prospectus and
if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with
the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection with
sales of any of the Securities at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its stockholders as soon as
practicable, but in any event not later than 90 days after the close of
the period covered thereby, an earnings statement in form complying
with the provisions of Section 11(a) of the Act and Rule 158 of the
Rules covering a period of 12 consecutive months beginning not later
than the first day of the Company's fiscal quarter next following the
Effective Date;
(e) To file promptly all documents required to be filed with
the Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act
subsequent to the Effective Date and during any period when the
Prospectus is required to be delivered;
(f) For a period of five years from the Effective Date, to
furnish to its stockholders after the end of each fiscal year an annual
report (including a combined or consolidated balance sheet and
statements of income, cash flow and stockholders' equity of the Company
and its Subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the Effective Date), to file with the Commission combined or
consolidated summary financial information of the Company and its
Subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the Effective Date, to
furnish to you copies of all reports or other communications (financial
or other) furnished to its stockholders, and deliver to you (i) as soon
as they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed;
and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time
reasonably request in connection with your obligations hereunder;
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(h) During the period of 120 days after the date hereof,
except pursuant to this Agreement and to its 1994 and 1995 Stock Option
Plans, the Company will not offer, sell or otherwise dispose of any
capital stock of the Company, directly or indirectly, without the prior
written consent of the Representatives; and
(i) That it will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to cause or result
in, stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid: (i) the fees, disbursements and
expenses of counsel and accountants for the Company, and all other expenses, in
connection with the preparation, printing and filing of the Original
Registration Statement and the Prospectus and (except as otherwise provided in
Section 5(c) hereof) amendments and supplements thereto and any Rule 462(b)
Registration Statement and the furnishing of copies thereof, including charges
for mailing, air freight and delivery and counting and packaging thereof and of
any Preliminary Prospectus and related offering documents to the Underwriters
and dealers; (ii) the cost of printing this Agreement, the Agreement Among
Underwriters, the Selling Agreement, communications among the Company, the
Underwriters and the selling group and the Preliminary and Supplemental Blue Sky
Memoranda; (iii) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws provided in Section
5(b) hereof, including filing and registration fees and the fees, disbursements
and expenses for counsel for the Underwriters in connection with such
qualification and in connection with Blue Sky surveys; (iv) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Securities; and (v) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 6,
including the fees of the Company's Trustee, Transfer Agent and Registrar, the
cost of any stock transfer taxes on sale of the Securities to the Underwriters,
the cost of the Company's personnel and other internal costs, the cost of
printing and engraving the certificates representing the Securities and all
expenses and taxes incident to the sale and delivery of the Securities to be
sold by the Company to the Underwriters hereunder.
It is understood, however, that, except as provided in this Section 6,
Section 8 and Section 12 hereof, the Underwriters will pay all their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Securities by them, and any advertising expenses connected
with any offers they may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of the Time of Delivery,
true and correct, the condition that the Company shall have performed all its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Original Registration Statement and, if the Company
has elected to rely on Rule 462(b), the Rule 462(b) Registration
Statement shall have been declared effective, and you shall have
received notice thereof with respect to the Original Registration
Statement, and time confirmation thereof with respect to any Rule
462(b) Registration Statement, not later than 10:00 P.M., New York City
time, on the date of execution of this Agreement, or at such other time
as you and the Company may agree; if required, the Prospectus shall
have been filed in accordance with Rule 424(b)(1) or (4) of the Rules
not later than 48 hours following the execution of this Agreement; no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) All corporate proceedings and related legal and other
matters in connection with the organization of the Company and the
registration, authorization, issue, sale and delivery of the Securities
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shall have been reasonably satisfactory to Akin, Gump, Strauss, Hauer &
Feld, L.L.P., counsel to the Underwriters, and Akin, Gump, Strauss,
Hauer & Feld, L.L.P. shall have been furnished with such papers and
information as they may reasonably have requested to enable them to
pass upon the matters referred to in this subsection;
(c) You shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement
thereto, or any Rule 462(b) Registration Statement contains an untrue
statement of fact or omits to state a fact which in your judgment is in
either case material and in the case of an omission is required to be
stated therein or is necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(d) Conyers, Dill & Pearman, Bermuda counsel to the Company,
shall have furnished to you their written opinion, dated the Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) each of the Company, and International Media
Services Ltd. ( "Media", and together with the Company, the
"Bermuda Companies") has been duly and validly incorporated
and is validly existing as a corporation in good standing
under the laws of Bermuda (meaning, among other things, that
the Company has not failed to make any filing with any Bermuda
governmental authority or to pay any Bermuda governmental fee
or tax, the failure of which would make the Company liable to
be struck from the Register of Companies and thereby cease to
exist under the laws of Bermuda); and the Company has all
necessary corporate power to own and lease its properties and
conduct its business as described in the Prospectus;
(ii) the Company has an authorized capitalization as
set forth in the Registration Statement and all the issued
shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and
nonassessable and are free of any preemptive rights. The
Securities being sold by the Company have been duly and
validly authorized and, when duly authenticated by the Trustee
and delivered in accordance with the provisions of the
Registration Statement and this Agreement, will be legal,
valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as
enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights generally and except as
enforceability of the same may be affected by principles of
equity; and the Securities conform to the description of the
Securities in the Prospectus; to such counsel's knowledge, all
of the issued shares or other interests in the capital of
Media which have been issued or granted to the Company or any
Subsidiary of the Company have been validly created, allotted
and issued, and the Company is, directly or indirectly, the
holder of fifty percent of the issued share capital or other
interests of Media;
(iii) this Agreement, the Indenture, and each
agreement relating to the Company's investment in the Studio
1+1 Group (as defined in the Prospectus) listed in such
counsel's opinion, have been duly authorized, executed and
delivered by the Company and each is a legal, valid and
binding agreement of the Company or Media, as the case may be,
enforceable in accordance with its terms, except as
enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and except as
enforceability of those provisions relating to indemnity may
be limited by the securities laws and principles of public
policy in Bermuda or in the United States;
(iv) the Company has full corporate power and
authority to execute, deliver and perform this Agreement and
the Indenture, and the execution, delivery and performance of
this Agreement, the consummation of the transactions herein
contemplated and the issue and sale of
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<PAGE>
the Securities and the compliance by the Company with all the
provisions of this Agreement will not result in any violation
of the provisions of the Memorandum of Association or the
Bye-laws, in each case as amended, of the Company, any statute
or, to the best of such counsel's knowledge, any order, rule
or regulation of any court or governmental agency or body
having jurisdiction over the Company;
(v) no consent, approval, authorization, order,
registration or qualification of or with any Bermuda court,
regulatory authority or other Bermuda governmental body is
required which has not been duly obtained in accordance with
Bermuda law for the issue and sale of the Securities or the
consummation of the other transactions contemplated by this
Agreement;
(vi) there are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting of, any Securities pursuant to the Company's Memorandum
of Association or Bye-laws, in each case as amended;
(vii) no stamp or other issuance or transfer taxes or
duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the Underwriters to
Bermuda or to any political subdivision or taxing authority
thereof or therein in connection with the sale and delivery by
the Underwriters of the Securities to the initial purchasers
thereof;
(viii) the statements in the Prospectus relating to
Bermuda law, including but not limited to those under the
captions "Risk Factors - Enforcement of Civil Liabilities and
Judgments," "Risk Factors - Bermuda Corporate Law,"
"Description of Capital Stock," "Certain Tax Considerations -
Bermuda Taxation," "Management - Executive Officers and
Directors" and "Underwriting" in the Prospectus and Item 15 of
Part II of the Registration Statement, insofar as such
statements constitute a summary of matters of Bermuda law and
regulation or legal conclusions with respect thereto, are
accurate in all material respects;
(ix) the indemnification and contribution provisions
set forth in Section 8 of this Agreement do not contravene
Bermuda law or public policy;
(x) assuming the validity of such actions under
applicable federal and state laws in the United States, under
the laws of Bermuda relating to submission to jurisdiction,
the Company has validly and irrevocably submitted to the
jurisdiction of any U.S. Federal or state court located in the
Borough of Manhattan, the City of New York, and the service of
process effected in the manner set forth in this Agreement
will be effective, insofar as Bermuda law is concerned, to
confer valid personal jurisdiction over the Company; and
(xi) any judgment obtained in any U.S. federal or
state court of competent jurisdiction sitting in New York City
arising out of or in relation to the obligations of the
Company under this Agreement would be enforced against the
Company in Bermuda courts, provided that, inter alia, (a) such
judgment is obtained in compliance with legal requirements of
the jurisdiction of the court rendering such judgment and in
compliance with all legal requirements of this Agreement; (b)
such judgment is strictly for the payment of a certain sum of
money based on an in personam (rather than an in rem) action,
provided that pursuant to Bermuda law, obligations payable in
Bermuda in a foreign currency, whether by agreement or by a
judgment of a Bermuda court, may be discharged in Bermuda
currency at the rate of exchange for such currency prevailing
at the time of payment; (c) service of process was made
personally on the Company or on the appropriate process agent;
(d) such judgment does not contravene Bermuda public policy,
Bermuda law, international treaties or agreements binding upon
Bermuda or generally accepted principles of international law;
(e) the applicable procedure under the laws of
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<PAGE>
Bermuda with respect to the enforcement of foreign judgments
(including the issuance of a letter rogatory by the competent
authority of such jurisdiction in accordance with the laws
thereof) is complied with; (f) such judgment is final in the
jurisdiction where it was obtained; and (g) the U.S. federal
or state courts recognize the principles of reciprocity in
connection with the enforcement of Bermuda judgments in the
United States or the State of New York, as the case may be.
In rendering their opinions set forth in Section 7(d) above, such
counsel may rely, to the extent deemed advisable by such counsel, (a) upon
certificates of state officials, and (b) on opinions of counsel (provided,
however, that you shall have received a copy of each of such opinions which
shall be dated the Time of Delivery, addressed to you or otherwise authorizing
you to rely thereon; and that Conyers, Dill & Pearman in its opinion to you
delivered pursuant to this subsection, shall state that such counsel are
satisfactory to them and Conyers, Dill & Pearman has no reason to believe that
you and they are not entitled to so rely);
(e) Baker & McKenzie, special Netherlands counsel to the
Company, shall have furnished to you their written opinion, dated the
Time of Delivery, in the form and substance satisfactory to you, to the
effect that:
(i) CME Media Enterprises B.V. ("CME BV"), Central
European Media Enterprises N.V. and each of other Subsidiary
listed on Schedule I to such counsel's opinion (collectively,
the "Dutch and Netherlands Antilles Subsidiaries") have each
been duly incorporated or duly organized as a limited
liability company or other Legal Entity under the laws of the
Kingdom of the Netherlands and the Netherlands Antilles,
respectively;
(ii) all of the issued shares or other interests in
the capital of the Dutch and Netherlands Antilles Subsidiaries
which have been issued or granted to the Company or any
Subsidiary have been validly created, allotted and issued, and
the Company is the direct or indirect registered holder of all
of the issued share capital or other interests of the Dutch
and Netherlands Antilles Subsidiaries;
(iii) this Agreement, the Indenture, and each
agreement relating to the Company's investment in the Studio
1+1 Group (as defined in the Prospectus) listed in such
counsel's opinion, have been duly authorized, executed and
delivered by the Company and each is a legal, valid and
binding agreement of the Company or any of the Dutch and
Netherlands Subsidiaries, as the case may be, enforceable in
accordance with its terms, except as enforceability of the
same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally and except as enforceability of those provisions
relating to indemnity may be limited by the securities laws
and principles of public policy in the Netherlands, the Dutch
Antilles or the United States; and
(iv) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in the
Kingdom of the Netherlands or the Netherlands Antilles against
the Company or any Subsidiary which would affect the subject
matter of this Agreement or is required to be disclosed in the
Prospectus which is not disclosed and correctly summarized
therein.
(f) Rosenman & Colin LLP, U.S. counsel to the Company, shall
have furnished to you their written opinion, dated the Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) each of the Subsidiaries listed on Schedule I to
such counsel's opinion (which Schedule shall set forth all of
the United States Subsidiaries) (collectively, the "United
States
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<PAGE>
Subsidiaries") has been duly incorporated or duly
organized as a corporation or other Legal Entity under United
States law;
(ii) the statements under the caption "Certain Tax
Considerations - United States" in the Prospectus insofar as
such statements constitute a summary of matters of U.S. tax
law and regulations or legal conclusions with respect thereto,
are accurate in all material respects;
(iii) assuming due authorization, execution and
delivery by the parties thereto, this Agreement is a valid and
binding agreement of the Company enforceable in accordance
with its terms, including but not limited to the choice of law
provision contained in paragraph 15 hereof;
(iv) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and the consummation of
the transactions contemplated hereby (including, without
limitation, the issuance and sale of the Securities) will not
require any consent, approval authorization or other order of
any U.S. court, regulatory body, administrative agency or
other governmental body (except such as may be required under
the Act or other securities or Blue Sky laws), or violate or
conflict with any U.S. laws, administrative regulations or
rulings or court decrees applicable to the Company or any of
the Subsidiaries, except where failure to receive any such
consent, approval, authorization or any such conflict, breach
or default would not have a material adverse effect on the
business and financial condition of the Company and the
Subsidiaries taken as a whole;
(v) the Registration Statement has become effective
under the Act, any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) under the Act,
has been made in the manner and within the time period
required by Rule 424(b) under the Act, and no stop order
suspending its effectiveness has been issued and no
proceedings for the purpose are, to the knowledge of such
counsel, pending before or contemplated by the Commission;
(vi) to such counsel's knowledge, no holders of
securities of the Company have rights to the registration
thereof under the Registration Statement or, if any such
holders have such rights, such holders have waived such
rights;
(vii) the Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended;
(viii) to such counsel's knowledge, no contract or
other document or U.S. Statute or regulation is required to be
disclosed in the Registration Statement and Prospectus or to
be filed as an exhibit to the Registration Statement that is
not disclosed therein or filed as required, and each contract
governed by the laws of the State of New York or U.S. Federal
law summarized in the Registration Statement and Prospectus is
in full force and effect;
(ix) such counsel does not know of any U.S.
governmental legal proceeding pending or threatened against
the Company or any Subsidiary which would affect the subject
matter of this Agreement or is required to be disclosed in the
Prospectus which is not disclosed and correctly summarized
therein;
(x) the Indenture has been qualified under the Trust
Indenture Act of 1939, and the summary descriptions under the
caption "Description of the Notes" in the Prospectus generally
conform to the Notes and the Indenture;
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<PAGE>
(xi) assuming the due authorization, execution and
delivery by the parties thereto, the Indenture has been duly
executed and delivered by the Company and is a legal, valid
and binding agreement of the Company enforceable in accordance
with its terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally
and except as enforceability may be limited by governing
principles of equity; and
(xii) (1) the Registration Statement and the
Prospectus and any supplement or amendment thereto (except for
financial statements and other financial and statistical data,
as to which no belief will be expressed) comply as to form in
all material respects with the Act and (2) no facts have come
to the attention of such counsel which lead such counsel to
believe that (except for financial statements and other
financial and statistical data, as to which no belief will be
expressed) the Registration Statement and the Prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
in order to make the statements therein not misleading, and
that the Prospectus, as amended or supplemented, if applicable
(except for financial statements and other financial and
statistical data, as to which no belief will be expressed), as
of its date and as of the Time of Delivery, contained any
untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(g) Doser Amereller Noack, special German counsel to the
Company, shall have furnished to you their written opinion, dated the
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) each of the Subsidiaries listed on Schedule I to
such counsel's opinion (collectively, the "German
Subsidiaries") is validly existing as a partnership or other
Legal Entity under German law;
(ii) each of the German Subsidiaries has the
corporate power and authority required to carry on its
business as it is stated to be carried on in the Prospectus
and to own and lease its properties;
(iii) to such counsel's knowledge, all of the issued
shares or other interests in the capital of the German
Subsidiaries which have been issued or granted to Central
European Media Enterprises N.V., a Netherlands Antilles
company, and CME Media Enterprises B.V., a Netherlands company
(together, the "Dutch Companies") have been validly created,
allotted and issued, and the Dutch Companies are, directly or
indirectly, the holders of the percentage of the issued share
capital or other interests of such German Subsidiaries
disclosed in the Prospectus;
(iv) the Partnership Agreement for 1A TV
Beteiligungsgesellschaft GmbH & Co. Betriebs KG among the
partners named therein dated May 14, 1993 (the "1A Berlin
Partnership Agreement"); the Agreement on the Establishment of
a Silent Partnership dated April 19, 1994, as amended, between
Dr. Dietmar Straube, CEDC Management Services GmbH & Co. Media
Enterprises KG and FFF (the "Nuremberg Partnership
Agreement"); the Agreement of September 1995, by and between
CME Medienbeteiligungen GmbH & Co. Media Enterprises KG and
Sachsen Funk und Fernsehen GmbH (the "Leipzig and Dresden
Agreement"); and all other agreements relating to the rights
and obligations of the Company or the German Subsidiaries
created under the 1A Berlin Partnership Agreement, the
Nuremberg Partnership Agreement and the Leipzig and Dresden
Agreement (collectively, the "German Constituent Documents,"
which
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may be specified in a schedule to such counsel's opinion) are
valid and binding agreements and are enforceable in
accordance with their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and the issuance and
sale of the Securities by the Company in accordance with the
terms hereof and of the Agreement Among Underwriters (a) will
not require any consent, approval, authorization or other
order of any German court, regulatory body or other German
governmental body to be obtained and (b) will not violate any
German law or regulation with the proviso that because there
are no rulings or decisions relating to this issue, it is not
without doubt;
(vi) no orders for the opening of bankruptcy
proceedings or resolutions of dissolution have been registered
in the respective commercial register with respect to any of
the German Subsidiaries and such counsel is not aware of any
such proceedings having been applied for or any such
resolution having been passed with respect to any of them;
(vii) the German Subsidiaries have been issued the
Licenses required by them under the applicable laws of each of
the German states granting such Licenses for the purposes of
carrying on their broadcast operations as described in the
Prospectus (the "German Licenses"); except for pending
litigation disclosed and correctly summarized in the
Prospectus, to such counsel's knowledge, no application,
action or proceeding is or will be pending or threatened that
may result in the revocation, modification, nonrenewal or
suspension of the German Licenses, or the imposition of any
administrative sanction; the issuance and sale of the
Securities hereunder will not lead to the revocation,
modification, nonrenewal or suspension of the German Licenses,
or the imposition of any administrative sanction; and such
counsel are not aware of any breaches of the terms of the
German Licenses (except as disclosed and correctly summarized
in the Prospectus) which would lead any regulatory authorities
to take any action under their respective powers in relation
thereto;
(viii) insofar as the statements under the captions
"The Company," and "Business Operations in Germany: the German
Stations" in the Prospectus relate to agreements governed by
German law or to German provisions of law ("German legal
matters") referred to therein and insofar as they purport to
describe the legal effect of the German Constituent Documents,
such statements correctly describe such legal matters and such
legal effect; and
(ix) such counsel is not aware of any litigation or
any governmental proceeding pending or threatened in Germany
against the Company or any Subsidiary which would affect the
subject matter of this Agreement or is required to be
disclosed in the Prospectus which is not disclosed and
correctly summarized therein.
(h) Radvan & Co., special Czech counsel to the Company, shall
have furnished to you their written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) Ceska Nezavisla Televizni Spolecnost s.r.o. (the
"Czech Subsidiary") has been duly incorporated or organized
as a limited liability company under the laws of the Czech
Republic and Radio Alfa, a.s. ("Radio Alfa") has been duly
incorporated or organized as a joint stock company under the
laws of the Czech Republic;
-17-
<PAGE>
(ii) each of the Czech Subsidiary and Radio Alfa has
the power and authority required to carry on its business as
it is stated to be carried on in the Prospectus and to own and
lease its properties;
(iii) all of the issued shares or other interests in
the capital of the Czech Subsidiary which have been issued or
granted to a subsidiary of the Company have been validly
created, allotted and issued, and fully paid, and the Company
is, directly or indirectly, the registered holder of the
percentage of the issued share capital or other interests of
such Czech Subsidiary disclosed in the Prospectus;
(iv) the Memorandum of Association and Investment
Agreement dated, May 4, 1993, as amended, by and between
Central European Development Corporation Management Services
GmbH, Ceska Sporitelna, a.s. and CET 21 s.r.o. (CET 21) the
Loan Agreement and Transfer Agreements relating to the
transfer of 2% of the Participation Interest in the Czech
Subsidiary between the CME BV and Czech Savings Bank all dated
August 1, 1996; the Loan Agreement, Transfer Agreements and
Trusteeship Agreement between the CME BV and Dr. Zelezny
regarding the transfer of Participation Interests in CET 21
all dated August 1, 1996; and all other material agreements
reviewed by such counsel relating to the rights and
obligations of the Company with respect to the Czech
Subsidiary (collectively, the "Nova Documents") are valid and
binding agreements and are enforceable in accordance with
their terms;
(v) the Consultancy Agreement (the "Consultancy
Agreement") dated February 9, 1995, by and between CME BV and
Radio Alfa a.s. ("Radio Alfa"); the Loan Agreement dated
February 9, 1995 between CME BV and Radio Alfa, as
supplemented by the several Supplemental Loan Agreements
(collectively, the "Loan Agreements"); each of the Agreements
on Future Agreement between CME BV and IDOS, spel. s.r.o. and
Releas a.s. relating to options to purchase additional
interests in Radio Alfa (collectively, the "Option
Agreements"); and all other material agreements reviewed by
such counsel relating to the rights and obligations of the
Company and any Subsidiary with respect to Radio Alfa created
(collectively, the "Radio Alfa Documents," and together with
the Nova Documents, the "Czech Constituent Documents," which
may be specified in a schedule to such counsel's opinion) are
valid and binding agreements and are enforceable in accordance
with their terms;
(vi) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Czech court, regulatory body or other Czech governmental
body to be obtained and (b) will not violate any Czech law or
regulation;
(vii) there are no winding up petitions against the
Czech Subsidiary or, to the best of such counsel's knowledge,
against Radio Alfa;
(viii) CET 21 and Radio Alfa have obtained the
Licenses required under applicable laws of the Czech Republic
for purposes of carrying on their respective broadcast
operations as described in the Prospectus (collectively the
"Czech Licenses") and the Czech Subsidiary has acquired from
CET 21 the exclusive right to use CET 21's License to
broadcast the Czech Subsidiary's programming in the Czech
Republic, except for the administrative proceedings disclosed
and correctly summarized in the Prospectus regarding an
alleged inconsistency between the present registration of the
scope of business activity of the Czech Subsidiary, to the
best knowledge of such counsel, there are no orders
outstanding which have been made against CET
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<PAGE>
21, the Czech Subsidiary or Radio Alfa; no application, action
or proceeding is or will be pending or threatened that may
result in the revocation, modification, nonrenewal or
suspension of the Czech Licenses, or the imposition of any
administrative sanction; the issuance and sale of the
Securities hereunder will not lead to the revocation,
modification, nonrenewal or suspension of the Czech Licenses,
or the imposition of any administrative sanction; and there
have been no breaches of the terms of the Czech Licenses
(except as disclosed and correctly summarized in the
Prospectus) which would lead any regulatory authorities to
take any action under their respective powers in relation
thereto;
(ix) insofar as the statements under the captions
"The Company," "Business Operations in the Czech Republic:
Nova TV" and "Business - Operations in the Czech Republic:
Radio Alfa" in the Prospectus constitute a summary of Czech
law and insofar as they purport to describe the legal effect
of the Czech Constituent Documents, such statements fairly
describe relevant Czech law and such legal effect; and
(x) such counsel is not aware of any litigation or
any governmental proceeding pending or threatened in the Czech
Republic against Radio Alfa, the Company or any Subsidiary
which would affect the subject matter of this Agreement or is
required to be disclosed in the Prospectus which is not
disclosed and correctly summarized therein.
(i) Radvan & Co., special Slovak counsel to the Company, shall
have furnished to you their written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) STS has been duly incorporated or organized as
a limited liability company under the laws of the Slovak
Republic;
(ii) the Slovak Subsidiary has the power and
authority required to carry on its business as it is stated
to be carried on in the Prospectus and to own and lease its
properties;
(iii) all of the shares or other interests, in the
capital of the Slovak Subsidiary which have been issued or
granted to a subsidiary of the Company have been validly
created, allotted and issued and fully paid, and the Company
is, directly or indirectly, the registered holder of the
percentage of the issued share capital or other interests of
such Slovak Subsidiary disclosed in the Registration
Statement;
(iv) the Memorandum of Association and Articles of
Association each dated September 28, 1995 of the Slovak
Subsidiary; the Participants Agreement dated September 28,
1995 between CME BV and Markiza - Slovakia s.r.o. ("Markiza");
the agreement between CME BV and Markiza dated October 1, 1995
regarding CME BV's contributions; the Mandate Agreement
between Markiza and the Czech Subsidiary (collectively the
"STS Agreements"); and all other material agreements reviewed
by such counsel relating to the rights and obligations of the
Company and any Subsidiary with respect to the Slovak
Subsidiary (collectively, the "Slovak Constituent Documents"
which may be specified in a schedule to such counsel's
opinion) are valid and binding agreements and are enforceable
in accordance with their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Slovak
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<PAGE>
court, regulatory body or other Slovak governmental body to
be obtained and (b) will not violate any Slovak law or
regulation;
(vi) there are, to the best of such counsel's
knowledge, no winding up petitions against the Slovak
Subsidiary or Markiza;
(vii) Markiza has obtained the License required by it
under applicable Slovak law for purposes of carrying on its
broadcast operations as described in the Prospectus (the
"Slovak License") and STS has acquired from Markiza the
exclusive right to use the License such that television
programming produced by STS is broadcast under the Slovak
License by Markiza; to the best of such counsel's knowledge,
there are no orders outstanding which have been made against
STS or Markiza; no application, action or proceeding is
pending or threatened that may result in the revocation,
modification, nonrenewal or suspension of the Slovak License,
or the imposition of any administrative sanction; the issuance
and sale of the Securities hereunder will not lead to the
revocation, modification, nonrenewal or suspension of the
Slovak License, or the imposition of any administrative
sanction (except as disclosed and correctly summarized in the
Prospectus); and there have been no breaches of the terms of
the Slovak License (except as disclosed and correctly
summarized in the Prospectus) which would lead them to take
any action under their respective powers in relation thereto;
(viii) insofar as the statements under the captions
"The Company" and "Business Operations in the Slovak Republic:
Markiza TV" in the Prospectus constitute a summary of Slovak
law and insofar as they purport to describe the legal effect
of the Slovak Constituent Documents, such statements fairly
describe relevant Slovak law and such legal effect; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in the
Slovak Republic against STS, Markiza, the Company or any
Subsidiary which would affect the subject matter of this
Agreement or is required to be disclosed in the Prospectus
which is not disclosed and correctly summarized therein.
(j) Jadek & Pensa, special Slovenian counsel to the Company, shall have
furnished to you their written opinion, dated the Time of Delivery, in the form
and substance satisfactory to you, to the effect that:
(i) Prodkcija Plus d.o.o. Ljubljana ( "Pro Plus" or
the "Slovenian Subsidiary") has been duly incorporated or
organized as a limited liability company under the laws of
Slovenia;
(ii) the Slovenian Subsidiary has the power and
authority required to carry on its business as it is stated
to be carried on in the Prospectus and to own and lease its
properties;
(iii) all of the issued shares or other interests in
the capital of the Slovenian Subsidiary which have been issued
or granted to a subsidiary of the Company have been validly
created, allotted and issued, and the Company is, directly or
indirectly, the registered holder of the percentage of the
issued share capital or other interests of such Slovenian
Subsidiary disclosed in the Prospectus;
(iv) the Partnership Agreement dated February 10,
1995 among CME BV, MMTV 1 d.o.o., Ljubljana ("MMTV") and Tele
59 d.o.o., Maribor ("Tele 59"); the Share Purchase Agreement
dated April 8, 1995 by and between CME BV and Zdenka Meglic,
Zorgova 70, Ljublana ("Meglic"); the Preliminary Agreement
dated December 7, 1995 by and between CME BV and Tele 59; and
all other material agreements reviewed by such counsel
relating to the rights and obligations of the Company and any
Subsidiary with respect to the Slovenian Subsidiary
-20-
<PAGE>
(collectively, the "Slovenian Constituent Documents," which
may be specified in a schedule to such counsel's opinion) are
valid and binding agreements and are enforceable in accordance
with their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Slovenian court, regulatory body or other Slovenian
governmental body to be obtained and (b) will not violate any
Slovenian law or regulation;
(vi) to the best knowledge of such counsel there are
no winding up petitions against the Slovenian Subsidiary,
MMTV, Meglic or Tele 59;
(vii) MMTV and Tele 59 have been issued the Licenses
required under applicable Slovenian law for the purposes of
carrying on their broadcast operations as described in the
Prospectus (the "Slovenian Licenses"), and have agreed to (a)
order the production of television programs exclusively from
the Slovenian Subsidiary, (b) broadcast only programs provided
by the Slovenian Subsidiary, and (c) grant the Slovenian
Subsidiary the exclusive right to sell advertising during
their broadcasts; to the best knowledge of such counsel there
are no orders outstanding which have been made against the
Slovenian Subsidiary; no application, action or proceeding is
pending or threatened that may result in the revocation,
modification, nonrenewal or suspension of the Slovenian
Licenses, or the imposition of any administrative sanction;
the issuance and sale of the Securities hereunder will not
lead to the revocation, modification, nonrenewal or suspension
of the Slovenian Licenses, or the imposition of any
administrative sanction; and there have been no breaches of
the terms of the Slovenian Licenses (except as disclosed and
correctly summarized in the Prospectus) which would lead any
regulatory authorities to take any action under their
respective powers in relation thereto;
(viii) insofar as the statements under the captions
"The Company" and "Business Operations in Slovenia: POP TV" in
the Prospectus constitute a summary of Slovenian law and
insofar as they purport to describe the legal effect of the
Slovenian Constituent Documents, such statements fairly
describe relevant Slovenian law and such legal effect; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in Slovenia
against Meglic MMTV, Tele 59, the Company or any Subsidiary
which would affect the subject matter of this Agreement or is
required to be disclosed in the Prospectus which is not
disclosed and correctly summarized therein.
(k) Liana Petrovici, special Romanian counsel to the Company, shall
have furnished to you their written opinion, dated the Time of Delivery, in the
form and substance satisfactory to you, to the effect that:
(i) Media Pro International S.A. (the "Romanian
Subsidiary") and Unimedia, S.R.L. ("Unimedia") has been duly
incorporated or organized as a joint stock company under the
laws of Romania;
(ii) each of the Romanian Subsidiary and Unimedia
has the power and authority required to carry on its business
as it is stated to be carried on in the Prospectus and to
own and lease its properties;
-21-
<PAGE>
(iii) all of the issued shares or other interests in
the capital of each of the Romanian Subsidiary and Unimedia
which have been issued or granted to a subsidiary of the
Company have been validly created, allotted and issued, and
the Company is, directly or indirectly, the registered holder
of the percentage of the issued share capital or other
interests of such Romanian Subsidiary or Unimedia disclosed in
the Prospectus;
(iv) the Cooperation Agreement dated August 1995
among CME BV, Ion Tiriac and Adrian Sarbu; the various Loan
Agreements between CME BV and Pro TV, S.R.L., and all other
material agreements reviewed by such counsel relating to the
rights and obligations of the Company and any Subsidiary with
respect to the Romanian Subsidiary (collectively, the
"Romanian Constituent Documents," which may be specified in a
schedule to such counsel's opinion); and all material
agreements reviewed by such counsel relating to the rights and
obligations of the Company and any Subsidiary with respect to
Unimedia (collectively, the "Unimedia Documents," which may be
specified in a schedule to such counsel's opinion) are valid
and binding agreements and are enforceable in accordance with
their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Romanian court, regulatory body or other Romanian
governmental body to be obtained and (b) will not violate any
Romanian law or regulation;
(vi) there are no winding up petitions against
either the Romanian Subsidiary or Unimedia;
(vii) those entities which constitute the "Pro TV
Network" as described in the Prospectus have been issued the
Licenses required by them under applicable Romanian law for
the purposes of carrying on their broadcast operations as
described in the Prospectus (the "Romanian Licenses"); to the
best knowledge of such counsel, there are no orders
outstanding which have been made against such entities; no
application, action or proceeding is or will be pending or
threatened that may result in the revocation, modification,
nonrenewal or suspension of the Romanian Licenses, or the
imposition of any administrative sanction; the issuance and
sale of the Securities hereunder will not lead to the
revocation, modification, nonrenewal or suspension of the
Romanian Licenses, or the imposition of any administrative
sanction; and there have been no breaches of the terms of the
Romanian Licenses (except as disclosed and correctly
summarized in the Prospectus) which would lead any regulatory
authorities to take any action under their respective powers
in relation thereto;
(viii) insofar as the statements under the captions
"The Company" and "Business Operations in Romania: PRO TV" in
the Prospectus constitute a summary of Romanian law and
insofar as they purport to describe the legal effect of the
Romanian Constituent Documents or the Unimedia Documents, such
statements fairly describe relevant Romanian law and such
legal effect; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in Romania
against the Company or any Subsidiary which would affect the
subject matter of this Agreement or is required to be
disclosed in the Prospectus which is not disclosed and
correctly summarized therein.
-22-
<PAGE>
(l) Andrea Kozma, special Hungarian counsel to the Company, shall have
furnished to you their written opinion, dated the Time of Delivery, in the form
and substance satisfactory to you, to the effect that:
(i) Each of the Subsidiaries listed in Schedule I to
such counsel's opinion (collectively, the "Hungarian
Subsidiaries") has been duly incorporated or duly organized as
a partnership or other Legal Entity under the laws of Hungary;
(ii) Each of the Hungarian Subsidiaries has the
power and authority required to carry on its business as it
is stated to be carried on in the Prospectus and to own and
lease its properties;
(iii) all of the issued shares or other interests in
the capital of each of the Hungarian Subsidiaries which have
been issued or granted to a subsidiary of the Company have
been validly created, allotted and issued, and the Company is,
directly or indirectly, the registered holder of the
percentage of the issued share capital or other interests of
each of the Hungarian Subsidiaries disclosed in the
Prospectus;
(iv) the material agreements set forth in Schedule I
to such counsel's opinion relating to the rights and
obligations of the Company and any Subsidiary with respect to
each Hungarian Subsidiary (collectively, the "Hungarian
Constituent Documents,") are valid and binding agreements and
are enforceable in accordance with their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Hungarian court, regulatory body or other Hungarian
governmental body to be obtained and (b) will not violate any
Hungarian law or regulation;
(vi) there are no winding up petitions against any
of the Hungarian Subsidiaries;
(vii) each of Veszprem TV kft. ("Veszprem TV") and
2002 kft. ("2002") has been issued the License required by it
under applicable Hungarian law for the purposes of carrying on
its broadcast operations as described in the Prospectus
(collectively, the "Hungarian Licenses"); to the best
knowledge of such counsel, there are no orders outstanding
which have been made against any Hungarian Subsidiary; no
application, action or proceeding is or will be pending or
threatened that may result in the revocation, modification,
nonrenewal or suspension of any Hungarian License, or the
imposition of any administrative sanction; the issuance and
sale of the Securities hereunder will not lead to the
revocation, modification, nonrenewal or Suspension of any
Hungarian License, or the imposition of any administrative
sanction; and there have been no breaches of the terms of any
Hungarian License (except as disclosed and correctly
summarized in the Prospectus) which would lead any regulatory
authorities to take any action under their respective powers
in relation thereto;
(viii) insofar as the statements under the captions
"The Company" and "Business "Business - Broadcast Operations
Under Development - Hungary" in the Prospectus constitute a
summary of Hungarian law and insofar as they purport to
describe the legal effect of the Hungarian Constituent
Documents, such statements fairly describe relevant Hungarian
law and such legal effect; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in Hungary
against the Company or any Subsidiary which would affect the
-23-
<PAGE>
subject matter of this Agreement or is required to be
disclosed in the Prospectus which is not disclosed and
correctly summarized therein.
(m) Altheimer & Gray, special Polish counsel to the Company,
shall have furnished to you their written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) TVN Sp. z.o.o. ("TVN") has been duly incorporated
or duly organized as a partnership or other Legal Entity
under the laws of Poland;
(ii) the Polish Subsidiary has the power and
authority required to carry on its business as it is stated
to be carried on in the Prospectus and to own and lease its
properties;
(iii) all of the issued shares or other interests in
the capital of the Polish Subsidiary which have been issued or
granted to a subsidiary of the Company have been validly
created, allotted and issued, and the Company is, directly or
indirectly, the registered holder of the percentage of the
issued share capital or other interests of such Polish
Subsidiary disclosed in the Prospectus;
(iv) all material agreements scheduled in such
counsel's opinion relating to the rights and obligations of
the Company and any Subsidiary with respect to the Polish
Subsidiary (collectively, the "Polish Constituent Documents,"
) are valid and binding agreements and are enforceable in
accordance with their terms;
(v) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Polish court, regulatory body or other Polish governmental
body to be obtained and (b) will not violate any Polish law or
regulation;
(vi) to the best knowledge of such counsel, there
are no winding up petitions against the Polish Subsidiary;
(vii) Televisja Wisla Sp.z.o.o. ("TV Wisla") has been
issued the License required under applicable Polish law for
the purposes of carrying on its broadcast operations as
described in the Prospectus (collectively, the "Polish
License"); to the best knowledge of such counsel, there are no
orders outstanding which have been made against the Polish
Subsidiary or TV Wisla; no application, action or proceeding
is pending or threatened that may result in the revocation,
modification, nonrenewal or suspension of the Polish License,
or the imposition of any administrative sanction; the issuance
and sale of the Securities hereunder will not lead to the
revocation, modification, nonrenewal or suspension of the
Polish License, or the imposition of any administrative
sanction; and there have been no breaches of the terms of the
Polish License (except as disclosed and correctly summarized
in the Prospectus) which would lead any regulatory authorities
to take any action under their respective powers in relation
thereto;
(viii) insofar as the statements under the captions
"The Company" and "Business Broadcast Operations Under
Development - Poland" in the Prospectus constitute a summary
of Polish law and insofar as they purport to describe the
legal effect of the Polish Constituent Documents, such
statements fairly describe relevant Polish law and such legal
effect; and
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<PAGE>
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in Poland
against the Company or any Subsidiary which would affect the
subject matter of this Agreement or is required to be
disclosed in the Prospectus which is not disclosed and
correctly summarized in the Prospectus.
(n) Baker & McKenzie, special Ukraine counsel to the Company,
shall have furnished to you their written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) to the best knowledge of such counsel each of the
companies listed on Schedule I to such counsel's opinion (the
"Ukraine Participants") has been duly incorporated or duly
organized as a legal entity under the laws of Ukraine;
(ii) to the best knowledge of such counsel each of
the Ukraine Participants has the power and authority required
to carry on its business as it is stated to be carried on in
the Prospectus and to own and lease its properties;
(iii) all of the issued shares or other interests in
the capital of each Ukraine Participant which have been issued
or granted to Intermedia Ukraine ("Intermedia") or Innova have
been validly created, allotted and issued, and Intermedia and
Innova, directly or indirectly, are the registered holders of
the percentages of the issued share capital or other interests
of each Ukraine Participant disclosed in the Prospectus;
(iv) all material agreements scheduled in such
counsel's opinion relating to the rights and obligations of
the Company, any Subsidiary, Media, Intermedia or Innova with
respect to any Ukraine Participant (collectively, the "Ukraine
Constituent Documents") are valid and binding agreements and
are enforceable in accordance with their terms;
(v) insofar as the statements under the captions "The
Company" and "Business Operations in Ukraine: Studio 1+1
Group" in the Prospectus purport to describe the legal effect
of the Ukraine Constituent Documents, such statements fairly
describe such legal effect.
(o) Alexi Volkov, special Ukraine counsel to the Company,
shall have furnished to you his written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) the execution, delivery and performance of this
Agreement and the Indenture by the Company, compliance by the
Company with all the provisions hereof and thereof and the
issuance and sale of the Securities by the Company in
accordance with the terms hereof and thereof (a) will not
require any consent, approval, authorization or other order of
any Ukraine court, regulatory body or other Ukraine
governmental body to be obtained and (b) will not violate any
Ukraine law or regulation;
(ii) to the best knowledge of such counsel there are
no winding up petitions against Intermedia or any of the
Ukraine Participants;
(iii) Tele Radiogesellschaft Studio 1+1 has been
issued the License required under applicable Ukraine law for
the purposes of carrying on its broadcast operations, as the
same are described in the Prospectus (the "Ukraine License");
to the best knowledge of such counsel, there are no orders
outstanding which have been made against the Company,
Intermedia, Innova, Media or any of the Ukraine Participants;
no application, action or proceeding is or will be pending or
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<PAGE>
threatened that may result in the revocation, modification,
nonrenewal or suspension of the Ukraine License (except as
disclosed and correctly summarized in the Prospectus), or the
imposition of any administrative sanction; the issuance and
sale of the Securities hereunder will not lead to the
revocation, modification, nonrenewal or suspension of the
Ukraine License, or the imposition of any administrative
sanction; and there have been no breaches of the terms of the
Ukraine License (except as disclosed in the Prospectus) which
would lead any regulatory authorities to take any action under
their respective powers in relation thereto;
(iv) insofar as the statements under the captions
"The Company" and "Business Operations in Ukraine: Studio 1+1
Group" in the Prospectus constitute a summary of Ukraine law,
such statements fairly describe relevant Ukraine law; and
(v) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in Ukraine
against the Ukraine Participant, Company or any Subsidiary
which would affect the subject matter of this Agreement or is
required to be disclosed in the Prospectus which is not
disclosed and correctly summarized therein.
(p) _____________, special Austrian counsel to the Company,
shall have furnished to you their written opinion, dated the Time of
Delivery, in the form and substance satisfactory to you, to the effect
that:
(i) to the best knowledge of such counsel each of the
companies listed on Schedule I to such counsel's opinion (the
"Austrian Subsidiaries") has been duly incorporated or duly
organized as a legal entity under the laws of Ukraine;
(ii) to the best knowledge of such counsel each of
the Austrian Subsidiaries has the power and authority required
to carry on its business as it is stated to be carried on in
the Prospectus and to own and lease its properties;
(iii) all of the issued shares or other interests in
the capital of each Austrian Subsidiary which have been issued
or granted to the Company, any Subsidiary, Intermedia or
Innova have been validly created, allotted and issued, and the
Company, any Subsidiary, Innova and Intermedia, directly or
indirectly, are the registered holders of the percentages of
the issued share capital or other interests of Media and
Innova disclosed in the Prospectus; and
(iv) all material agreements scheduled in such
counsel's opinion relating to the rights and obligations of
the Company, any Subsidiary, Innova or Media with respect to
any Austrian Subsidiary (collectively, the "Austrian
Subsidiary Constituent Documents") are valid and binding
agreements and are enforceable in accordance with their terms.
(q) Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the
Underwriters, shall have furnished to you their written opinion, dated
the Time of Delivery, in form and substance satisfactory to you, with
respect to the incorporation of the Company, the validity of the
Securities, the Registration Statement, the Prospectus and other
related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(r) At the time this Agreement is executed and also at the
Time of Delivery, Arthur Andersen & Co. LLP shall have furnished to you
a letter or letters, dated the date of this Agreement and the Time of
Delivery, in form and substance satisfactory to you, to the effect,
that:
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<PAGE>
(1) They are independent certified public accountants
with respect to the Company and each Unconsolidated Associated
Company within the meaning of the Act and the applicable
published rules and regulations thereunder;
(2) In their opinion, the consolidated financial
statements of the Company and the financial statements of each
Unconsolidated Associated Company (including the related
schedules and notes) included in the Registration Statement
(or incorporated by reference therein) and Prospectus and
covered by their reports included therein comply as to form in
all material respects with the applicable accounting
requirements of the Act and the published rules and
regulations thereunder;
(3) On the basis of specified procedures as of a
specified date not more than five days prior to the date of
their letter (which procedures do not constitute an
examination made in accordance with generally accepted
auditing standards), consisting of a reading of the latest
available unaudited interim consolidated financial statements
of the Company and the unaudited financial statements of each
Unconsolidated Associated Company (with an indication of the
date or dates of each such latest available financial
statements), inquiries of officials of the Company who have
responsibility for financial and accounting matters, and such
other procedures or inquiries as are specified in such letter,
nothing came to their attention that caused them to believe
that:
(A) (i) Any material modifications should be
made to the unaudited consolidated financial
statements described in this Section 7(r), included
in the Registration Statement for them to be in
conformity with generally accepted accounting
principles; and
(ii) The unaudited consolidated
financial statements described in this Section 7(r)
do not comply as to form in all material respects
with the applicable accounting requirements of the
Act and the related published rules and regulations.
(B) (i) At ___________, 1997, there was any
change in the capital stock, increase in long-term
debt, or decrease in net current assets or
shareholders' equity of the Company or any
Unconsolidated Associated Company as compared with
amounts shown in the [________________ unaudited]
consolidated balance sheet included in the
Registration Statement other than as shown in the
Registration Statement; or
(ii) for the period from
_________________________, there was any change as
compared to the corresponding period in the preceding
year, in combined net revenues or in the total or
per-share amounts of income (loss) before
extraordinary items or of net income (loss), except
in all instances for changes, increase, or decreases
that the Registration Statement discloses have
occurred or may occur.
(C) Based solely on inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters and minutes of
meetings of stockholders, the board of directors and
the compensation committee of the Company, nothing
came to their attention that caused them to believe
(i) at _________________, 1997, there was any change
in the capital stock, increase in long-term debt or
any decreases in net current assets or stockholders'
equity of the Company or any Unconsolidated
Associated Company as compared with amounts shown on
the [_____________________ unaudited] consolidated
balance sheet included in the Registration Statement
or (ii) for the period from __________________, there
were any
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<PAGE>
decreases, as compared with the corresponding period
in the preceding year, in net revenues or in the
total or per share amounts of income (loss) before
extraordinary items or of net income (loss) other
than as disclosed in the Registration Statement.
(4) In addition to the examination referred to in
their reports included in the Registration Statement and the
Prospectus and the limited procedures referred to in clause
(4) above, they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts,
percentages and financial information which are derived from
the general accounting records of the Company and its
consolidated Subsidiaries which appear in the Prospectus under
the captions which have been specified by you, and have
compared such amounts and financial information with the
accounting records of the Company, its consolidated
Subsidiaries and the Unconsolidated Associated Companies and
have found them to be in agreement and have proved the
mathematical accuracy of certain specified percentages; and
(s) (1) Neither the Company nor any of its consolidated
Subsidiaries shall have sustained since _________________, any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree; and (2) since
the respective dates as of which information is given in the
Prospectus, there shall not have been any change in the capital stock
or short-term debt or long-term debt of the Company or any of its
consolidated Subsidiaries nor any change or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its consolidated Subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (1) or (2), is in your judgment so
material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities on
the terms and in the manner contemplated in the Prospectus;
(t) The Company shall have furnished or caused to be furnished
to you at the Time of Delivery certificates signed by the chief
executive officer and the chief financial officer, on behalf of the
Company, satisfactory to you as to such matters as you may reasonably
request and as to (1) the accuracy of the Company's respective
representations and warranties herein at and as of the time of Delivery
and (2) the performance by the Company of all of its respective
obligations hereunder to be performed at or prior to the Time of
Delivery; the Company shall have furnished or caused to be furnished to
you at the Time of Delivery certificates signed by the chief executive
officer and the chief financial officer, on behalf of the Company, as
to (1) the fact that they have carefully examined the Registration
Statement and Prospectus and, (a) as of the Effective Date, the
statements contained in the Registration Statement and the Prospectus
were true and correct and neither the Registration Statement nor the
Prospectus omitted to state a material fact required to be stated
therein or necessary to make the statement therein not misleading and
(b) since the Effective Date, no event has occurred that is required by
the Act or the Rules to be set forth in an amendment of, or a
supplement to, the Prospectus that has not been set forth in such an
amendment or supplement; and (2) the matters set forth in subsection
(a) of this Section 7; and
(u) Each director and officer and certain 5% shareholders and
other shareholders of the Company, and any Legal Entity under their
respective control shall have delivered to you an agreement not to
offer, sell or otherwise dispose of any shares of Common Stock (or
securities convertible or exchangeable into shares of Common Stock),
directly or indirectly into the public market, for a period of 120 days
after the date of this Agreement, without the prior written consent of
the Schroder Wertheim & Co. Incorporated.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are
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<PAGE>
based upon (i) any untrue statement or alleged untrue statement made by the
Company in Section 1 of this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained or incorporated by reference in
any Preliminary Prospectus and not corrected in the Prospectus, the Original
Registration Statement, any Rule 462(b) Registration Statement or the
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all the Securities under
the securities laws thereof or filed with the Commission or any securities
association or securities exchange (each, an "Application"), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made or incorporated by reference therein
not misleading, or (iii) the employment by the Company of any device, scheme or
artifice to defraud, or the engaging by the Company in any act, practice or
course of business which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company shall participate, in
connection with the issuance and sale of any of the Securities, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating, preparing to defend,
defending or appearing as a third-party witness in connection with any such
action or claim; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission relating to an Underwriter made in any Preliminary
Prospectus, the Original Registration Statement, any Rule 462(b) Registration
Statement the Prospectus or such amendment or supplement or any Application in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through you expressly for use therein; and provided,
further, that the indemnity agreements contained in this Section 8(a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages, liabilities or litigation arising from the sale of
Securities to any person, if such Underwriter fails to send or give a copy of
the Prospectus, as the same may be then supplemented or amended, to such person,
within the time required by the Act and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, unless such failure is
the result of noncompliance by the Company with Section 5(c) hereof.
(b) In addition to any obligations of the Company under
Section 8(a), the Company agrees that it shall perform indemnification
obligations under Section 8(a) (as modified by the last paragraph of this
Section 8(b)) with respect to counsel fees and expenses and other expenses
reasonably incurred by making payments within 45 days to the Underwriter in the
amount of the statements of the Underwriter's counsel or other statements which
shall be forwarded by the Underwriter, and that they shall make such payments
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligation to reimburse the Underwriters for such expenses
and the possibility that such payment might later be held to have been improper
by a court and a court orders return of such payments, in which event, after a
final order to such effect from which no appeal may be taken, such amounts will
be returned to the Company, with such interest, if any, as the court may order.
The indemnity agreement in Section 8(a) shall be in addition to any
liability which the Company shall otherwise have and shall extend upon the same
terms and conditions to each person, if any, who controls any Underwriter within
the meaning of the Act or the Exchange Act.
(c) Each Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Original Registration Statement,
any Rule 462(b) Registration Statement or the Prospectus, or any amendment or
supplement thereto, or any Application, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Original Registration Statement, any Rule 462(b)
Registration
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<PAGE>
Statement, the Prospectus or such amendment or supplement or any Application in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter relating to such Underwriter through you expressly
for use therein, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim.
The indemnity agreement in this Section 8(c) shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company and to each person, if any, who controls the Company within the meaning
of the Act or the Exchange Act.
(d) Promptly after receipt by an indemnified party under
Section 8(a) or 8(c) of notice of the commencement of any action (including any
governmental investigation), such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party under Section 8(a) or 8(c)
except to the extent it was unaware of such action and has been prejudiced in
any material respect by such failure or from any liability which it may have to
any indemnified party otherwise than under such Section 8(a) or 8(c). In case
any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. If, however, (i)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party and (ii) an
indemnified party shall have reasonably concluded that representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them and the indemnified party so
notifies the indemnifying party, then the indemnified party shall be entitled to
employ counsel different from counsel for the indemnifying party at the expense
of the indemnifying party and the indemnifying party shall not have the right to
assume the defense of such indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
local counsel) for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same set of allegations or circumstances. The counsel with respect to which
fees and expenses shall be so reimbursed pursuant to the second preceding
sentence shall be designated in writing by Schroder Wertheim & Co. Incorporated
in the case of parties indemnified pursuant to Section 8(a) and by the Company
in the case of parties indemnified pursuant to Section 8(c). The respective
indemnity and contribution agreements by the Underwriters and the Company
contained in Section 8(a), 8(b), and 8(c) and this Section 8 shall be in
addition to any liability which the Underwriters and the Company may otherwise
have.
If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by Section 8(b), the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
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<PAGE>
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any Underwriter (or any person who
controls any Underwriter within the meaning of the Act or the Exchange Act)
makes claim for indemnification pursuant to Section 8(a) hereof, but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 8(a) provides for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Underwriter or any such controlling person in circumstances for which
indemnification is provided under Section 8(c), then, and in each such case, the
Company and such Underwriter shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject as an indemnifying party
hereunder (after contribution from others) in such proportion so that such
Underwriter is responsible for the portion represented by the percentage that
the underwriting discount appearing on the cover page of the Prospectus bears to
the public offering price appearing thereon and the Company is responsible for
the remaining portion; provided, however, that, in any such case (x) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by such Underwriter
and (y) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to a contribution from any person
who was not guilty of such fraudulent misrepresentation. The amount paid or
payable by an Underwriter as a result of this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, preparing to defend or defending any such claim.
(f) Promptly after receipt by any party to this Agreement of
notice of the commencement of any action, suit or proceeding, such party will,
if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof; but the omission so to notify the contributing party will
not relieve it from any liability which it may have to any other party for
contribution under the Act except to the extent it was unaware of such action
and has been prejudiced in any material respect by such failure or from any
liability which it may have to any other party other than for contribution under
the Act. In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party of the commencement thereof,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified.
9. (a) If any Underwriter shall default in its obligation to purchase
the Firm Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Firm Securities on the terms contained herein. If the aggregate number of Firm
Securities as to which Underwriters default is more than one-eleventh of the
aggregate principal amount of the Firm Securities and within 36 hours after such
default by any Underwriter you do not arrange for the purchase of such Firm
Securities, then the Company shall be entitled to a further period of 36 hours
within which to procure another party or other parties satisfactory to you to
purchase such Firm Securities on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Firm Securities, or the Company notifies you that it
has so arranged for the purchase of such Firm Securities, you or the Company
shall have the right to postpone the Time of Delivery for a period of not more
than 7 days, in order to effect whatever changes may thereby be made necessary
in the Original Registration Statement, any Rule 462(b) Registration Statement
or the Prospectus or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Original Registration Statement,
any Rule 462(b) Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with the like effect as
if such person had originally been a party to this Agreement with respect to
such Firm Securities.
(b) If, after giving effect to any arrangements for the
purchase of the Firm Securities of such defaulting Underwriter or Underwriters
by you or the Company or both as provided in subsection (a) above, the aggregate
principal amount of Firm Securities which remain unpurchased does not exceed
one-eleventh of the aggregate principal amount of the Firm Securities, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the principal amount of Firm Securities which such Underwriter agreed
to
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<PAGE>
purchase hereunder and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the principal amount of Firm Securities
which such Underwriter agreed to purchase hereunder) of the Firm Securities of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing shall relieve a defaulting Underwriter from liability for
its default.
(c) If, after giving effect to any arrangements for the
purchase of the Firm Securities of a defaulting Underwriter or Underwriters by
you or the Company as provided in subsection (a) above, the aggregate principal
amount of Firm Securities which remain unpurchased exceeds one-eleventh of the
aggregate principal amount of all the Firm Securities, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Firm Securities of a defaulting
Underwriter or Underwriters, then this Agreement shall thereupon terminate
without liability on the part of any non-defaulting Underwriter or the Company
and, except for the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity agreement in Section 8 hereof;
but nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or an officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Securities.
11. This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Underwriters
by notice to the Company given prior to the Time of Delivery or Option
Securities Delivery Date, as the case may be, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Time of Delivery or Option Securities Delivery
Date, as the case may be, there shall have occurred any material adverse change
in the financial or securities markets in the United States or elsewhere, or in
political, financial or economic conditions in the United States or any country
in which the Company has existing broadcast operations, or any outbreak or
material escalation of hostilities or other calamity or crisis, the effect of
which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the resale of
Securities or if any event shall have occurred resulting in (1) trading in
securities generally on the New York Stock Exchange being suspended or limited
or minimum or maximum prices being generally established on such exchange, (2)
trading in the Common Stock shall have been suspended by the Commission or the
Nasdaq National Market, (3) additional material governmental restrictions, not
in force on the date of this Agreement, being imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (4) a general banking moratorium being declared by
either Federal or New York authorities, or (5) the bringing of an action or
proceeding against any of the Company's Subsidiaries which, if determined
adversely to such Subsidiary, could result in the revocation, modification,
nonrenewal or suspension of any of the Licenses, or the imposition of any
administrative sanction which could result in the loss or material curtailment
of the right of any of the Company's Subsidiaries to conduct commercial
broadcast operations in any of the jurisdictions in which the Company is
presently operating.
12. This Agreement shall become effective (a) if the Registration
Statement has not heretofore become effective, at the earlier of 12:00 Noon, New
York City time, on the first full business day after the Registration Statement
becomes effective, or at such time after the Registration Statement becomes
effective as you may authorize the sale of the Securities to the public by the
Underwriters or other securities dealers, or (b) if the Registration Statement
has heretofore become effective, at the earlier of 24 hours after the filing of
the Prospectus with the Commission or at such time as you may authorize the sale
of the Securities to the public by the Underwriters or securities dealers,
unless, prior to any such time you shall have received notice from the Company
that it elects that this Agreement shall not become effective, or you, or
through you such of the Underwriters as
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<PAGE>
have agreed to purchase in the aggregate fifty percent or more of the aggregate
principal amount of the Firm Securities hereunder, shall have given notice to
the Company that you or such Underwriters elect that this Agreement shall not
become effective; provided, however, that the provisions of this Section and
Section 6 and Section 8 hereof shall at all times be effective.
If this Agreement shall be terminated pursuant to Section 9 or 11
hereof, or if this Agreement, by election of you or the Underwriters, shall not
become effective pursuant to the provisions of this Section, the Company shall
not then be under any liability to any Underwriter except as provided in Section
6 and Section 8 hereof, but if this Agreement becomes effective and is not so
terminated but the Securities are not delivered by or on behalf of the Company
as provided herein because the Company has been unable for any reason beyond its
control and not due to any default by it to comply with the terms and conditions
hereof, the Company will reimburse the Underwriters through you, for all
out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Securities, but the
Company shall then be under no further liability to any Underwriters, except as
provided in Section 6 and Section 8 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter, if the
same shall have been made or given by you.
All statements, requests, notices and agreements hereunder shall be in
writing or by written telecommunication, and shall be sufficient in all respects
if delivered or sent by registered mail, if to the Underwriters, to the
Representatives, c/o Schroder Wertheim & Co. Incorporated at 787 Seventh Avenue,
New York, New York, 10019, Attention: Syndicate Department; provided, however,
that any notice to any Underwriter pursuant to Section 8(d) hereof shall be
delivered or sent by registered mail to such Underwriter at its address set
forth in its Underwriters' Questionnaire delivered to the Company; and if to the
Company, to the Company at 18 D'Arblay Street, London W1V 3FP England,
Attention: General Counsel.
14. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in Section
8 and Section 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Underwriters shall be deemed a successor or
assign by reason merely of such purchase.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without reference to the conflicts of
laws provisions thereof).
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE>
If the forgoing is in accordance with your understanding, please sign
and return to us a counterpart hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement Among
Underwriters, manually or facsimile executed counterparts of which, to the
extent practicable and upon request, shall be submitted to the Company for
examination, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By: _________________________________
Name: John A. Schwallie
Title:
Accepted as of the date hereof,
by:
SCHRODER WERTHEIM & CO. INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
By: Schroder Wertheim & Co. Incorporated
By: ______________________________
Managing Director
For themselves and as Representatives
of the Underwriters
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<PAGE>
SCHEDULE I
Underwriter Principal Amount of Notes
Schroder Wertheim & Co. Incorporated............................................
Prudential Securities Incorporated..............................................
Smith Barney Inc................................................................
Total..................................................................$
<PAGE>
FORM OF FACE OF NOTE
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
No. _______ CUSIP No. 153443AA4
____% CONVERTIBLE SUBORDINATED NOTE DUE 2004
Central European Media Enterprises Ltd., a Bermudian corporation (the
"Company"), for value received, hereby promises to pay to ________________, or
its registered assign, the principal sum of ___________________, on _________,
2004.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By:------------------------------------
Name:
Title:
[Corporate Seal]
By:------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee, certifies that this is one
of the Notes referred to in the Indenture.
By:------------------------------------
Authorized Signatory
Dated: _______________________
<PAGE>
FORM OF REVERSE SIDE OF NOTE
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
____% CONVERTIBLE SUBORDINATED NOTE DUE 2004
1. Indenture.
This Note is one of a duly authorized issue of debt securities of
Central European Media Enterprises Ltd., a Bermudian corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), designated as its "___%
Convertible Subordinated Notes due 2004" (herein called the "Notes") limited in
aggregate principal amount at Stated Maturity to $___________, issued under an
indenture dated as of ___________, 1997 (as amended or supplemented from time to
time, the `Indenture") between the Company and ____________, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and each Holder of Notes and of the terms upon which the Notes are,
and are to be, authenticated and delivered. The summary of the terms of this
Note contained herein does not purport to be complete and is qualified by
reference to the Indenture. All terms used in this Note which are not defined
herein shall have the meanings assigned to them in the Indenture.
The Indenture imposes limitations on the ability of the Company to
consolidate or merge with or into any other Person or permit any other Person to
merge with or into the Company, or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property of the Company to
any other Person. The Indenture does not contain any restrictions on the
incurrence of indebtedness, the creation of liens or the payment of dividends or
the making of distributions, investments or certain other restricted payments or
any financial covenants.
2. Principal and Interest.
The Company promises to pay the principal amount set forth on the face
hereof to the Holder hereof on __________, 2004.
This Note will bear interest from and including the Issue Date at the
rate of ___% per annum. The Company shall pay such interest from and including
the Issue Date, or from and including the most recent Interest Payment Date
thereafter to which interest has been paid or duly provided for, semi-annually
on _______ and _______ of each year, commencing on ______________, 1997, in
cash, to the Holder hereof until the principal amount hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions
provided in the Indenture, be paid to the Person in whose name this Note (or the
Note in exchange or substitution for which this Note was issued) is registered
at the close of business on the Record Date for interest payable on such
Interest Payment Date. The Record Date for any Interest Payment Date is the
close of business on ________ or ________, as the case may be, whether or not a
Business Day, immediately preceding the Interest Payment Date on which such
interest is payable. Any such interest not so punctually paid or duly provided
for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest (including
2
<PAGE>
Additional Amounts (as hereinafter defined), if any) accrued through the
day before such Interest Payment Date. If an Interest Payment Date falls on
a day that is not a Business Day, the interest payment to be made on such
Interest Payment Date will be made on the next succeeding Business Day with
the same force and effect as if made on such Interest Payment Date, and no
additional interest will accrue as a result of such delayed payment.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) this Note, at the interest rate borne on
this Note, plus 1% per annum, and (ii) Defaulted Interest (without regard to any
applicable grace period), at the interest rate borne on the Notes, plus 1% per
annum. The Company's obligation pursuant to the previous sentence shall apply
whether such overdue amount is due at its Stated Maturity, as a result of the
Company's obligations pursuant to Section 3.7, Section 4.5 or Section 4.9 of the
Indenture, or otherwise.
3. Additional Amounts.
Except to the extent required by law, any and all payments of, or in
respect of, any Note shall be made free and clear of and without deduction for
or on account of any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
imposed by Bermuda, or any other jurisdiction under the laws of which the
Company is organized ("Other Jurisdiction") or any political subdivision of or
any taxing authority in Bermuda or in any Other Jurisdiction ("Bermudian Taxes"
or "Other Taxes," respectively). If the Company shall be required by law to
withhold or deduct any Bermudian Taxes or Other Taxes from or in respect of any
sum payable under a Note, the sum payable by the Company, as the case may be,
thereunder shall be increased by the amount ("Additional Amounts") necessary so
that after making all required withholdings and deductions, the Holder shall
receive an amount equal to the sum that it would have received had no such
withholdings and deductions been made; provided that any such sum shall not be
paid in respect of any of the following Bermudian Taxes or Other Taxes to a
Holder (an "Excluded Holder") (i) any tax, withholding, assessment or other
governmental charge which would not have been imposed but for (x) the existence
of any present or former connection between such Holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power over,
such Holder, if such Holder is an estate, trust, partnership or corporation) and
Bermuda or Other Jurisdiction including, without limitation, such Holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having had a permanent establishment
therein or (y) the presentation of a Note (where presentation is required) for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later; (ii) any estate, inheritance, gift, sale, transfer or
personal property tax; (iii) any tax, assessment or other governmental charge
that is withheld by reason of the failure by the Holder or the beneficial owner
of the Note to comply timely with a reasonable request in writing of the Company
(A) to provide information concerning the nationality, residence or identity of
the Holder or such beneficial owner or (B) to make any declaration or other
similar claim or satisfy any information or reporting requirement, which, in the
case of (A) or (B), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a precondition
to exemption from or reduction of all or part of such tax, assessment or other
governmental charge; provided, however, that this clause (iii) shall not apply
to the Company's obligation to pay Additional Amounts if the completing and
filling of the information described in (x) above or the declaration or other
claim described in (y) above would be materially more onerous in form, in
procedure or in substance of information disclosed, in comparison to the
information reporting requirements imposed under U.S. tax law with respect to
Forms 1001, W-8 and W-9; or (iv) any combination of items (i), (ii), and (iii)
above; nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, any Note to any Holder who is not the sole
beneficial
3
<PAGE>
owner of such Note or is a fiduciary or partnership, but only to the
extent that a beneficial owner, a beneficiary or a settlor with respect to a
fiduciary or a member of the partnership would not have been entitled to the
payment of the Additional Amount had the beneficial owner, beneficiary, settlor
or member of such partnership received directly its beneficial or distributive
share of the payments.
In addition, the Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
in respect of the creation, issue and offering the Notes payable in Bermuda, the
United States or any political subdivision thereof or taxing authority of or in
the foregoing. The Company will also pay and indemnify the Trustee and the
Holders of the Notes from and against all court fees and taxes or other taxes
and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the Trustee
or the Holders to enforce the obligations of the Company under the Notes or the
Indenture.
4. Method of Payment.
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender the Note to a Paying Agent to collect principal payments. The Company
will pay principal and interest in money of the United States of America that at
the time of payment is legal tender for payment of all debts public and private.
Principal and interest will be payable at the office of the Paying Agent but, at
the option of the Company, interest may be paid by check mailed to the
registered Holders at their registered addresses.
5. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar under the
Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its subsidiaries may
act as Paying Agent or Registrar.
6. Optional Redemption.
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to __________, 2000. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at a Redemption
Price equal to the percentage of the principal amount at Stated Maturity set
forth below if redeemed in the 12-month period beginning __________ of the years
indicated:
Redemption
Year Price
---- ------------
2000 %
2001 %
2002 %
and thereafter at a Redemption Price equal to 100% of the principal amount at
Stated Maturity, together in each case with accrued and unpaid interest
(including Additional Amounts, if any) to the Redemption Date (subject to the
right of Holders of record on Record Dates to receive interest due on an
Interest Payment Date).
If, at any time, the Company is or would be required on the next
succeeding Interest Payment Date to pay Additional Amounts with respect to the
Notes and the payment of such Additional Amounts
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<PAGE>
cannot be avoided by the use of any reasonable measures available to the
Company, the Notes may be redeemed, at the option of the Company, in whole but
not in part, upon not less than 30 or more than 60 calendar days' notice to the
Holders in accordance with the terms of the Indenture, at a redemption price
equal to the principal amount thereof, plus accrued and unpaid interest, if any
(including Additional Amounts, if any). The Company will also pay to holders on
the Redemption Date any Additional Amounts payable in respect of the period
ending on the Redemption Date. Prior to the publication of any notice of
redemption pursuant to this provision, which in no event will be given earlier
than 90 days prior to the earliest date on which the Company would be required
to pay such Additional Amounts were a payment in respect of the Notes then due,
the Company shall deliver to the Trustee (i) an Officers' Certificate stating
that the obligation to pay such Additional Amounts cannot be avoided by the
Company taking reasonable measures and (ii) an Opinion of Counsel, independent
of the Company and approved by the Trustee, to the effect that the Company has
or will become obligated to pay such Additional Amounts as a result of such
change or amendment. Such notice, once delivered by the Company to the Trustee,
will be irrevocable. The Trustee shall accept such Officers' Certificate and
Opinion of Counsel as sufficient evidence of the satisfaction of the condition
precedent set forth in clauses (i) and (ii) above, in which event it shall be
conclusive and binding on the Holders.
7. Notice of Redemption.
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company will send or cause to be sent a notice of
redemption, first class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the Notes
to be redeemed will be chosen by the Trustee in accordance with the Indenture.
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest (including Additional Amounts, if any) will be paid on such
Interest Payment Date to the Holder of the Note on such Record Date. If money in
an amount sufficient to pay the Redemption Price of all Notes (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent on or before the applicable Redemption Date and certain other conditions
are satisfied, interest (including Additional Amounts, if any) on the Notes to
be redeemed on the applicable Redemption Date will cease to accrue.
The Notes are not subject to any sinking fund.
8. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to purchase such Holder's Notes, in whole
or in part in a principal amount that is an integral multiple of $1,000,
pursuant to a Change of Control Offer, at a purchase price in cash equal to 100%
of the principal amount at Stated Maturity thereof on any Change of Control
Payment Date, plus accrued and unpaid interest, if any, and Additional Amounts,
if any, thereon to the Change of Control Payment Date.
Within 15 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first-class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Notes. The holder of
this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or
5
<PAGE>
portions thereof accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest and Additional Amounts, if any, from and after
the Change of Control Payment Date.
9. Repurchase at the Option of Holders upon a Termination
of Trading.
In the event of any Termination of Trading (as defined in the
Indenture) occurring after the Issue Date and on or prior to Maturity, each
Holder of Notes will have the right, at the Holder's option, to require the
Company to repurchase all or any part of such Holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Termination of Trading at a price (the "Repurchase Price") equal to 100% of
the principal amount at Stated Maturity thereof, together with accrued and
unpaid interest, if any, and Additional Amounts, if any, thereon to the
Repurchase Date.
On or before the 15th day after the occurrence of a Termination
Trading, the Company shall mail to all Holders of Notes a notice of the
occurrence of such Termination of Trading, the Repurchase Price and the
procedures which the Holder must follow to exercise the repurchase right. To
exercise such right, the Holder of the Note must deliver, on or before the close
of business on the Repurchase Date, irrevocable written notice to the Company
(or an agent designated by the Company for such purpose) and to the Trustee of
the Holder's exercise of such right, together with the certificates evidencing
the Notes with respect to which the right is being exercised, duly endorsed for
transfer and with the form entitled "Option of Holder to Require Purchase"
appearing below completed. Such written notice is irrevocable.
10. Mandatory Redemption.
Except as set forth in Sections 8 and 9, the Company is not required to
make any mandatory redemption payments or sinking fund payments with respect to
the Notes.
11. Transfer and Exchange.
A Holder may transfer a Note only upon the surrender of such Note for
registration of transfer. No such transfer shall be effected until, and such
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of transfer in the Note register by the Registrar. When Notes
are presented to the registrar with a request to register the transfer of, or to
exchange such Notes, the Registrar shall register the transfer or make such
exchange as requested if its requirements for such transactions and any
applicable requirements hereunder are satisfied.
12. Denominations.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amounts.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment unless such abandoned property law designates
another Person.
14. Discharge and Defeasance.
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<PAGE>
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Notes and the Indenture if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations for
the payment of principal, premium, if any, and interest (and Additional Amounts,
if any) on the Notes to redemption or Maturity, as the case may be.
15. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture and the Notes may be amended with the written consent of the Holders
of at least two-thirds in principal amount at Stated Maturity of the outstanding
Notes and (ii) any past Default and its consequences may be waived with the
written consent of the Holders of at least a majority in principal amount at
Stated Maturity of the outstanding Notes. Without the consent of any Holder of
Notes, the Company, the Guarantors and the Trustee may amend the Indenture and
the Notes (i) to evidence the succession of another Person to the Company and
the assumption by such successor of the covenants of the Company under the
Indenture and the Notes; (ii) to add additional covenants or to surrender rights
and powers conferred on the Company by the Indenture; (iii) to add any
additional Events of Default; (iv) to provide for uncertificated Notes in
addition to or in place of certificated Notes; (v) to evidence and provide for
the acceptance of appointment under the Indenture of a successor Trustee; (vi)
to add security for the Notes; (vii) to cure any ambiguity in the Indenture, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provisions with respect to
matters or questions arising under the Indenture, provided that such actions
shall not adversely affect the interests of the Holders in any material respect;
(viii) to make provision with respect to the conversion rights of the Holders of
the Notes in the event of a consolidation, merger or sale of assets involving
the Company as required by the Indenture; or (ix) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
16. Defaults and Remedies.
Events of Default under the Indenture include in summary form: default
in payment of interest, including Additional Amounts, if any, on the Notes for
30 days; default in payment of principal on the Notes; failure to comply with
certain of the covenants in the Indenture, including the Change of Control
covenant and the Termination of Trading covenant; failure by the Company to
comply with certain of its other agreements in the Indenture or the Notes and
the continuance of such default or breach for 30 days after notice; defaults in
the payment of certain other Indebtedness, or defaults, other than such payment
defaults, which result in the acceleration prior to express maturity of certain
other Indebtedness or which consist of the failure to pay at maturity; certain
final judgments which remain undischarged, unwaived, unappealed, unbonded,
unstayed or unsatisfied; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount at Stated Maturity of the outstanding Notes,
subject to certain limitations, may declare all the Notes to be immediately due
and payable. Certain events of bankruptcy or insolvency are Events of Default
and shall result in the Notes being immediately due and payable upon the
occurrence of such Events of Default without any further act of the Trustee or
any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount at Stated
Maturity of the outstanding Notes may direct the Trustee in its exercise of any
trust or power under the Indenture. The Holders of a majority in principal
amount at the Stated Maturity of the outstanding Notes, by written notice to the
Company and
7
<PAGE>
the Trustee, may rescind any declaration of acceleration and its
consequences if the rescission would not conflict with any judgment or decree,
and if all Events of Default have been cured or waived except nonpayment of
principal and interest that has become due solely because of the acceleration.
17. Individual Rights of Trustee.
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, its Subsidiaries or its Affiliates with the same rights it would
have it if were not Trustee, Paying Agent or Registrar, as the case may be,
under the Indenture.
18. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of his or her
status as a director, officer, employee, incorporator or stockholder of the
Company. By accepting a Note, each Holder waives and releases all such liability
(but only such liability) as part of the consideration for issuance of such Note
to such Holder.
19. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (=Custodian),, and U/G/M/A (=Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon, and any such redemption shall not be
affected by any defect in or omission of such CUSIP numbers.
22. Subordination.
The indebtedness evidenced by this Note is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the
8
<PAGE>
subordination so provided, and (c) appoints the Trustee his attorney-in-fact
for any and all such purposes.
23. Conversion Rights.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Note is entitled, at his, her or its option, at any time on
or after 9:00 a.m. New York City time on ____________ and before the close of
business on the Business Day next preceding the Maturity of this Note or the
Redemption Date for this Note, or in case this Note or a portion hereof is
called for redemption, then in respect of this Note or such portion hereof until
and including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the Business Day next preceding
the Maturity or the Redemption Date, to convert this Note at the principal
amount hereof, or of such portion, in to fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of Common
Stock of the Company at a conversion price equal to $______ per share of such
Common Stock (or in each case at the current adjusted conversion price if an
adjustment has been made as provided in the Indenture) by surrender of this
Note, duly endorsed or assigned to the Company or in blank, to the Company at
its office or agency maintained for that purpose pursuant to the Indenture,
accompanied by written notice to the Company in the form provided in this Note
(or such other notice as is acceptable to the Company) that the Holder hereof
elects to convert this Note and, in case such surrender shall be made during the
period from the close of business on any regular Record Date next preceding any
Interest Payment Date to the close of business on such Interest Payment Date
(unless this Note or the portion thereof being converted has been called for
redemption on a Redemption Date within such period), also accompanied by payment
in New York Clearing House funds, or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the aforesaid
requirement for payment and, in the case of a conversion after the regular
Record Date next preceding any Interest Payment Date and on or before such
Interest Payment Date, to the right of the Holder of this Note (or any
Predecessor Security) of record at such regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made upon conversion on account of any interest
accrued hereon or on account of any dividends on the Common Stock issued on
conversion, but instead of any fractional share the Company shall pay a cash
adjustment as provided in the Indenture.
The Company will furnish to any Holder of Notes upon written request
and without charge to the Holder a copy of the Indenture which has in it the
text of this Note. Requests may be made to:
Central European Media Enterprises Ltd.
Clarendon House
Hamilton HM/CX
Bermuda
9
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
/ /
------------------------------------------------------
- ---------------------------------------------------------------------------
(Please print name and address of transferee)
- ---------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ------------------ Attorney to transfer
this Note on the Security Register, with full power of substitution.
Dated:----------------------
- ---------------------------- ----------------------------
Signature of Holder Signature Guaranteed:
Signatures must be guaranteed by
an "eligible" guarantor institution"
meeting the requirements of the Registrar,
which requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing Assignment must correspond to the
Name as written upon the face of this Note in every particular,
without alteration or any change whatsoever.
10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
|_| In connection with the Change of Control Offer made pursuant to
Section 4.7 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $ ---------------- ($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or ----------------- an
amount in cash equal to 100% of the principal amount
indicated in the preceding sentences, as the case may be,
plus accrued and unpaid interest thereon, if any, and
Additional Amounts, if any, to the Change of Control Payment
Date.
|_| In connection with the option of the Holder to required the Company to
repurchase the Holder's Note upon a Termination of Trading pursuant to
Section 4.8 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $ ----------------- ($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or ------------- an amount
in cash equal to 100% of the principal amount indicated in
the preceding sentences, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, to the Repurchase Date.
Dated:---------
- ---------------------------- ----------------------------
Signature of Holder Signature Guaranteed
Signatures must be guaranteed by an
"eligible" guarantor institution"
meeting the requirements of the
Registrar, which requirements include
membership or participation in the
Security Transfer Agent Medallion
Program ("STAMP") or such other
"signature guarantee program" as may
be determined by the Registrar in
addition to, or in substitution for,
STAMP, all in accordance with the
Securities Exchange Act of 1934, as
amended.
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<PAGE>
NOTICE: The signature to the foregoing Assignment must correspond to the
Name as written upon the face of this Note in every particular,
without alteration or any change whatsoever.
FORM OF CONVERSION NOTICE
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which
is $1,000 or a multiple thereof) designated below, into shares of
Common Stock in accordance with the terms of the Indenture referred to
in this Note, and directs that the shares issuable and deliverable upon
the conversion, together with any check in payment for a fractional
share and any Note representing any unconverted principal amount
hereof, be issued and delivered to the registered owner hereof unless a
different name has been provided below. If this Notice is being
delivered on a date after the close of business on a regular Record
Date and prior to the close of business on the related Interest Payment
Date, this Notice is accompanied by payment in New York Clearing House
funds, or other funds acceptable to the Company, of an amount equal to
the interest payable on such Interest Payment Date on the principal of
this Note to be converted on such Note. If shares or any portion of
this Note not converted are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto.
Dated:------------------ --------------------------------------
NOTICE This signature must correspond
with the name as written upon the
face of the within-mentioned instrument
in every particular, without alteration
or any change whatsoever.
Fill in for registration of
shares of Common Stock if they are to be
delivered, or Securities if they
are to be issued, other than to and in
the name of the registered owner:
---------------------------------
(Name)
---------------------------------
(Street Address)
---------------------------------
(City, State and zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
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<PAGE>
Principal amount to be
converted (if less than all):
$ ________,000
------------------------------
Social Security or other
Taxpayer Identification
Number of owner
13
<PAGE>
- --------------------------------------------------------------------------------
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
$125,000,000
___% CONVERTIBLE SUBORDINATED NOTES DUE 2004
----------------------------------------------
INDENTURE
Dated as of _________ __, 1997
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IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
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CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as amended,
and the Indenture, dated as of _____________, 1997
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Trust Indenture Indenture
Act Section Section
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Section 310 (a)(1).................................................................................... 7.10
(a)(2).................................................................................... 7.10
(a)(3).................................................................................... N.A.
(a)(4).................................................................................... N.A.
(a)(5).................................................................................... 7.10
(b)....................................................................................... 7.8; 7.10
(c)....................................................................................... N.A.
Section 311 (a)....................................................................................... 7.11
(b)....................................................................................... 7.11
(c)....................................................................................... N.A.
Section 312 (a)....................................................................................... 7.6(a);
......................................................................................... 7.6(b)
(b)....................................................................................... 7.6(c)
(c)....................................................................................... 7.6(d)
Section 313 (a)....................................................................................... 7.6(e)
(b)....................................................................................... N.A.
(c)....................................................................................... 7.6(e);
......................................................................................... 7.6(f)
(d)....................................................................................... 7.6
Section 314 (a)....................................................................................... 4.8; 4.9
(b)....................................................................................... N.A.
(c)(1).................................................................................... 1.4; 13.3
(c)(2).................................................................................... 1.4; 2.2;
......................................................................................... 13.3
(c)(3).................................................................................... N.A.
(d)....................................................................................... 4.9
(e)....................................................................................... 13.4
(f)....................................................................................... 4.12
Section 315 (a)....................................................................................... 7.1(b)
(b)....................................................................................... 7.5(a)
(c)....................................................................................... 7.1(a)
(d)....................................................................................... 7.1(c)
(e)....................................................................................... 6.10
Section 316 (a)....................................................................................... 2.8
(a)(1)(A)................................................................................. 6.5
(a)(1)(B)................................................................................. 6.4
(a)(2).................................................................................... N.A.
(b)....................................................................................... 6.7
(c)....................................................................................... 9.5
Section 317 (a)(1).................................................................................... 6.3
(a)(2).................................................................................... 6.8
(b)....................................................................................... 2.4
Section 318 (a)....................................................................................... 13.1
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Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
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TABLE OF CONTENTS
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Page
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ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................................1
Section 1.1 Definitions........................................................................................1
Section 1.2 Incorporation by Reference to Trust Indenture Act..................................................9
Section 1.3 Rules of Construction..............................................................................9
Section 1.4 Form of Documents Delivered to Trustee............................................................10
Section 1.5 Acts of Holders...................................................................................10
ARTICLE II. THE NOTES............................................................................................12
Section 2.1 Form and Dating...................................................................................12
Section 2.2 Execution and Authentication......................................................................12
Section 2.3 Registrar and Paying Agent........................................................................13
Section 2.4 Paying Agent to Hold Money in Trust...............................................................14
Section 2.5 Authorized Denominations..........................................................................14
Section 2.6 Transfer and Exchange.............................................................................14
Section 2.7 Replacement Notes.................................................................................14
Section 2.8 Outstanding Notes.................................................................................15
Section 2.9 Temporary Notes...................................................................................15
Section 2.10 Cancellation.....................................................................................16
Section 2.11 Payment of Interest; Interest Rights Preserved...................................................16
Section 2.12 Computation of Interest, etc.....................................................................17
Section 2.13 Persons Deemed Owners............................................................................17
Section 2.14 CUSIP Numbers....................................................................................17
ARTICLE III. REDEMPTION..........................................................................................17
Section 3.1 Notice to Trustee.................................................................................17
Section 3.2 Selection of Notes to be Redeemed.................................................................17
Section 3.3 Notice of Redemption..............................................................................18
Section 3.4 Effect of Notice of Redemption....................................................................19
Section 3.5 Deposit of Redemption Price.......................................................................19
Section 3.6 Notes Redeemed in Part............................................................................19
Section 3.7 Optional Redemption...............................................................................19
ARTICLE IV. COVENANTS............................................................................................20
Section 4.1 Payment of Notes..................................................................................20
Section 4.2 Maintenance of Office or Agency...................................................................20
Section 4.3 Money for the Note Payments to be Held in Trust...................................................21
Section 4.4 Corporate Existence...............................................................................21
Section 4.5 Repurchase at the Option of Holders upon a Change of Control......................................21
Section 4.6 Reports...........................................................................................22
Section 4.7 Compliance Certificate; Notice of Default or Event of Default.....................................23
Section 4.8 Repurchase at the Option of Holders upon a Termination of Trading.................................23
Section 4.9 Payment of Additional Amounts.....................................................................24
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ARTICLE V. CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER..................................................26
Section 5.1 Merger, Consolidation or Sale of Assets...........................................................26
Section 5.2 Successor Corporation Substituted.................................................................26
ARTICLE VI. DEFAULTS AND REMEDIES................................................................................27
Section 6.1 Events of Default.................................................................................27
, that a Material Subsidiary shall have 90 days from the occurrence of the action constituting an event of
default pursuant to this Section 6.1(h) to cure such default.
Section 6.2 Acceleration......................................................................................28
Section 6.3 Other Remedies....................................................................................29
Section 6.4 Waiver of Existing Defaults.......................................................................29
Section 6.5 Control by Majority...............................................................................30
Section 6.6 Limitation on Suits...............................................................................30
Section 6.7 Rights of Holders to Receive Payment..............................................................30
Section 6.8 Trustee May File Proofs of Claim..................................................................31
Section 6.9 Priorities........................................................................................31
Section 6.10 Undertaking for Costs............................................................................32
Section 6.11 Waiver of Usury, Stay or Extension Laws..........................................................32
Section 6.12 Trustee May Enforce Claims Without Possession of the Notes.......................................32
Section 6.13 Restoration of Rights and Remedies...............................................................32
Section 6.14 Rights and Remedies Cumulative...................................................................32
Section 6.15 Delay or Omission Not Waiver.....................................................................33
ARTICLE VII. TRUSTEE.............................................................................................33
Section 7.1 Duties of Trustee.................................................................................33
Section 7.2 Rights of Trustee.................................................................................34
Section 7.3 Individual Rights of Trustee......................................................................34
Section 7.4 Trustee's Disclaimer..............................................................................34
Section 7.5 Notice of Defaults................................................................................35
Section 7.6 Preservation of Information; Reports by Trustee to Holders........................................35
Section 7.7 Compensation and Indemnity........................................................................36
Section 7.8 Replacement of Trustee............................................................................36
Section 7.9 Successor Trustee by Merger.......................................................................38
Section 7.10 Eligibility; Disqualification....................................................................38
Section 7.11 Preferential Collection of Claims Against Company................................................39
ARTICLE VIII. DEFEASANCE.........................................................................................39
Section 8.1 Company's Option to Effect Defeasance or Covenant Defeasance......................................39
Section 8.2 Defeasance and Discharge..........................................................................39
Section 8.3 Covenant Defeasance...............................................................................40
Section 8.4 Conditions to Defeasance or Covenant Defeasance...................................................40
Section 8.5 Deposited Money and U.S. Government Obligations to be Held in Trust; Miscellaneous Provisions.....41
Section 8.6 Reinstatement.....................................................................................42
ARTICLE IX. AMENDMENTS...........................................................................................42
Section 9.1 Without Consent of Holders........................................................................42
Section 9.2 With Consent of Holders...........................................................................43
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Section 9.3 Effect of Supplemental Indentures.................................................................43
Section 9.4 Compliance with Trust Indenture Act...............................................................44
Section 9.5 Revocation and Effect of Consents and Waivers.....................................................44
Section 9.6 Notation on or Exchange of Notes..................................................................44
Section 9.7 Trustee to Execute Supplemental Indentures........................................................44
Section 9.8 Solicitation of Consents..........................................................................45
ARTICLE X. SUBORDINATION OF NOTES................................................................................45
Section 10.1 Notes Subordinated to Senior Indebtedness........................................................45
Section 10.2 Payment Over of Proceeds Upon Dissolution, etc...................................................45
Section 10.3 Prior Payment to Senior Indebtedness upon Acceleration of Notes..................................46
Section 10.4 No Payment When Senior Indebtedness in Default...................................................47
Section 10.5 Payment Permitted If No Default..................................................................47
Section 10.6 Subrogation to Rights of Holders of Senior Indebtedness..........................................47
Section 10.7 Provisions Solely to Define Relative Rights......................................................48
Section 10.8 Trustee to Effectuate Subordination..............................................................48
Section 10.9 No Waiver of Subordination Provisions............................................................48
Section 10.10 Notice to Trustee...............................................................................49
Section 10.11 Reliance on Judicial Order or Certificate of Liquidating Agent..................................49
Section 10.12 Trustee Not Fiduciary for Holders of Senior Indebtedness........................................49
Section 10.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights............49
Section 10.14 Article Applicable to Paying Agents.............................................................50
Section 10.15 Certain Conversions Deemed Payment..............................................................50
ARTICLE XI. CONVERSION OF NOTES..................................................................................50
Section 11.1 Conversion Privilege and Conversion Price........................................................50
Section 11.2 Exercise of Conversion Privileges................................................................51
Section 11.3 Fractions of Shares..............................................................................51
Section 11.4 Adjustment of Conversion Price...................................................................52
Section 11.5 Notice of Adjustments of Conversion Price........................................................57
Section 11.6 Notice of Certain Corporate Action...............................................................57
Section 11.7 Company to Reserve Common Stock..................................................................58
Section 11.8 Taxes on Conversions.............................................................................58
Section 11.9 Covenant as to Common Stock......................................................................58
Section 11.10 Cancellation of Converted Notes.................................................................58
Section 11.11 Provisions as to Consolidation, Merger or Sale of Assets........................................58
ARTICLE XII. SATISFACTION AND DISCHARGE..........................................................................59
Section 12.1 Satisfaction and Discharge.......................................................................59
Section 12.2 Application of Trust Money.......................................................................60
Section 12.3 Repayment to the Company.........................................................................60
Section 12.4 Reinstatement....................................................................................61
ARTICLE XIII. MISCELLANEOUS......................................................................................61
Section 13.1 Trust Indenture Act Controls.....................................................................61
Section 13.2 Notices..........................................................................................61
Section 13.3 Certificate and Opinion as to Conditions Precedent...............................................61
Section 13.4 Statements Required in Certificate or Opinion....................................................62
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Section 13.5 Communications by Holders with Other Holders.....................................................62
Section 13.6 Rules by Trustee, Paying Agent and Registrar.....................................................62
Section 13.7 Payments on Business Days........................................................................62
Section 13.8 Governing Law....................................................................................62
Section 13.9 Legal Proceedings................................................................................62
Section 13.10 Service of Process..............................................................................62
Section 13.11 Waiver of Immunities............................................................................63
Section 13.12 Judgment Currency; Currency Indemnity...........................................................63
Section 13.13 No Recourse Against Others......................................................................63
Section 13.14 Successors......................................................................................64
Section 13.15 Counterparts....................................................................................64
Section 13.17 Severability.....................................................................................0
Section 13.18 Further Instruments and Acts.....................................................................0
Section 13.19 Independent Covenants............................................................................0
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EXHIBITS
EXHIBIT A FORM OF NOTE
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INDENTURE, dated as of _______ __, 1997, between CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD., a Bermuda corporation (the "Company"), having its principal
office at Clarendon House, Church Street, Hamilton HM/CX, Bermuda, and IBJ
SCHRODER BANK & TRUST COMPANY, as trustee hereunder (the "Trustee"), having its
Corporate Trust Office at One State Street, New York, NY 10004.
RECITALS OF THE COMPANY
The Company has duly authorized the creation and issue of its ___%
Convertible Subordinated Notes due 2004 (the "Notes") of substantially the tenor
and amount hereinafter set forth, and to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
instrument of the Company, in accordance with their respective terms, have been
done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and the purchase of the Initial Notes by the
Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such Person merging with or into or becoming a Subsidiary of
such specified Person.
"Act" when used with respect to any Holder, has the meaning set forth
in Section 1.5 hereof.
"Additional Amount" has the meaning set forth in Section 4.9 hereof.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "under common control with," and "controlled
by"), and as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of Voting
Stock, by agreement or otherwise; provided that beneficial ownership of 10% or
more of the Voting Stock of a Person (on a fully diluted basis) shall be deemed
to be control.
"Bermudian Taxes" has the meaning set forth in Section 4.9 hereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
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"Board Resolution" means a duly adopted resolution of the Board of
Directors of a Person in full force and effect at the time of determination and
certified as such by the Secretary or an Assistant Secretary of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law, executive order or regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Indebtedness
arrangement conveying the right of use) real or personal property of such Person
which is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles that are applicable at the date of
determination.
"Capital Stock" in any Person means any and all shares, interests,
participation or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Change of Control" will occur when: (i) all or substantially all of
the assets of the Company and its Subsidiaries taken as a whole are sold as an
entirety to any Person or related group of Persons; (ii) there shall be
consummated any consolidation or merger of the Company (A) in which the Company
is not the continuing or surviving corporation (other than a consolidation or
merger with a Wholly-Owned Subsidiary of the Company in which all shares of
Common Stock outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to which
the shares of Common Stock are converted into cash, securities or other
Property, in each case other than a consolidation or merger of the Company in
which the holders of the Common Stock immediately prior to the consolidation or
merger have, directly or indirectly, at least a majority of the Shares of Common
Stock of the continuing or surviving corporation immediately after such
consolidation or merger, or (iii) any Person or any Persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Exchange
Act, together with any Affiliates thereof, other than Permitted Holders acquire
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of at
least 50% of the total voting power of all classes of Capital Stock of the
Company entitled to vote generally in the election of directors of the Company.
Notwithstanding clause (iii) of this definition, a Change in Control will not be
deemed to have occurred solely by virtue of the Company, any Subsidiary, any
employee share purchase plan, share option plan or other share incentive plan or
program, retirement plan or automatic dividend reinvestment plan or any
substantially similar plan of the Company or any Subsidiary or any person
holding securities of the Company for or pursuant to the terms of any such
employee benefit plan, filing or becoming obligated to file a report under or in
response to Schedule 13D of Schedule 14D-1 (or any successor schedule, form or
report) under the Exchange Act disclosing beneficial ownership by it of shares
of securities of the Company, whether at least 50% of the total voting power
referred to in clause (iii) of this definition or otherwise.
"Change of Control Offer" has the meaning set forth in Section 4.5(a)
hereof.
"Change of Control Payment Date" has the meaning set forth in Section
4.5(b)(2) hereof.
"Change of Control Purchase Price" has the meaning set forth in Section
4.5(a) hereof.
"Class A Common Stock" means the Class A Common Stock, par value $0.01
per share, of the Company.
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"Class B Common Stock" means the Class B Common Stock, par value $0.01
per share, of the Company.
"Closing Price" on any Trading Day with respect to the per share price
of any shares of Capital Stock means the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or any other national securities exchange, if such shares of
Capital Stock are not listed or admitted to trading on such exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on such automated quotation system
but the issuer is a Foreign Private Issuer (as defined in Rule 3b-4(c) under the
Exchange Act) and the principal securities exchange on which such shares are
listed or admitted to trading is a Designated Offshore Securities Market (as
defined in Rule 902(a) under the Securities Act), the average of the reported
closing bid and asked prices regular way on such principal exchange, or, if such
shares are not listed or admitted to trading on any national securities exchange
or quoted on such automated quotation system and the issuer and the principal
securities exchange do not meet such requirements, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm that is selected from time to time by the Company for
that purpose and is reasonably acceptable to the Trustee.
"Commission" means the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this Indenture such commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, the body performing such duties at such time.
"Common Stock" includes any stock of any class of any Person which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of such person
and which is not subject to redemption by such person, including, without
limitation, the Class A Common Stock and Class B Common Stock. Subject to the
provisions of this Indenture, however, shares issuable on conversion of the
Notes shall include only shares of Class A Common Stock at the date of this
Indenture or shares of any class or classes resulting from any reclassification
or reclassifications thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which are not subject
to redemption by the Company; provided that if at any time there shall be more
than one such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
"Company" means the party named as such in the preamble to this
Indenture until a successor replaces it pursuant to the applicable provisions
hereof and, thereafter, means such successor and does not include its
subsidiaries except for purposes of financial data determined on a consolidated
basis.
"Company Order" means a written order signed in the name of the Company
by (i) any of its Chairman of the Board, its President, its Chief Executive
Officer, its Chief Operating Officer, a Vice Chairman or a Vice President, and
(ii) any of its Chief Financial Officer, its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary.
"Constituent Person" has the meaning set forth in Section 11.11
hereof.
"Conversion Price" has the meaning set forth in Section 11.1 hereof.
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"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date of execution of this Indenture,
located at One State Street, New York, NY 10004.
"Covenant Defeasance" has the meaning set forth in Section 8.3 hereof.
"Current Market Price" has the meaning set forth in Section 11.4(g)
hereof.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Default Amount" has the meaning set forth in Section 6.2 hereof.
"Defaulted Interest" has the meaning set forth in Section 2.11 hereof.
"Defeasance" has the meaning set forth in Section 8.2 hereof.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the Stated
Maturity of the Notes.
"Event of Default" has the meaning set forth in Section 6.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided herein,
all calculations made for purposes of determining compliance with this Indenture
shall utilize GAAP as in effect on the Issue Date.
"guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner. The terms
"guaranteed," "guaranteeing" and "guarantor" shall have correlative meanings.
"Holder" means the Person in whose name such Note is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, whether recourse is
to all or a portion of the assets of such Person, and whether or not contingent,
(i) any obligation of such Person for money borrowed, (ii) any obligation of
such Person evidenced by bonds, debentures, notes, guarantees or other similar
instruments, including, without limitation, any such obligations incurred in
connection with the acquisition of Property, assets or businesses, excluding
trade accounts payable made in the ordinary course of business, (iii) any
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (but excluding trade
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accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are not more than 60 days overdue or which are
being contested in good faith), (v) any Capital Lease Obligation of such Person,
and (vi) any obligation of the type referred to in clauses (i) through (v) of
this definition of another Person and all dividends and distributions of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument, and any such supplemental indenture,
respectively.
"Independent Financial Expert" has the meaning set forth in Section
11.4(h) hereof.
"Interest Hedging Obligation" means, with respect to any Person, an
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its Restricted
Subsidiaries' exposure to fluctuations in interest rates.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Issue Date" means the date on which the Notes are first authenticated
and delivered under this Indenture.
"junior securities" has the meaning set forth in Section 10.15 hereof.
"Lien" means, with respect to any Property or other asset, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, encumbrance,
preference, priority or other security or similar agreement or preferential
arrangement of any nature whatsoever on or with respect to such Property or
other asset (including, without limitation, any conditional sale or title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Material Subsidiary" means a Subsidiary which is consolidated on the
Company's financial statements, if the Company's and its other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of
such Subsidiary, including its Subsidiaries, exceeds 10 percent of the total
assets of the Company and its Subsidiaries consolidated for the most recently
completed fiscal year.
"Maturity" means, when used with respect to a Note, the date on which
the principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at Stated Maturity, on the Change of Control Payment Date or
upon an offer to repurchase upon a Termination of Trading of the Common Stock of
the Company, as applicable, or by declaration of acceleration, call for
redemption or otherwise.
"nonelecting share" has the meaning set forth in Section 11.11 hereof.
"Notes" has the meaning set forth in the Recitals of the Company and
more particularly means any of the Notes authenticated and delivered under this
Indenture.
"Officer" means the Chairman of the Board of Directors, a Vice Chairman
of the Board of
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Directors, the President, the Chief Executive Officer, the Chief Operating
Officer, a Vice President, the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary.
"Officers' Certificate" means a certificate signed by (i) any of the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, the Chief Executive Officer, the Chief Operating Officer or a
Vice President, and (ii) any of the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee, which
certificate shall comply with the provisions of Sections 1.4, 13.3 and 13.4
hereof.
"Opinion of Counsel" means a written opinion from legal counsel (who
may be counsel to the Company or the Trustee) who is acceptable to the Trustee,
which opinion shall comply with the provisions of Sections 1.4, 13.3 and 13.4
hereof; provided that any Opinion of Counsel delivered pursuant to Section 8.4
hereof shall not be rendered by an employee of the Company or any of its
Subsidiaries.
"Other Jurisdiction" has the meaning set forth in Section 4.9 hereof.
"Other Taxes" has the meaning set forth in Section 4.9 hereof.
"Paying Agent" means any Person authorized by the Company to make
payments of principal, premium or interest (including Additional Amounts, if
any) with respect to the Notes on behalf of the Company.
"Permitted Holders" means each beneficial owner of the Company's Class
B Common Stock on the Issue Date and their respective families and Affiliates.
"Permitted Merger" has the meaning set forth in Section 5.1 hereof.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization, government or any
agency or political subdivision thereof or other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Process Agent" has the meaning set forth in Section 13.10 hereof.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock in any other Person.
"Record Date" means, for the interest payable on any Interest Payment
Date, the date specified in Section 2.11 hereof.
"Record Expiration Date" has the meaning set forth in Section 1.5
hereof.
"Redemption Date" means, when used with respect to any Note or part
thereof to be redeemed hereunder, the date fixed for redemption of such Notes
pursuant to the terms of the Notes and this Indenture.
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"Redemption Price" means, when used with respect to any Note or part
thereof to be redeemed hereunder, the price fixed for redemption of such Note
pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid
interest thereon, if any, (including Additional Amounts, if any) to the
Redemption Date.
"Registrar" has the meaning set forth in Section 2.3 hereof.
"Related Proceeding" has the meaning set forth in Section 13.9 hereof.
"Repurchase Date" has the meaning set forth in Section 4.8(a) hereof.
"Repurchase Price" has the meaning set forth in Section 4.8(a) hereof.
"Required Filing Date" has the meaning set forth in Section 4.6 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security Register" has the meaning set forth in Section 2.3 hereof.
"Senior Indebtedness" means the principal of, and premium, if any, and
interest on and other amounts due on any Indebtedness, whether now outstanding
or hereafter created, incurred, assumed or guaranteed by the Company, for money
borrowed from others (including obligations under Capital Lease Obligations or
purchase money Indebtedness) or in connection with the acquisition by the
Company or a Subsidiary of any other business or entity, or in respect of
letters of credit or bid, performance or surety bonds issued for the account or
on the credit of the Company or a Subsidiary, and, in each case, all renewals,
extensions and refundings thereof, other than (i) any such Indebtedness as to
which, in the instrument creating or evidencing the same, it is provided that
such Indebtedness is not superior in right of payment to the Notes, (ii) if such
Indebtedness or obligation is non-recourse to the Company, (iii) any conditional
sale contract or any account payable or other Indebtedness created or assumed by
the Company in the ordinary course of business in connection with the obtaining
of materials, inventories or services, (iv) Indebtedness of the Company to any
Affiliate and (v) the Notes.
"Special Record Date" means a date fixed by the Trustee pursuant to
Section 2.11 for the payment of Defaulted Interest.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation
more than 50 percent of the outstanding shares of Voting Stock of which is
owned, directly or indirectly, by such Person, or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries of such Person, (ii) any general partnership, joint venture or
similar entity, more than 50 percent of the outstanding partnership or similar
interests of which are owned, directly or indirectly, by such Person, or by one
or more other Subsidiaries of such Person, or by such Person and one or more
other Subsidiaries of such Person or (iii) any limited partnership of which such
Person or any Subsidiary of such Person is a general partner.
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"Surviving Entity" has the meaning set forth in Section 5.1(a) hereof.
"Temporary Notes" has the meaning set forth in Section 2.9 hereof.
"Termination of Trading" means that the Class A Common Stock (or other
Common Stock into which the Notes are then convertible) are neither listed for
trading on a U.S. national securities exchange nor approved for trading on the
Nasdaq Stock Market's National Market or any other established automated
over-the-counter trading market in the United States or, if the Company is a
Foreign Private Issuer (as defined in Rule 3b-4 (c) under the Exchange Act) on
the principal securities exchange on which such Class A Common Stock is listed
or admitted to trading in a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act); provided that a suspension of trading
that lasts no longer than 30 Trading Days shall not be considered to be a
Termination of Trading.
"Total Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
its Subsidiaries on such day, plus (b) the product of (i) the aggregate number
of outstanding shares of Common Stock of such Person on such day (which shall
not include any options or warrants on, or securities convertible or
exchangeable into, shares of Common Stock of such Person other than, in the case
of the Company, any shares of Preferred Stock of the Company, that, as of the
day of determination, cannot, pursuant to the terms thereof as in effect on the
date of the Indenture, be required to be redeemed by the Company in cash, and
(ii) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day, plus (c) the liquidation value of
any outstanding shares of Preferred Stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (b) for the preceding sentence shall be determined
by the Company's Board of Directors in good faith and evidenced by a written
opinion as to such value issued by an investment banking firm of recognized
national standing.
"Trading Day" means, with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full day
of trading.
"Trigger Event" shall have the meaning set forth in Section 11.4(d)
hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture except as
required by Section 9.4 hereof, provided that in the event the Trust Indenture
Act of 1939 is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939, as so
amended.
"Trust Officer" means any Vice President, Assistant Vice President,
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer of the Trustee
assigned by the Trustee to administer this Indenture or any other officer
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means such successor.
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or
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redeemable at the option of the issuer thereof, and (ii) depository receipts
issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as
custodian with respect to any U.S. Government Obligation which is specified in
clause (i) above and held by such bank for the account of the holder of such
depository receipt, or with respect to any specific payment of principal or
interest on any U.S. Government Obligation which is so specified and held,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal or interest of the
U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the outstanding
Capital Stock (other than directors' qualifying shares) of which is owned,
directly or indirectly by the Company.
Section 1.2 Incorporation by Reference to Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms incorporated by reference in
this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or other
obligor on the Notes, if any.
All other Trust Indenture Act terms used or incorporated by reference
in this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.
Section 1.3 Rules of Construction. Unless the context otherwise
requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and hereunder," and other
words of similar import, refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(d) "or" is not exclusive;
(e) "including" means including without limitation; and
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(f) words in the singular include the plural, and words in the
plural include the singular.
Section 1.4 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters, upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.5 Acts of Holders. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments, of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are received by the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
an acknowledgment of notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than such signer's individual capacity, such
certificate or affidavit shall also constitute sufficient proof of the signer's
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of the Notes shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder shall bind every future Holder of the same Note and
the Holder of every Note issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company, in reliance thereon, whether
or not notation of such action is made upon such Note.
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The Company may set any day as a record date for the purpose of
determining the Holders of outstanding Notes entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given or taken by Holders
of Notes, provided that the Company may not set a record date for, and the
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
outstanding Notes on such record date, and no other Holders, shall be entitled
to take the relevant actions whether or not such Holders remain Holders after
such record date; provided that no such action shall be effective hereunder
unless taken on or prior to the applicable Record Expiration Date by Holders of
the requisite principal amount of outstanding Notes on such record date; and
provided, further, that for the purpose of determining whether Holders of the
requisite principal amount of such Notes have taken such action, no Note shall
be deemed to have been outstanding on such record date unless it is also
outstanding on the date such action is to become effective. Nothing in this
paragraph shall prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), nor shall anything in
this paragraph be construed to render ineffective any action taken by Holders of
the requisite principal among of outstanding Notes on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Company at its own expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Record Expiration Date to be given to the
Trustee in writing and to each Holder of Notes in the manner set forth in
Section 13.2 hereof.
The Trustee may set any day as a record date for the purpose of
determining the Holders of outstanding Notes entitled to join in the giving or
making of (i) any notice of Default under Section 6.1(d) or (e) hereof, (ii) any
declaration of acceleration referred to in Section 6.2 hereof, (iii) any request
to institute proceedings referred to in Section 6.6 hereof or (iv) any direction
referred to in Section 6.5 hereof. If any record date is set pursuant to this
paragraph, the Holders of outstanding Notes on such record date, and no other
Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Record Expiration Date by Holders of the requisite
principal amount of outstanding Notes on such record date; and provided,
further, that for the purpose of determining whether Holders of the requisite
principal amount of such Notes have taken such action, no Note shall be deemed
to have been outstanding on such record date unless it is also outstanding on
the date such action is to become effective. Nothing in this paragraph shall be
construed to prevent the Trustee from setting a new record date for any action
(whereupon the record date previously set shall automatically and without any
action by any Person be cancelled and of no effect), nor shall anything in this
paragraph be construed to render ineffective any action taken by Holders of the
requisite principal amount of outstanding Notes on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Trustee, at the Company's expense, shall cause notice of such record date, the
matter(s) to be submitted for potential action by Holders and the applicable
Record Expiration Date to be given to the Company in writing and to each Holder
of Notes in the manner set forth in Section 13.2 hereof.
With respect to any record date set pursuant to this Section 1.5, the
party hereto that sets such record date may designate any day as the "Record
Expiration Date" and from time to time may change the Record Expiration Date to
any earlier or later day, provided that no such change shall be effective unless
notice of the proposed new Record Expiration Date is given to the other party
hereto in writing, and to each Holder of Notes in the manner set forth in
Section 13.2 hereof, on or before the existing Record Expiration Date. If a
Record Expiration Date is not designated with respect to any record date set
pursuant to this Section 1.5, the party hereto that set such record date shall
be deemed to have initially
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designated the 180th day after such record date as the Record Expiration Date
with respect thereto, subject to its right to change the Record Expiration Date
as provided in this paragraph. Notwithstanding the foregoing, no Record
Expiration Date shall be later than the 180th day after the applicable record
date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Note may do so with regard to all
or any part of the principal amount of such Note or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
ARTICLE II.
THE NOTES
Section 2.1 Form and Dating. (a) The Notes and the certificate of
authentication of the Trustee thereon shall be substantially in the form of
Exhibit A hereto, which is hereby incorporated in and expressly made a part of
this Indenture.
(b) The Notes may have such letters, numbers or other
marks of identification and such legends and endorsements, stamped, printed,
lithographed or engraved thereto, (i) as the Company may deem appropriate and as
are not inconsistent with the provisions of this Indenture, (ii) such as may be
required to comply with this Indenture, any law or any rule of any securities
exchange on which the Notes may be listed and (iii) such as may be necessary to
conform to customary usage. Each Note shall be dated the date of its
authentication by the Trustee.
(c) Definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of such methods or produced in any other
manner permitted by the rules of any securities exchange on which such Notes may
be listed, all as determined by the Officers of the Company executing such
Notes, as evidenced by their execution of such Notes.
Section 2.2 Execution and Authentication. The aggregate principal
amount at Stated Maturity of Notes outstanding at any time shall not exceed
[$__________] except as provided in Section 2.7 hereof. The Notes shall be
executed on behalf of the Company by its Chief Executive Officer, its Chief
Operating Officer, its President or any Vice President, under its corporate seal
reproduced or imprinted on the Notes by facsimile or otherwise, and shall be
attested by the Company's Secretary or one of its Assistant Secretaries, in each
case by manual or facsimile signature.
In case any Officer of the Company whose signature shall have been
placed upon any of the Notes shall cease to be such Officer of the Company
before authentication of such Notes by the Trustee and the issuance and delivery
thereof, such Notes may, nevertheless, be authenticated by the Trustee and
issued and delivered with the same force and effect as though such Person had
not ceased to be such Officer of the Company.
Notwithstanding any other provision hereof, the Trustee shall
authenticate and deliver Notes only upon receipt by the Trustee of an Officers'
Certificate and Opinion of Counsel complying with Section 13.4 hereof with
respect to satisfaction of all conditions precedent contained in this Indenture
to authentication and delivery of such Notes.
Upon compliance by the Company with the provisions of the previous
paragraph, the Trustee shall, upon receipt of a Company Order requesting such
action, authenticate Notes for original issuance in an aggregate principal
amount at Stated Maturity not to exceed [$__________]. Such Company Order
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shall specify the amount of Notes to be authenticated and the date on which the
Notes are to be authenticated and shall further provide instructions concerning
registration, amounts for each Holder and delivery.
A Note shall not be valid or entitled to any benefit under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of the Trustee as provided herein. The
signature of an authorized officer of the Trustee shall be conclusive evidence,
and the only evidence, that such Note has been authenticated and delivered under
this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Notes. Unless limited by the status of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. Any authenticating agent of the Trustee
shall have the same rights and protections hereunder as any Registrar or Paying
Agent.
Section 2.3 Registrar and Paying Agent. The Company shall maintain,
pursuant to Section 4.2 hereof, an office or agency where the Notes may be
presented for registration of transfer or for exchange. The Company shall cause
to be kept at such office a register (the register maintained in such office
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Notes and of transfers of Notes entitled to be
registered or transferred as provided herein. The Trustee, at its Corporate
Trust Office, is initially appointed "Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided and as "Paying Agent" for the
payment of principal of (and premium, if any), and interest (including
Additional Amounts, if any) on, the Notes. The Company may, upon prior written
notice to the Trustee, change the designation of the Trustee as Registrar or
Paying Agent and appoint another Person to act as Registrar or Paying Agent for
purposes of this Indenture, except that for the purposes of Article III, Article
XII and Sections 4.5 and 4.8, none of the Company, any Subsidiary and any
Affiliate shall act as Paying Agent. If any Person other than the Trustee acts
as Registrar, the Trustee shall have the right at any time, upon reasonable
notice, to inspect or examine the Security Register and to make such inquiries
of the Registrar as the Trustee shall in its discretion deem necessary or
desirable in performing its duties hereunder.
The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Registrar or Paying Agent that is not a
party to this Indenture, which agreement shall incorporate the provisions of the
Trust Indenture Act and shall implement the provisions of this Indenture that
relate to such Registrar or Paying Agent. Prior to the designation of any such
Person, the Company shall, by written notice (which notice shall include the
name and address of such Person), inform the Trustee of such designation. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
Upon surrender for registration of transfer of any Note at an office or
agency of the Company designated for such purpose, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of any authorized denomination
or denominations, of like tenor and aggregate principal amount at Stated
Maturity, all as requested by the transferor.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee or the Registrar) be
duly endorsed, or be accompanied by a duly executed instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar, by the Holder
thereof or such Holder's attorney duly authorized in writing.
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Section 2.4 Paying Agent to Hold Money in Trust. By 10:00 a.m., New
York City time, on each due date of the principal, premium, or any payment of
interest with respect to any Note, the Company shall deposit with the Paying
Agent a sum sufficient to pay such principal, premium or interest (including
Additional Amounts, if any) when so becoming due.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by such Paying Agent for the payment of
principal, premium, and interest (including Additional Amounts, if any) with
respect to the Notes, shall notify the Trustee of any default by the Company in
making any such payment and at any time during the continuance of any such
default, upon the written request of the Trustee, shall forthwith pay to the
Trustee sums held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by such Paying
Agent. Upon complying with this Section 2.4, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
Section 2.5 Authorized Denominations. The Notes shall be issuable in
denominations of $1,000 and any integral multiple thereof.
Section 2.6 Transfer and Exchange. A Holder may transfer a Note only
upon the surrender of such Note for registration of transfer. No such transfer
shall be effected until, and the transferee shall succeed to the rights of a
Holder only upon, final acceptance and registration of the transfer in the
Security Register by the Registrar. When Notes are presented to the Registrar
with a request to register the transfer of, or to exchange, such Notes, the
Registrar shall register the transfer or make such exchange as requested if its
requirements for such transactions and any applicable requirements hereunder are
satisfied. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's request. The
Company shall not be required to (i) issue, register the transfer of, or
exchange any Note during a period beginning at the opening of business 15 day
before the days of the mailing of a notice of redemption and ending at the close
of business on the date of such mailing, or (ii) register the transfer of or
exchange any Note selected for redemption in whole or in part, except the
unredeemed portion of Notes being redeemed in part. No service charge shall be
made for any registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Notes (other than in respect of exchanges and transfers pursuant to Sections
2.9, 3.6, 4.7, 4.8 and 9.6 hereof). All Notes issued upon any registration of
transfer or exchange pursuant to the terms of this Indenture will evidence the
same debt and will be entitled to the same benefits under this Indenture as the
Notes surrendered for such registration of transfer or exchange.
Section 2.7 Replacement Notes. If any mutilated Note is surrendered to
the Trustee, the Company shall execute and upon its written request the Trustee
shall authenticate and deliver, in exchange for any such mutilated Note, a new
Note containing identical provisions and of like principal amount, bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by them to save either of them and
any agent of each of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its written request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Note, a new Note containing identical provisions and of like principal amount,
bearing a number not contemporaneously outstanding.
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In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 2.7, the Company
may require the payment by the Holder of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed lost or stolen Notes.
Section 2.8 Outstanding Notes. Notes outstanding at any time are all
Notes authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section 2.8 as not
outstanding. A Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds such Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that such replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds in trust, in accordance with this Indenture, on a Redemption Date
or Maturity date money sufficient to pay all principal, premium, if any, and
interest (including Additional Amounts, if any) payable on that date with
respect to the Notes (or portions thereof) to be redeemed or maturing, as the
case may be, then on and after that date such Notes (or such portions thereof)
shall cease to be outstanding and interest on them shall cease to accrue
interest.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Notes held or beneficially owned
by the Company or by an Affiliate of the Company or by agents of any of the
foregoing shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent or any amendment, modification or other change to this Indenture,
only Notes which a Trust Officer has actual knowledge to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith shall not be
disregarded if the pledgee establishes to the satisfaction of the Trustee such
pledgee's right so to act with respect to the Notes and that the pledgee is not
the Company or an Affiliate of the Company or any of their agents.
Section 2.9 Temporary Notes. Pending the preparation of definitive
Notes, the Company may execute, and the Trustee shall authenticate upon receipt
of a Company Order, temporary notes ("Temporary Notes") which are printed,
lithographed, or otherwise produced, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations.
If Temporary Notes are issued, the Company shall cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the Temporary Notes shall be
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exchangeable for definitive Notes upon surrender of the Temporary Notes to the
Trustee, without charge to the Holder. Until so exchanged, Temporary Notes will
evidence the same debt and will be entitled to the same benefits under this
Indenture as the definitive Notes in lieu of which they have been issued.
Section 2.10 Cancellation. The Company at any time may deliver Notes
to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange, purchase, payment or conversion. The Trustee shall cancel
all Notes surrendered for registration of transfer, exchange, purchase, payment,
cancellation or conversion and shall retain or destroy in accordance with its
normal practice such canceled Notes unless the Company shall by Company Order
otherwise direct. The Company may not issue new Notes to replace Notes it has
redeemed or paid or that have been delivered to the Trustee for cancellation.
Section 2.11 Payment of Interest; Interest Rights Preserved. The
Notes shall bear interest at the rate of _____% per annum from and including the
Issue Date, or from and including the most recent Interest Payment Date to which
Interest has been paid or duly provided for. Interest (including Additional
Amounts, if any) on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, which shall be __________ or
__________ , commencing __________, 1997 shall be paid to the Person in whose
name such Note is registered at the close of business on the Record Date for
such interest payment, which shall be the __________ or __________ (whether or
not a Business Day) immediately preceding such Interest Payment Date.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered Holder on the
applicable Record Date, and, except as hereafter provided, such Defaulted
Interest, and any interest payable on such Defaulted Interest, may be paid by
the Company, at its election, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to the Persons in
whose names the Notes are registered at the close of business on a date set as
the record date (the "Special Record Date") for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall notify
the Trustee in writing of the amount of Defaulted Interest proposed to be paid
on the Notes and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest (including
Additional Amounts, if any) or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as provided in this clause (a). Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be sent, first class mail, postage
prepaid, to each Holder at such Holder's address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to the
Persons in whose names the Notes are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the following
clause (b).
(b) The Company may make payment of any Defaulted Interest
(including
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Additional Amounts, if any), and any interest payable on such Defaulted
Interest, on the Notes in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.11, each Note
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, any other Note, shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
Section 2.12 Computation of Interest, etc. Interest on the Notes shall
be computed on the basis of a 360-day year of twelve 30-day months.
Notwithstanding any other term of this Indenture, the Company shall not be
obligated to pay any interest or other amounts in connection with this Indenture
in excess of the amount or rate permitted under or consistent with applicable
law.
Section 2.13 Persons Deemed Owners. Prior to the due presentation for
registration of transfer of any Note, the Company, the Trustee, the Paying
Agent, the Registrar or any co-Registrar may deem and treat the person in whose
name a Note is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of, premium, if any, and interest (including
Additional Amounts, if any) on such Note and for all other purposes whatsoever,
whether or not such Note is overdue, and none of the Company, the Trustee, the
Paying Agent, the Registrar or any co-Registrar shall be affected by notice to
the contrary.
Section 2.14 CUSIP Numbers. The Company, in issuing the Notes, may use
a "CUSIP" number for each series of Notes and, if so, the Trustee shall use the
relevant CUSIP number in any notices of redemption to Holders as a convenience
to such Holders; provided that any such notice may state that no representation
is made as to the correctness or accuracy of the CUSIP number printed in the
notice of redemption or on the Notes and that reliance may be placed only on the
other identification numbers printed on the Notes, and any such redemption shall
not be affected by any defect in or omission of such CUSIP numbers. The Company
shall promptly notify the Trustee of any change in any CUSIP number used.
ARTICLE III.
REDEMPTION
Section 3.1 Notice to Trustee. If the Company elects to redeem Notes
pursuant to the optional redemption provisions of Section 3.7 and the Notes, it
shall furnish an Officers' Certificate to the Trustee setting forth the
Redemption Date, the principal amount of Notes to be redeemed and the Redemption
Price. The Company shall give each such notice to the Trustee at least five days
prior to the notice given to the Holders pursuant to Section 3.3 unless the
Trustee consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the effect
that such redemption will comply with any conditions to such redemption set
forth herein and in the Notes.
Section 3.2 Selection of Notes to be Redeemed. If less than all the
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed on a pro rata basis, or by any other method which the Trustee deems to
be fair and appropriate and which complies with any securities exchange or other
applicable requirements, provided that the Trustee may select for redemption in
part only Notes in denominations larger than $1,000. In selecting Notes to be
redeemed pursuant to this Section 3.2, the Trustee shall make such adjustments,
reallocations and eliminations as it shall deem proper so that the
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principal amount of each Note to be redeemed shall be $1,000 or an integral
multiple thereof, by increasing, decreasing or eliminating any amount less than
$1,000 which would be allocable to any Holder. The Trustee in its discretion may
determine the particular Notes (if there are more than one) registered in the
name of any Holder which are to be redeemed, in whole or in part. Provisions of
this Indenture that apply to Notes called for redemption also apply to portions
of Notes called for redemption. The Trustee shall notify the Company promptly of
the Notes or portions of Notes to be redeemed.
Section 3.3 Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Company shall send a notice of redemption,
first class mail, postage prepaid, to Holders of Notes to be redeemed at the
addresses of such Holders as they appear in the Security Register.
The notice shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price (and shall specify the portion of
such Redemption Price that constitutes the amount of accrued and unpaid interest
to be paid, if any);
(c) the name and address of the Paying Agent;
(d) that the Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(e) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the Redemption
Date, a new Note or Notes in principal amount at Stated Maturity equal to the
unredeemed portion will be issued;
(f) if fewer than all the outstanding Notes are to be
redeemed, the identification and principal amounts of the particular Notes to be
redeemed;
(g) the Conversion Price, the date on which the right to
convert the Notes will terminate and the place or places where such Notes may
be surrendered for conversion;
(h) that, unless the Company defaults in making the redemption
payment, interest (including Additional Amounts, if any) on the Notes (or
portions thereof) called for redemption shall cease to accrue on and after the
Redemption Date;
(i) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed on such Notice or printed on the
Notes;
(j) the paragraph of the Notes and the Section of this
Indenture pursuant to which the Notes are being called for redemption; and
(k) any other information necessary to enable Holders to
comply with the notice of redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.3 in a timely manner; provided that the Company shall give the Trustee
notice not less than five days prior to the notice given to Holders pursuant to
Section 3.3.
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Section 3.4 Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption shall become due and payable on the
Redemption Date and at the Redemption Price stated in such notice, plus interest
and Additional Amounts, if any, accrued and unpaid on the Redemption Date;
provided that if the Redemption Date is after a regular Record Date and on or
prior to the Interest Payment Date, the accrued interest (including Additional
Amounts, if any) shall be payable to the Holder of the redeemed Note on the
relevant Record Date; and provided, further, that if a Redemption Date is not a
Business Day, payment shall be made on that next succeeding Business Day and no
interest shall accrue for the period from such Redemption Date to such
succeeding Business Day. Upon surrender to the Paying Agent, such Notes shall be
paid at the Redemption Price stated in such notice. Failure to give notice or
any defect in the notice to any Holder shall not affect the validity of the
notice to any other Holder.
Section 3.5 Deposit of Redemption Price. On or prior to 10:00 a.m.,
New York City time, on each Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in
trust for the benefit of the Holders) money, in federal or other immediately
available funds, sufficient to pay the Redemption Price on all Notes to be
redeemed on that date other than Notes or portions of Notes called for
redemption on such date which have been delivered by the Company to the Trustee
for cancellation and other than any Notes or portions of Notes called for
redemption on such date which have been converted prior to such date.
So long as the Company complies with the preceding paragraph and the
other provisions of this Article III, interest (and Additional Amounts, if any)
on the Notes to be redeemed on the applicable Redemption Date shall cease to
accrue from and after such date and such Notes or portions thereof shall be
deemed not to be entitled to any benefit under this Indenture except to receive
payment on the Redemption Date of the Redemption Price plus interest and
Additional Amounts, if any, accrued and unpaid on the Redemption Date. If any
Note called for redemption shall not be so paid upon surrender for redemption,
then, from the Redemption Date until such principal is paid, interest shall be
paid on the unpaid principal and, to the extent permitted by law, on any accrued
but unpaid interest thereon, in each case at the rate prescribed therefor by
such Notes.
Section 3.6 Notes Redeemed in Part. Upon surrender and cancellation of
a Note that is redeemed in part, the Company shall issue and the Trustee shall
authenticate and deliver to the surrendering Holder (at the Company's expense) a
new Note equal in principal amount to the unredeemed portion of the Note
surrendered and canceled, provided that each such Note shall be in a principal
amount of $1,000 or an integral multiple thereof.
Section 3.7 Optional Redemption. (a) The Notes will not be redeemable
at the option of the Company prior to __________, 2000, except as provided in
Section 3.7(b). Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at a Redemption Price equal to the percentage of the principal
amount at Stated Maturity set forth below if redeemed in the 12-month period
beginning __________ of the years indicated:
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Redemption
Year Price
---- -----------
2000 %
2001 %
2002 %
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in each case with accrued and unpaid interest (including Additional
Amounts, if any) to the Redemption Date (subject to the right of Holders of
record on Record Dates to receive interest due on an Interest Payment Date).
(b) If, at any time, the Company is or would be required on
the next succeeding Interest Payment Date to pay Additional Amounts with respect
to the Notes and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company, the Notes may be
redeemed at the option of the Company, in whole but not in part, upon not less
than 30 nor more than 60 days' notice given as provided in Section 13.2 hereof
at a Redemption Price equal to the principal amount thereof, plus accrued and
unpaid interest (including Additional Amounts, if any). The Company will also
pay to holders on the Redemption Date any Additional Amounts payable in respect
of the period ending on the Redemption Date. Prior to the publication of any
notice of redemption pursuant to this provision, which in no event will be given
earlier than 90 days prior to the earliest date on which the Company would be
required to pay such Additional Amounts were a payment in respect of the Notes
then due, the Company shall deliver to the Trustee an Officers' Certificate
stating that (i) the obligation to pay such Additional Amounts cannot be avoided
by the Company taking reasonable measures and (ii) an Opinion of Counsel, not an
employee of the Company and approved by the Trustee, to the effect that the
Company has or will become obligated to pay such Additional Amounts as a result
of such change or amendment. Such notice, once delivered by the Company to the
Trustee, will be irrevocable.
ARTICLE IV.
COVENANTS
Section 4.1 Payment of Notes. The Company shall pay the principal of,
premium, if any, and interest (including Additional Amounts, if any), on, the
Notes on the dates and in the manner provided in the Notes and in this
Indenture. Principal, premium and interest shall be considered paid on the date
due if, on such date, the Trustee or the Paying Agent holds in accordance with
this Indenture money sufficient to pay all principal, premium and interest
(including Additional Amounts, if any) then due.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) the Notes, at the interest rate borne on
the Notes, plus 1% per annum, and (ii) Defaulted Interest (without regard to any
applicable grace period) at the interest rate borne on the Notes, plus 1% per
annum. The Company's obligation pursuant to the previous sentence shall apply
whether such overdue amount is due at its Stated Maturity, as a result of the
Company's obligations pursuant to Section 3.5, Section 4.5 or Section 4.8
hereof, or otherwise.
Section 4.2 Maintenance of Office or Agency. The Company shall
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be presented or surrendered for payment or conversion, where
Notes may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in
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the location, of such office or agency. As of the date hereof, the address of
such agency is One State Street, New York, New York 10004. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all of such purposes, and may from time
to time rescind such designations; provided that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation and any
change in the location of any such other office or agency.
Section 4.3 Money for the Note Payments to be Held in Trust. If the
Company, any Subsidiary of the Company or any of their respective Affiliates
shall at any time act as Paying Agent with respect to the Notes, such Paying
Agent shall, on or before each due date of the principal of (and premium, if
any) or interest on any of the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto money sufficient to pay the principal
(and premium, if any) and interest (including Additional Amounts, if any), so
becoming due until such money shall be paid to such Persons or otherwise
disposed of as herein provided, and shall promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect
to the Notes, it shall, prior to 10:00 a.m., New York City time, on each due
date of the principal of (and premium, if any) or interest (including Additional
Amounts, if any) on any of the Notes, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) and interest (including
Additional Amounts, if any), so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium and interest
(including Additional Amounts, if any), and (unless such Paying Agent is the
Trustee) the Paying Agent shall promptly notify the Trustee of the Company's
action or failure so to act.
Section 4.4 Corporate Existence. Subject to the provisions of Article
V hereof, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company.
Section 4.5 Repurchase at the Option of Holders upon a Change of
Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 principal amount at Stated Maturity or an integral multiple thereof)
of such Holder's Notes pursuant to an irrevocable and unconditional offer
described below (the "Change of Control Offer") at a purchase price (the "Change
of Control Purchase Price") equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, and Additional Amounts, if any, thereof, to
any Change of Control Payment Date.
(b) Within 15 days following any Change of Control, the
Company or the Trustee (at the expense of the Company) shall send by first class
mail, postage prepaid, a notice prepared by the Company to each Holder stating,
among other things: (1) that a Change of Control Offer is being made pursuant to
this section and that all Notes properly tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (the "Change of
Control Payment Date"), which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed; (3) that any Notes or portions thereof
not properly tendered will continue to accrue interest and Additional Amounts,
if
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applicable, from and after the Change of Control Payment Date; (4) that Holders
electing to have any Notes or portions thereof purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(5) that Holders will be entitled to withdraw their election if the Payment
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount at Stated Maturity of Notes delivered for purchase, and a statement that
such Holder is withdrawing his election to have such Notes or portions thereof
purchased; (6) that any Holder electing to have any Notes or portions thereof
purchased pursuant to the Change of Control Offer must specify the principal
amount at Stated Maturity which is being tendered for purchase, which principal
amount must be $1,000 or an integral multiple thereof, (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount at Stated Maturity to the unpurchased portion of the Note or
Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof; and (8) the instructions and
any other information necessary to enable Holders to accept a Change of Control
Offer or effect withdrawal of such acceptance.
(c) On the Change of Control Payment Date, the Company will
(1) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (2) irrevocably deposit with the Paying Agent by
10:00 a.m., New York City time, on such date, in immediately available funds, an
amount equal to the Change of Control Purchase Price in respect of all Notes or
portions thereof so tendered, including accrued and unpaid interest and
Additional Amounts, as applicable, and (3) deliver, or cause to be delivered, to
the Trustee the Notes so accepted together with an Officers' Certificate listing
the Notes, and the certificates evidencing the Notes, or portions thereof
tendered to the Company and accepted for payment. The Paying Agent shall
promptly mail to each holder of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price for such Notes and the Trustee shall
promptly authenticate and mail to each holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each new Note shall be in a principal amount at Stated Maturity of $1,000
or any integral multiple thereof. The Company will announce publicly the results
of a Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section 4.5, the Trustee shall act as
Paying Agent.
(d) Upon surrender and cancellation of a Note that is purchased
in part pursuant to the Change of Control Offer, the Company shall promptly
issue and the Trustee shall authenticate and deliver to the surrendering Holder
of such Note, a new Note equal in principal amount to the unpurchased portion of
such surrendered Note; provided that each such new Note shall be in a principal
amount at Stated Maturity of $1,000 or an integral multiple thereof.
(e) The Company shall comply with the requirements of Section
14(e) under the Exchange Act and any other securities laws or regulations, to
the extent such laws and regulations are applicable, in connection with the
repurchase of Notes pursuant to a Change of Control Offer.
Section 4.6 Reports. Whether or not the Company is subject to Section
13(a) or Section 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to Section 13(a) or Section 15(d) or any successor provision
thereto if the Company were subject thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been
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required to file them. The Company shall also (whether or not it is required to
file reports with the Commission), within 30 days of each Required Filing Date,
(i) transmit by mail to all holders of Notes, as their names and addresses
appear in the Security Register without cost to such holders copies of all
reports that the Company provides to its shareholders, and (ii) file with the
Trustee, copies of the annual reports, quarterly reports and other documents
(without exhibits) which the Company has filed or would have filed with the
Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act, any
successor provisions thereto or this covenant. The Company shall not be required
to file any report with the Commission if the Commission does not permit such
filing.
Section 4.7 Compliance Certificate; Notice of Default or Event of
Default. (a) The Company shall deliver to the Trustee within 120 calendar days
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate (which shall be signed by Officers satisfying the
requirements of Section 314 of the Trust Indenture Act), stating whether or not,
to the best knowledge of such Officers the Company has complied with all
conditions and covenants under this Indenture without regard to any periods of
grace, and, if the Company shall be in Default, specifying all such Defaults and
the nature thereof of which such Officers may have knowledge.
(b) The Company shall deliver written notice to the Trustee
within 5 days after becoming aware of (i) any Default or Event of Default or
(ii) any event of default or any default under any other mortgage, indenture or
instrument evidencing the Indebtedness referred to in Section 6.1(e) hereof,
describing such Default, Event of Default or other event of default or default,
its status and what action the Company is taking or proposes to take with
respect thereto.
Section 4.8 Repurchase at the Option of Holders upon a Termination of
Trading. (a) In the event of any Termination of Trading occurring after the
Issue Date and on or prior to Maturity, each Holder of Notes will have the
right, at such Holder's option, to require the Company to repurchase all or any
part of such Holder's Notes on the date (the "Repurchase Date") that is 30 days
after the date the Company gives notice of the Termination of Trading at a price
(the "Repurchase Price") equal to 100 percent of the principal amount at Stated
Maturity of such Notes, plus accrued and unpaid interest, if any, and Additional
Amounts, if any, thereon to the Repurchase Date. On or prior to 10:00 a.m., New
York City time on the Repurchase Date, the Company shall irrevocably deposit
with the Trustee or a Paying Agent an amount of money sufficient to pay the
Repurchase Price of the Notes which are to be repurchased on or promptly
following the Repurchase Date.
(b) On or before the 15th day after the occurrence of a
Termination of Trading, the Company, or the Trustee at the request and expense
of the Company, shall send to each Holder by first class mail, postage prepaid,
a notice prepared by the Company stating:
(i) that a Termination of Trading has occurred and
that each Holder has the right to require a repurchase of such Holder's
Notes, which repurchase right is made pursuant to this Section 4.8, and
that all Notes properly tendered will be repurchased;
(ii) the Repurchase Price, and the Repurchase Date;
(iii) that any Notes or portions thereof not properly
tendered will continue to accrue interest and accrue Additional
Amounts, if applicable, and will continue to have conversion rights;
(iv) that, unless the Company defaults in the payment
of the Repurchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the exercise of such
repurchase right shall cease to accrue interest and Additional Amounts,
if
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applicable, from and after the Repurchase Date and will cease to
have any conversion rights;
(v) that any Holder electing to have any Notes or
portions thereof repurchased pursuant to the exercise of such
repurchase right will be required to surrender such Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
such Notes completed, to the Paying Agent at the address specified in
the notice, prior to the close of business on the Repurchase Date;
(vi) that any Holder electing to have Notes purchased
pursuant to such repurchase right must specify the principal amount at
Stated Maturity that is being tendered for purchase, which principal
amount must be $1,000 or an integral multiple thereof;
(vii) that any Holder of Notes whose Notes are being
purchased only in part will be issued a new Note or Notes equal in
principal amount at Stated Maturity to the unpurchased portion of the
Note or Notes surrendered, which unpurchased portion will be equal in
principal amount to $1,000 or an integral multiple thereof; and
(viii) the instructions and any other information
necessary to enable any Holder to exercise such repurchase right or
effect withdrawal of such exercise.
(c) To exercise the repurchase right, the Holder of a Note
must deliver, on or before the close of business on the Repurchase Date,
irrevocable written notice to the Paying Agent (or an agent designated by the
Paying Agent for such purpose) and to the Trustee of the Holder's exercise of
such right, together with the certificates evidencing the Notes with respect to
which the right is being exercised, duly endorsed for transfer. Such written
notice is irrevocable. The Company, or the Trustee at the Company's written
request and expense, shall promptly send by first class mail, postage prepaid,
to each Holder of Notes or portions thereof so accepted for payment, payment in
an amount equal to the Repurchase Price for such Notes or portions thereof. The
Company shall publicly announce the results of the exercises of repurchase
rights upon a Termination of Trading on or as soon as practicable after the
Repurchase Date. For purposes of this Section 4.8, the Trustee shall act as the
Paying Agent.
(d) The Company will comply with the requirements of Section
14(e) under the Exchange Act and any other securities laws or regulations to the
extent such laws and regulations are applicable, in connection with the
repurchase of the Notes pursuant to an offer to repurchase upon a Termination of
Trading.
Section 4.9 Payment of Additional Amounts. (a) Except to the extent
required by law, any and all payments of, or in respect of, any Note shall be
made free and clear of and without deduction for or on account of any and all
present or future taxes, levies, imposts, deductions, charges or withholdings
and all liabilities with respect thereto imposed by Bermuda, or any other
jurisdiction under the laws of which the Company is organized ("Other
Jurisdiction") or any political subdivision of or any taxing authority in
Bermuda or in any Other Jurisdiction ("Bermudian Taxes" or "Other Taxes,"
respectively). If the Company shall be required by law to withhold or deduct any
Bermudian Taxes or Other Taxes from or in respect of any sum payable under a
Note, the sum payable by the Company, as the case may be, thereunder shall be
increased by the amount ("Additional Amounts") necessary so that after making
all required withholdings and deductions, the Holder shall receive an amount
equal to the sum that it would have received had no such withholdings and
deductions been made; provided that any such sum shall not be paid in respect of
any of the following Bermudian Taxes or Other Taxes to a Holder (an "Excluded
Holder") (i) any tax, withholding, assessment or other governmental charge which
would not have been imposed but for (x) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such
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Holder, if such Holder is an estate, trust, partnership or corporation) and
Bermuda or Other Jurisdiction including, without limitation, such Holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having had a permanent establishment
therein or (y) the presentation of a Note (where presentation is required) for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later; (ii) any estate, inheritance, gift, sale, transfer or
personal property tax; (iii) any tax, assessment or other governmental charge
that is withheld by reason of the failure by the Holder or the beneficial owner
of the Note to comply timely with a reasonable request in writing of the Company
(A) to provide information concerning the nationality, residence or identity of
the Holder or such beneficial owner or (B) to make any declaration or other
similar claim or satisfy any information or reporting requirement, which, in the
case of (A) or (B), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a precondition
to exemption from or reduction of all or part of such tax, assessment or other
governmental charge; provided, however, that this clause (iii) shall not apply
to the Company's obligation to pay Additional Amounts if the completing and
filling of the information described in (A) above or the declaration or other
claim described in (B) above would be materially more onerous in form, in
procedure or in substance of information disclosed, in comparison to the
information reporting requirements imposed under U.S. tax law with respect to
Forms 1001, W-8 and W-9; or (iv) any combination of items (i), (ii), and (iii)
above; nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, any Note to any Holder who is not the sole
beneficial owner of such Note or is a fiduciary or partnership, but only to the
extent that a beneficial owner, a beneficiary or a settlor with respect to a
fiduciary or a member of the partnership would not have been entitled to the
payment of the Additional Amount had the beneficial owner, beneficiary, settlor
or member of such partnership received directly its beneficial or distributive
share of the payments.
(b) At least 30 days prior to each date on which any payment
under or with respect to the Notes is due and payable, if the Company will be
obligated to pay Additional Amounts with respect to such payment, the Company
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable and the amounts so payable and will set forth
such other information necessary to enable such Trustee to pay such Additional
Amounts to Holders on the payment date.
(c) The Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
in respect of the creation, issue and offering the Notes payable in Bermuda, the
United States or any political subdivision thereof or taxing authority of or in
the foregoing. The Company will also pay and indemnify the Trustee and the
Holders of the Notes from and against all court fees and taxes or other taxes
and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the Trustee
or the Holders to enforce the obligations of the Company under the Notes or this
Indenture.
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ARTICLE V.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
Section 5.1 Merger, Consolidation or Sale of Assets. The Company will
not, in any transaction or series of transactions, merge or consolidate with or
into, or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its Properties and assets as an entirety to, any Person or
Persons, and the Company will not permit any of its Subsidiaries to enter into
any such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
Properties and assets of the Company, to any other Person or Persons, unless at
the time of and after giving effect thereto:
(a) either (i) if the transaction or series of transactions is
a merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (ii) the Person formed by such consolidation or into
which the Company is merged or to which the Properties and assets of the Company
are transferred (any such surviving Person or transferee Person being the
"Surviving Entity") (A) shall be a corporation organized and existing under the
laws of Bermuda, the United States of America, any state thereof or the District
of Columbia or any country that is a full member of the European Community, (B)
shall expressly assume by a indenture supplemental hereto executed and delivered
to the Trustee, in form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture and (C) shall have
provided for conversion rights described in Article XI; and
(b) immediately after giving effect to such transaction or
series of related transactions, no Default or Event of Default shall have
occurred and be continuing or would result therefrom.
In connection with any consolidation, merger, sale, assignment,
conveyance, lease, transfer of assets or other transactions contemplated by this
Section 5.1, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, lease, transfer or other
transaction and any supplemental indenture in respect thereto comply with this
Article V and that all conditions precedent herein provided for relating to such
transactions have been complied with (all of the foregoing, a "Permitted
Merger").
Section 5.2 Successor Corporation Substituted. Upon any Permitted
Merger, the Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company hereunder and the Notes with the
same effect as if such Surviving Entity had been named as the Company herein;
and when a Surviving Person duly assumes all of the obligations and covenants of
the Company pursuant hereto and the Notes, the predecessor Company shall be
relieved of all such obligations.
In the case of any such substitution, merger, sale, transfer,
conveyance or other disposal, such changes in phraseology and form (and in
substance) may be made in the Notes to be issued as may be appropriate.
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ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. Each of the following is an "Event
of Default" under the Indenture (except where otherwise expressly indicated):
(a) default in the payment of interest (or Additional Amounts,
if any) on any Note issued pursuant to the Indenture when the same becomes due
and payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if
any, on) any Note issued pursuant to the Indenture at its Maturity, upon
optional redemption, required repurchase (including pursuant to a Change of
Control Offer or a repurchase offer upon a Termination of Trading) or otherwise
or the failure to make an offer to purchase any Note as required;
(c) the Company fails to perform or comply with the provisions
described in Section 4.5, 4.8 or Article V hereof;
(d) default in the performance, or breach, of any covenant of
the Company in the Indenture (other than a covenant addressed in clauses (a),
(b) or (c) above) and continuance of such Default or breach for a period of 30
days after written notice thereof has been given to the Company by the Trustee
or to the Company and the Trustee by Holders of at least 25 percent of the
aggregate principal amount at Stated Maturity of the outstanding Notes;
(e) the principal amount of any Indebtedness of the Company is
not paid when due within the applicable grace period, if any, or such
Indebtedness is accelerated by the holders thereof and, in either case, the
principal of such unpaid or accelerated Indebtedness exceeds $15 million and
such acceleration is not rescinded or such Indebtedness is not paid or
discharged within 30 days after written notice thereof has been given to the
Company by the Trustee or to the Company and the Trustee by Holders of at least
25 percent of the aggregate principal amount at Stated Maturity of the
outstanding Notes;
(f) the entry by a court of competent jurisdiction of one or
more final judgments against the Company in an uninsured or unindemnified
aggregate amount in excess of $15 million which is not discharged, waived,
appealed, stayed, bonded or satisfied for a period of 60 consecutive days; or
(g) the entry by a court having jurisdiction in the premises
of (i) a decree or order for relief in respect of the Company or any Material
Subsidiary of the Company in an involuntary case or proceeding under United
States bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state, or foreign bankruptcy, insolvency, or other similar law,
including Bermuda law or the law of any Other Jurisdiction or (ii) a decree or
order adjudging the Company or any Material Subsidiary of the Company a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of, or in respect of, the Company or any
Material Subsidiary of the Company under United States bankruptcy laws, as now
or hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency, or similar law, including Bermuda law or the law of any
Other Jurisdiction, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any Material
Subsidiary of the Company or of any substantial part of the Property or assets
of the Company or any Material Subsidiary of the Company, or ordering the
winding-up or liquidation of the affairs of the Company or any Material
Subsidiary of the Company, and the continuance of any such decree or order for
relief or any such other
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decree or order unstayed and in effect for a period of 90 consecutive days; or
(h) (i) the commencement by the Company or a Material
Subsidiary of a voluntary case or proceeding under United States bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal, state,
or foreign bankruptcy, insolvency or other similar law (including Bermuda law or
the law of any Other Jurisdiction) or of any other case or proceeding to be
adjudicated a bankrupt or insolvent; or (ii) the consent by the Company or any
Material Subsidiary to the entry of a decree or order for relief in respect of
the Company or any Material Subsidiary in an involuntary case or proceeding
under United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state, or foreign bankruptcy, insolvency, or other
similar law (including Bermuda law or the law of any Other Jurisdiction) or to
the commencement of any bankruptcy or insolvency case or proceeding against the
Company or any Material Subsidiary, or (iii) the filing by the Company or any
Material Subsidiary of a petition or answer or consent seeking reorganization or
relief under United States bankruptcy laws, as now or hereafter constituted, or
any other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law (including Bermuda law or the law of any Other Jurisdiction); or
(iv) the consent by the Company or any Material Subsidiary to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or any Material Subsidiary or of any substantial part of the Property or assets
of the Company or any Material Subsidiary, or the making by the Company or any
Material Subsidiary of an assignment for the benefit of creditors; or (v) the
admission by the Company or any Material Subsidiary in writing of its inability
to pay its debts generally as they become due; or (vi) the taking of corporate
action by the Company or any Material Subsidiary in furtherance of any such
action; provided, however, that a Material Subsidiary shall have 90 days from
the occurrence of the action constituting an event of default pursuant to this
Section 6.1(h) to cure such default.
Section 6.2 Acceleration. If any Event of Default (other
than an Event of Default specified in Section 6.1(g) or Section 6.1(h) hereof
with respect to the Company) occurs and is continuing, then and in every such
case, the Trustee by a notice in writing to the Company, or the Holders of not
less than 25 percent of the aggregate principal amount at Stated Maturity of the
outstanding Notes by a notice in writing to the Company and the Trustee, may
declare the Default Amount, premium, if any, and any accrued and unpaid interest
(and Additional Amounts, if any) on all Notes then outstanding to be immediately
due and payable. Upon any such declaration, such Default Amount, premium, if
any, and any accrued and unpaid interest (and Additional Amounts, if any) on all
Notes then outstanding will become and be immediately due and payable. If an
Event of Default specified in Section 6.1(g) or Section 6.1(h) hereof occurs
with respect to the Company, the Default Amount, premium, if any, and any
accrued and unpaid interest (and Additional Amounts, if any) on all Notes then
outstanding shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of Notes. In
the event of a declaration of acceleration because an Event of Default set forth
in Section 6.1(e) hereof has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to Section 6.1(e) hereof shall
be remedied, or cured or waived by the holders of the relevant Indebtedness
within 60 days after such event of default; provided that no judgment or decree
for the payment of the money due on the Notes has been obtained by the
Trustee as hereinafter in this Article VI provided. The "Default Amount" of each
Note as of any particular date shall equal 100 percent of the principal amount
at Stated Maturity thereof.
At any time after a declaration of acceleration with respect to Notes
has been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article VI provided, the
Holders of a majority in aggregate principal amount at Stated Maturity of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
and annul such
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declaration and its consequences if,
(a) the Company has paid or deposited with the Trustee
a sum sufficient to pay
(i) all overdue installments of interest and
Additional Amounts, if any, on all Notes,
(ii) the principal of (and premium, if any, on) any
Notes which have become due otherwise than by such declaration of
acceleration and interest (and Additional Amounts, if any) thereon at
the rate or rates prescribed therefor in the Notes and this Indenture,
(iii) to the extent that payment of such interest is
lawful, interest on the Defaulted Interest (and Additional Amounts, if
any) at the rate prescribed therefor in the Notes and this Indenture,
and
(iv) all moneys paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements and
advances of the trustee, its agents and counsel and all other amounts
due to the Trustee pursuant to Section 7.7 hereof; and
(b) all Events of Default with respect to the Notes, other
than the non-payment of the principal of Notes which have become due solely by
such declaration of acceleration, have been cured or waived by the Holders as
provided herein.
No such rescission shall affect any subsequent Default or impair any
right consequent thereon.
Section 6.3 Other Remedies. The Company covenants that if an Event
of Default specified in Section 6.1(a) or Section 6.1(b) occurs the Company
shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the
Holders, the whole amount then due and payable on the Notes for principal (and
premium, if any), accrued and unpaid interest and Additional Amounts, if any,
and, to the extent that payment of such interest shall be legally enforceable,
interest upon the overdue principal (and premium, if any) and upon Defaulted
Interest, at the rate or rates prescribed therefor in such Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due to the Trustee pursuant to Section 7.7 hereof.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of, or pursue any available remedy under
this Indenture or otherwise to collect, the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
Property and assets of the Company or any other obligor upon such Notes,
wherever situated.
If an Event of Default with respect to the Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Section 6.4 Waiver of Existing Defaults. The Holders of a majority
in aggregate principal amount at Stated Maturity of the Notes then outstanding
by notice to the Trustee may on behalf of the
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Holders of all the Notes waive any existing Default or Event of Default and its
consequences under this Indenture except (a) a continuing Default or Event of
Default in the payment of interest (and Additional Amounts, if any) on, premium,
if any, on or the principal of, the Notes or (b) in respect of a covenant or
provision hereof which under Section 9.2 hereof cannot be modified or amended
without the consent of the Holder of each outstanding Note affected. Upon any
such waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.5 Control by Majority. The Holders of not less than a
majority in aggregate principal amount at Stated Maturity of the outstanding
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee; provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture or unduly prejudicial to the rights of other Holders
and would not subject the Trustee to personal liability, it being understood
that (subject to Section 7.1 hereof) the Trustee shall have no duty to ascertain
whether or not such directions are unduly prejudicial to such Holders, and
(b) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Section 6.6 Limitation on Suits. No Holder of Notes shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(b) the Holders of not less than 25 percent in aggregate
principal amount at Stated Maturity of the outstanding Notes shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
security or indemnity satisfactory to the Trustee in its reasonable discretion
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount at Stated Maturity of the outstanding Notes;
in any event, it being understood and intended that no one or more Holders of
Notes shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders of Notes, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all Holders of Notes.
Section 6.7 Rights of Holders to Receive Payment. Notwithstanding
any other provision of
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this Indenture, the right of any Holder to receive payment of principal of
(premium, if any) and interest (and Additional Amounts, if any) on the Notes
held by such Holder, on or after the respective due dates expressed in the Notes
or the Redemption Dates or purchase dates provided for herein or therein, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall be absolute and unconditional and shall not be impaired or affected
without the consent of such Holder.
Section 6.8 Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceedings, or any voluntary or involuntary case under United States bankruptcy
laws, as now or hereafter constituted, relative to the Company or any other
obligor upon the Notes or the Property and assets of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of such Notes shall then be due and payable as therein expressed or by
declaration or otherwise or irrespective of whether the Trustee or any Holder
shall have made any demand on the Company for the payment of overdue principal
or interest or performed any other act pursuant to the provisions of this
Article) shall be entitled and empowered, by intervention in such proceeding or
otherwise, (i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Additional Amounts, if any) owing and unpaid
in respect of the Notes, to file such other papers or documents and to take such
other actions, including participating as a member or otherwise in any official
committee of creditors appointed in the matter, as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due to the Trustee pursuant to
Section 7.7 hereof) and of the Holders allowed in such judicial proceeding, (ii)
unless prohibited by applicable law and regulations to vote on behalf of the
Holders of the Notes in any election of a trustee or standby trustee in an
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or Person performing similar actions in comparable proceedings, and
(iii) to collect and receive any moneys or other Property payable or deliverable
on any such claims and to distribute the same; and any receiver, assignee,
trustee, custodian, liquidator, sequestrator (or other similar official) in any
such proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
In any proceedings brought by the Trustee (and any proceedings
involving the interpretation of this Indenture to which the Trustee shall be a
party), the Trustee shall be held to represent all the Holders of the Notes, and
it shall not be necessary to make any Holders of the Notes parties to any such
proceedings.
Section 6.9 Priorities. Any money collected by the Trustee pursuant
to this Article VI shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (premium, if any), interest or Additional Amounts, if any, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 7.7 hereof;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if
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any) or interest and Additional Amounts, if any, on the Notes, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes for principal (and premium, if any) and interest or Additional
Amounts, if any, respectively; and
THIRD: To the Company or as a court of competent jurisdiction shall
decide.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.9. At least 15 days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states such
record date, the payment date and amount to be paid. The Trustee may mail such
notice in the name and at the expense of the Company.
Section 6.10 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture or in any
suit against the Trustee for any action taken, suffered or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigation in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10 percent in principal amount at Stated Maturity of the outstanding Notes,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of (or premium, if any) or interest or Additional Amounts, if any,
on any Note on or after its Stated Maturity.
Section 6.11 Waiver of Usury, Stay or Extension Laws. The Company
(to the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any usury, stay or extension law wherever enacted, now or at any time hereafter
in force, which may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so) hereby expressly
waive all benefit or advantage of any such law, and shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 6.12 Trustee May Enforce Claims Without Possession of the
Notes. All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name, as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes.
Section 6.13 Restoration of Rights and Remedies. If the Trustee or
any Holder of Notes has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such Holder,
then and in every such case the Company, the Trustee and the Holders shall,
subject to any determination in such proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 6.14 Rights and Remedies Cumulative. Except as otherwise
provided in Section 2.7 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by
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law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 6.15 Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article VI or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE VII.
TRUSTEE
Section 7.1 Duties of Trustee. (a) If an Event of Default known to
the Trustee has occurred and is continuing, the Trustee shall exercise the
rights and powers vested in it by this Indenture and shall use the same degree
of care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default known
to the Trustee: (i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and (ii)
in the absence of bad faith on its part, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; provided that in the case of any such
certificates or opinions that by any provision of this Indenture are
specifically required to be furnished to the Trustee, the Trustee shall examine
such certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, provided that: (i) this paragraph (c) shall not limit the effect of
paragraph (b) of this Section 7.1; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section
6.5 hereof.
(d) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(e) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers.
(g) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the Trust
Indenture Act.
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Section 7.2 Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
any Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any such agent; provided that
such agent was appointed with due care by the Trustee.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided that the Trustee's conduct does not constitute
willful misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any
Default or Event of Default under Sections 6.1(c), 6.1(d), 6.1(e), 6.1(f),
6.1(g) or 6.1(h) hereof (provided that the Trustee shall comply with the
automatic stay provisions of United States bankruptcy laws) or of the existence
of any Change of Control or Termination of Trading unless either (i) a Trust
Officer shall have actual knowledge thereof, or (ii) the Trustee shall have
received notice thereof in accordance with Sections 4.7 and 13.2 hereof from the
Company or in accordance with Section 13.2 hereof from any Holder of Notes.
(f) The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or document, but the Trustee, in its discretion may
make such further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
(h) The Trustee shall be under no obligation to exercise any
of the rights or powers vested by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
Section 7.3 Individual Rights of Trustee. The Trustee, any Paying
Agent or Registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, Paying
Agent or Registrar hereunder, as the case may be; provided that the Trustee must
in any event comply with Section 7.10 and Section 7.11 hereof.
Section 7.4 Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in this Indenture, including the recitals contained
herein, or in any document issued in connection with the sale of the Notes or in
the Notes other than the Trustee's certificate of authentication.
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Section 7.5 Notice of Defaults. Within 90 days after the occurrence
of any Default hereunder with respect to the Notes which is known by a Trust
Officer, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Security Register, notice of such Default hereunder,
unless such Default shall have been cured or waived; provided that, except in
the case of a Default in the payment of the principal of (or premium, if any) or
interest or Additional Amounts, if any, on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Trust Officers
of the Trustee in good faith determine that the withholding of such notice is in
the interest of Holders.
Section 7.6 Preservation of Information; Reports by Trustee to
Holders. (a) The Company shall furnish or cause to be furnished to the Trustee:
(i) semiannually, not less than 10 days prior to each
Interest Payment Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of the
Record Date immediately preceding such Interest Payment Date, and
(ii) at such other times as the Trustee may request
in writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
provided that if and so long as the Trustee shall be the Registrar for the
Notes, no such list need be furnished with respect to the Notes.
(b) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 7.6(a) hereof and
the names and addresses of Holders received by the Trustee in its capacity as
Registrar, if so acting. The Trustee may destroy any list furnished to it as
provided in Section 7.6(a) hereof upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Holders with respect to their rights under
this Indenture or the Notes.
(d) Each Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders in accordance with this Section 7.6,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under this Section 7.6.
(e) Within 60 days after May 15 of each year commencing with
the year 1997, the Trustee shall transmit by mail to all Holders of Notes, a
brief report dated as of such May 15 if and to the extent required under Section
313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c)
of the Trust Indenture Act.
(g) A copy of each report described in Section 7.6(e) hereof
shall, at the time of its transmission to Holders, be filed by the Trustee with
each securities exchange, if any, upon which the Notes are then listed, with the
Commission and also with the Company. The Company shall promptly notify the
Trustee of any securities exchange upon which the Notes are listed.
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Section 7.7 Compensation and Indemnity. The Company shall pay to the
Trustee from time to time reasonable compensation for its services. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents
and counsel. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust.
The Company shall indemnify the Trustee for, and hold it harmless
against, any and all loss, liability or expense (including reasonable attorneys'
fees) arising out of or incurred by it in connection with the acceptance or
administration of the trust created by this Indenture and the performance of its
duties hereunder, except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall assume the defense of any such
claim at the Company's expense with counsel satisfactory to the Trustee and the
Trustee shall cooperate in the defense of such claim. If such counsel is not
satisfactory to the Trustee, the Company agrees to pay the reasonable costs,
expenses and fees of counsel retained to represent Trustee. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
willful misconduct or negligence.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of, premium, if any, and interest (including Special Interest, if any)
on, particular Notes.
The Company's payment obligations pursuant to this Section 7.7 shall
survive the resignation or removal of the Trustee and discharge of this
Indenture. Subject to any other rights available to the Trustee under applicable
bankruptcy law, when the Trustee incurs expenses after the occurrence of a
Default specified in Section 6.1(g) or Section 6.1(h) hereof, the expenses are
intended to constitute expenses of administration under bankruptcy law.
Section 7.8 Replacement of Trustee. (a) No resignation or removal of
the Trustee and no appointment of a successor Trustee pursuant to this Article
VII shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.8.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in aggregate principal amount at Stated Maturity of the
outstanding Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) The Trustee shall fail to comply with Section
310(b) of the Trust Indenture Act after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Note for
at least six months, unless the Trustee's duty to resign is stayed in
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accordance with the provisions of Section 310(b) of the Trust Indenture
Act; or
(ii) The Trustee shall cease to be eligible under
Section 7.10 hereof and shall fail to resign after written request
therefor by the Company or by any such Holder; or
(iii) The Trustee shall become incapable of acting or
a decree or order for relief by a court having jurisdiction in the
premises shall have been entered in respect of the Trustee in an
involuntary case under the United States bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or similar law; or a decree or order by a court
having jurisdiction in the premises shall have been entered for the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trustee or of its
Property and assets or affairs, or any public officer shall take charge
or control of the Trustee or of its Property and assets or affairs for
the purpose of rehabilitation, conservation, winding up or liquidation;
or
(iv) The Trustee shall commence a voluntary case
under the United States bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy,
insolvency or similar law or shall consent to the appointment of or
taking possession by a receiver, custodian, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Trustee or its
Property and assets or affairs, or shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due, or shall take corporate action
in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Notes, or (ii) subject to Section 6.10 hereof, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee for the Notes.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by the Holders of a majority in aggregate principal amount at Stated
Maturity of the outstanding Notes delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with this Section 7.8, become the successor
Trustee and to that extent replace any successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the Company or
the Holders and shall have accepted appointment in the manner hereinafter
provided, any Holder that has been a bona fide Holder of a Note for at least six
months may, subject to Section 6.10 hereof, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such resignation, removal and appointment by first class mail,
postage prepaid, to the Holders as their names and addresses appear in the
Security Register. Each notice shall include the name of the successor Trustee
with respect to the Notes and the address of its Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor
Trustee, each such successor Trustee so appointed shall execute, acknowledge and
deliver to the Company and to the retiring trustee an instrument accepting such
appointment, and thereupon the resignation or removal of
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the retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts, and duties of the retiring Trustee but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges and all other amounts then due it under Section 7.7 hereof, execute
and deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all Property and money held by such former
Trustee hereunder, subject to its Lien, if any, provided for in Section 7.7
hereof.
(h) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts
referred to in Section 7.8(g) hereof.
(i) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article VII and under the Trust Indenture Act.
Section 7.9 Successor Trustee by Merger. Any corporation into which
the Trustee may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder; provided that such corporation shall be
otherwise qualified and eligible under this Article VII and under the Trust
Indenture Act, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In the event
that any Notes shall not have been authenticated by such predecessor Trustee,
any such successor Trustee may authenticate and deliver such Notes, in either
its own name or that of its predecessor Trustee, with the full force and effect
which this Indenture provides for the certificate of authentication of the
Trustee.
Section 7.10 Eligibility; Disqualification. There shall at all times
be a Trustee hereunder which shall be
(i) a corporation organized and doing business under
the laws of the United States of America, any State or Territory
thereof or the District of Columbia, authorized under such laws to
exercise corporate trust powers, and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority, or
(ii) a corporation or other Person organized and
doing business under the laws of a foreign government that is permitted
to act as Trustee pursuant to a rule, regulation or order of the
Commission, authorized under such laws to exercise corporate trust
powers, and subject to supervision or examination by authority of such
foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees, in either case having a combined capital and
surplus of at least $50,000,000.
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If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible to serve as Trustee hereunder
pursuant to the provisions of this Section 7.10, it shall resign immediately in
the manner and with the effect specified in this Article VII.
The Indenture shall always have a Trustee which satisfies the
requirements of Section 310(a)(1), (2), and (5) of the Trust Indenture Act. If
the Trustee has or shall acquire any "conflicting interest" within the meaning
of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall
in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act. Nothing herein shall prevent the Trustee from filing with the
Commission the application referred to in the penultimate paragraph of Section
310(b) of the Trust Indenture Act.
Neither the Company, any Subsidiary nor any Affiliate of the Company
shall serve as Trustee hereunder.
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII.
DEFEASANCE
Section 8.1 Company's Option to Effect Defeasance or Covenant
Defeasance. The Company may elect, at its option, at any time, to have Section
8.2 or Section 8.3 hereof applied to the outstanding Notes (in whole and not in
part) upon compliance with the conditions set forth below in this Article VIII,
such election shall be evidenced by a Board Resolution delivered to the Trustee.
Section 8.2 Defeasance and Discharge. Upon the Company's exercise of
its option to have this Section 8.2 applied to the outstanding Notes (in whole
and not in part), the Company shall be deemed to have been discharged from its
obligations with respect to such Notes as provided in this Section 8.2 on and
after the date the conditions set forth in Section 8.4 hereof are satisfied
(hereinafter called "Defeasance"). For this purpose, such Defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Notes and the Company shall be deemed to have satisfied all
their other obligations under such Notes and this Indenture (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise terminated
or discharged hereunder:
(a) the rights of Holders of such Notes to receive, solely
from the trust fund described in Section 8.4 hereof and as more fully set forth
in such Section 8.4 payments in respect of the principal of and any premium and
interest (and Additional Amounts, if any) on such Notes when payments are due,
(b) the Company's obligations with respect to such Notes
under Sections 2.6, 2.7, 2.9, 4.2, 4.3, 4.4 and 10.3 hereof,
(c) the rights, powers, trusts, duties and immunities of the
Trustee under this Indenture,
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(d) Article III hereof,
(e) this Article VIII, and
(f) Article XI hereof.
Subject to compliance with this Article VIII, the Company may
exercise its option to have this Section 8.2 applied to the outstanding Notes
(in whole and not in part) notwithstanding the prior exercise of its option to
have Section 8.3 hereof applied to such Notes.
Section 8.3 Covenant Defeasance. Upon the Company's exercise of its
option to have this Section 8.3 applied to the outstanding Notes (in whole and
not in part), (i) the Company shall be released from its obligations under
Section 4.5, Section 4.6, Section 4.8 and any covenant added to this Indenture
subsequent to the Issue Date pursuant to Section 9.1 hereof, (ii) the occurrence
of any event specified in Section 6.1(c) or Section 6.1(d) hereof, with respect
to any of Section 4.5, Section 4.6, Section 4.8 and any covenant added to this
Indenture subsequent to the Issue Date pursuant to Section 9.1 hereof, shall be
deemed not to be or result in an Event of Default, in each case with respect to
such Notes as provided in this Section 8.3 on and after the date the conditions
set forth in Section 8.4 hereof are satisfied (hereinafter called "Covenant
Defeasance"). For this purpose, such Covenant Defeasance means that, with
respect to such Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
specified Section (to extent so specified in the case of Sections 6.1(c) and
6.1(d) hereof), whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or by reason of any reference in any such
Section to any other provision herein or in any other document; but the
remainder of this Indenture and such Notes shall be unaffected thereby.
Section 8.4 Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to the application of Section 8.2 or
Section 8.3 hereof to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to the benefits of the Holders of such Notes, (i) money in an amount, or
(ii) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in an
amount, or (iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any installment of interest
(including Additional Amounts, if any) on, such Notes at the Stated Maturity
thereof, in accordance with the terms of this Indenture and such Notes.
(b) In the event of an election to have Section 8.2 hereof
apply to the outstanding Notes, the Company shall have delivered to the Trustee
an Opinion of Counsel stating that (i) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (ii) since the
date of this Indenture, there has been a change in the applicable Federal income
tax law, in either case (i) or (ii) to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Notes will not recognize gain or
loss for Federal income tax purposes as a result of the deposit, Defeasance and
discharge to be effected with respect to such Notes and will be subject to
Federal income tax on the same amount, in the same manner and at the same times
as would be the case if such deposit, Defeasance and discharge were not to
occur.
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(c) In the event of an election to have Section 8.3 hereof
apply to the outstanding Notes, the Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that the Holders of such Notes will not
recognize gain or loss for applicable Federal, Bermudian and Other Jurisdiction
income tax purposes as a result of the deposit and Covenant Defeasance to be
effected with respect to such Notes and will be subject to Federal income tax on
the same amount, in the same manner and at the same times as would be the case
if such deposit and Covenant Defeasance were not to occur.
(d) No Default or Event of Default with respect to the
outstanding Notes shall have occurred and be continuing at the time of such
deposit after giving effect thereto and no Default or Event of Default under
Section 6.1(g) or 6.1(h) shall have occurred and be continuing on or prior to
the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day).
(e) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming for the purpose of this clause (e) that all Notes are in default
within the meaning of such Act).
(f) Such Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or cause a default under, any other agreement or
instrument to which the Company or any Guarantor, if any, is a party or by which
it is bound.
(g) Such Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder.
(h) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent with respect to such Defeasance or Covenant Defeasance have
been complied with.
(i) Subject to no Holders being "insiders" of the Company, as
such term is defined in Section 101(31) under Title 11 of the United States
Code, the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(j) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
Section 8.5 Deposited Money and U.S. Government Obligations to be
Held in Trust; Miscellaneous Provisions". All money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee pursuant
to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Notes and
this Indenture, to the payment, either directly or through any such Paying Agent
as the Trustee may determine, to the Holders of such Notes, of all sums due and
to become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law. The Company shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof other than any such
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tax, fee or other charge which by law is for the account of the Holders of
outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company Order
any money or U.S. Government Obligations held by it as provided in Section 8.4
hereof which, in the opinion of a nationally recognized firm of independent
public accounts expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof that would the be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to the outstanding Notes.
Section 8.6 Reinstatement. If the Trustee or Paying Agent is unable
to apply any money in accordance with this Article VIII with respect to any
Notes by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application then the
obligations under this Indenture and such Notes from which the Company has been
discharged or released pursuant to Section 8.2 or 8.3 hereof shall be revived
and reinstated as though no deposit has occurred pursuant to this Article VIII
with respect to such Notes, until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 8.5 hereof with
respect to such Notes in accordance with this Article VIII; provided that if the
Company makes any payment of principal of or any premium, interest or Additional
Amounts, if any, on any such Note following such reinstatement of its
obligations, the Company shall be subrogated to the rights (if any) of the
Holders of such Notes to receive such payment from the money so held in trust.
ARTICLE IX.
AMENDMENTS
Section 9.1 Without Consent of Holders. The Company and the Trustee
may, at any time, and from time to time, without notice to or consent of any
Holders of Notes, enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company in this Indenture and the Notes; or
(b) to add to the covenants of the Company, for the benefit
of the Holders of all of the Notes, surrender any right or power herein
conferred upon the Company by this Indenture; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in
place of certificated Notes; or
(e) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee; or
(f) to cure any ambiguity herein, or to correct or supplement
any provision hereof which may be inconsistent with any other provision hereof
or to add any other provisions with respect to matters or questions arising
under this Indenture; provided that such actions shall not adversely affect the
interests of the Holders of Notes in any material respect; or
(g) to secure the Notes; or
(h) to make provisions with respect to the conversion rights
of Holders pursuant to
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the requirements of Section 11.4 or Section 11.11 hereof; or
(i) to comply with the requirements of the Commission in order
to effect or maintain qualification of this Indenture under the Trust Indenture
Act.
Section 9.2 With Consent of Holders. With the consent of the Holders
of not less than a two-thirds majority in aggregate principal amount of the
outstanding Notes, by Act of said Holders delivered to the Company, and the
Trustee, the Company and the Trustee may enter into one or more indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders; provided that no such
supplemental indenture shall, without the consent of the Holder of each
outstanding Note:
(a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts, if any, on, any Note, or reduce
the principal amount at Stated Maturity thereof (or any premium, if any), or the
interest (including Additional Amounts, if any) thereon, that would be due and
payable upon Stated Maturity thereof, or reduce the Default Amount that would be
due and payable upon Stated Maturity thereof, or change the place of payment
where, or the coin or currency in which, any Note or any premium or interest
(including Additional Amounts, if any) thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof; or
(b) reduce the percentage in principal amount of the
outstanding Notes the consent of whose Holders is necessary for any such
supplemental indenture or required for any waiver of compliance with certain
provisions of this Indenture or Defaults hereunder; or
(c) modify any of the provisions of Section 6.4 hereof, except
to increase any percentage set forth therein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Note affected thereby; or
(d) subordinate in right of payment, or otherwise subordinate,
the Notes to any other Indebtedness other than Senior Indebtedness; or
(e) modify any of the provisions of this Section 9.2, except
to increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Note affected thereby; or
(f) make any change in the provisions of Article X, which
would adversely affect the Holders of the Notes;
(g) adversely affect the rights of the Holders of the Notes
to convert such Notes; or
(h) modify the obligations of the Company to make offers to
purchase Notes upon a Change of Control or upon a Termination of Trading.
It shall not be necessary for any Act of Holders under this Section 9.2
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3 Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such
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supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.4 Compliance with Trust Indenture Act. Every amendment or
supplement to this Indenture or the Notes shall comply with the Trust
Indenture Act as then in effect.
Section 9.5 Revocation and Effect of Consents and Waivers. A consent
to an amendment, supplement or a waiver by a Holder of a Note shall bind the
Holder and every subsequent Holder of such Note or portion of such Note that
evidences the same debt as the consenting Holder's Note, even if notation of the
consent or waiver is not made on such Note; provided that any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Note or
portion of such Note if the Trustee receives the notice of revocation before the
date the amendment, supplement or waiver become effective. After an amendment,
supplement or waiver becomes effective pursuant to this Article IX, it shall
bind every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to give their consent or take
any other action described above or required or permitted to be taken pursuant
to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
Section 9.6 Notation on or Exchange of Notes. If a supplemental
indenture changes the terms of a Note, the Trustee may require the Holder
thereof to deliver such Note to the Trustee. The Trustee may place an
appropriate notation on such Note regarding the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for such Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment
of supplement.
Section 9.7 Trustee to Execute Supplemental Indentures. The Trustee
shall execute any supplemental indenture authorized pursuant to this Article IX
if such supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but shall
not be required to, execute such supplemental indenture. In executing any
supplemental indenture, the Trustee shall be entitled to received indemnity
reasonably satisfactory to it and to receive, and (subject to Section 7.1
hereof) shall be fully protected in relying upon, an Officers' Certificate
(which need only cover the matters set forth in clause (a) below) and an Opinion
of Counsel provided by the Company stating that:
(a) such supplemental indenture is authorized or permitted by
this Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company has all necessary corporate power and
authority to execute and deliver the supplemental indenture and that the
execution, delivery and performance of such supplemental indenture has been duly
authorized by all necessary corporate action of the Company;
(c) the execution, delivery and performance of the
supplemental indenture do not conflict with, or result in the breach of or
constitute a default under any of the terms, conditions or
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provisions of (i) this Indenture, (ii) the charter documents and by-laws of the
Company, or (iii) any material agreement or instrument to which the Company is
subject;
(d) to the best knowledge and belief of legal counsel writing
such Opinion of Counsel, the execution, delivery and performance of the
supplemental indenture do not conflict with, or result in the breach of any of
the terms, conditions or provisions of (i) any law or regulation applicable to
the Company, or (ii) any material order, writ, injunction or decree of any court
or governmental instrumentality applicable to the Company;
(e) such supplemental indenture has been duly and validly
executed and delivery by the Company, and this Indenture together with such
supplemental indenture constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles; and
(f) this Indenture together with such amendment or supplement
complies with the Trust Indenture Act.
Section 9.8 Solicitation of Consents. Neither the Company nor any of
its Subsidiaries nor any of their Affiliates shall, directly or indirectly, pay
or cause to be paid any consideration, whether by way of interest, fees or
otherwise, to any Holders of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes, unless such consideration is offered to be paid or agreed to be paid to
all Holders of the Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
ARTICLE X.
SUBORDINATION OF NOTES
Section 10.1 Notes Subordinated to Senior Indebtedness. The Company
covenants and agrees, and each Holder of a Note, by acceptance thereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth and except as otherwise set forth in this Article, the Indebtedness
represented by the Notes and this Indenture and the payment of the principal of
and premium, if any, and interest (including Additional Amounts, if any) on each
and all of the Notes and of any amounts due in respect of any Notes and this
Indenture, are hereby expressly made subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
Section 10.2 Payment Over of Proceeds Upon Dissolution, etc. In the
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding,
relative to the Company or to its creditors, as such, or to a substantial part
of its assets, or (b) any proceeding for the liquidation, dissolution or other
winding up of the Company, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of the Company, then
and in any such event the holders of Senior Indebtedness shall be entitled to
receive payment in full of all amounts due or to become due on or in respect of
all Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders of the Notes are entitled to receive any
payment or distribution of any kind or character, whether in cash, property or
securities, on account of principal of or premium, if any, or interest
(including Additional Amounts, if any) on the Notes and on account of any
amounts due in respect of any Notes, and to that end until the Senior
Indebtedness is paid in full the holders of Senior Indebtedness shall be
entitled to receive, for application
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to the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Notes, which may be payable or deliverable in respect of the Notes in any such
case, proceeding, dissolution, liquidation or other winding up, assignment for
the benefit of creditors or other marshaling of assets and liabilities of the
Company.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Notes before all Senior Indebtedness is paid in full or payment
thereof provided for, and if such fact shall, at or prior to the time of such
payment or distribution, has been made known to a Trust Officer of the Trustee
in writing or such Holder, as the case may be, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include securities of the Company or other
Person as reorganized or readjusted, or securities of the Company or any other
Person which are Capital Stock or subordinated in right of payment to all Senior
Indebtedness which may at the time be outstanding to substantially the same
extent as, or to a greater extent than, the Notes are so subordinated as
provided in this Article. The consolidation of the Company with, or the merger
of the Company into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of its Properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article V shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of the Company for the purposes of this Section if the Person
formed by such consolidation or into which the Company is merged or which
acquires by conveyance or transfer such properties and assets substantially as
an entirety, as the case may be, shall, as part of such consolidation, merger,
conveyance or transfer, comply with the conditions set forth in Article V.
Section 10.3 Prior Payment to Senior Indebtedness upon Acceleration
of Notes. In the event that any Notes are declared due and payable before
their Stated Maturity, then and in such event the holders of Senior Indebtedness
outstanding at the time such Notes so become due and payable shall be entitled
to receive payment in full in cash of all amounts due on or in respect of such
Senior Indebtedness before the Holders of the Notes are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Notes) by the Company on account of the principal of or premium, if any, or
interest (including Additional Amounts, if any), on or other amounts due in
respect of, the Notes or on account of the purchase or other acquisition of
Notes, except for payments in Capital Stock or securities which are subordinated
in right of payment to all Senior Indebtedness, which may at the time be
outstanding, to substantially the same extent as, or to a greater extent than,
the Notes are so subordinated, as provided in this Article.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Note prohibited by the
foregoing provisions of this Section, and if such fact
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shall, at or prior to the time of such payment, have been made known to a Trust
Officer of the Trustee in writing, or such Holder, as the case may be, then and
in such event such payment shall be paid over and delivered forthwith to the
Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 10.2 would be applicable.
Section 10.4 No Payment When Senior Indebtedness in Default. (a) In
the event (i) and during the continuation of any default in the payment of
principal of, premium, if any, on, interest, if any, on, or other amounts due
in respect of, any Senior Indebtedness, whether at the date of a required
payment, maturity, upon mandatory prepayment, redemption or otherwise, or (ii)
that any event of default with respect to any Senior Indebtedness shall have
occurred and be continuing and shall have resulted in such Senior Indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable unless and until such event of default
shall have been cured or waived in writing or shall have ceased to exist and
such acceleration shall have been rescinded or annulled or if any judicial
proceeding is pending with respect to such event of default with respect to the
Senior Indebtedness, then no payment (including any payment which may be payable
by reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Notes) shall be made by the Company on
account of the principal of, premium, if any, interest (including Additional
Amounts, if any) on, or other amounts due in respect of, the Notes or on account
of the purchase, redemption or other acquisition of Notes, except for payments
in Capital Stock or securities which are subordinated in right of payment to all
Senior Indebtedness, which may at the time be outstanding, to substantially the
same extent as, or to a greater extent than, the Notes are so subordinated, as
provided in this Article.
(b) In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of any Note
prohibited by the foregoing provisions of this Section, and if such fact shall,
at or prior to the time of such payment, have been made known to a Trust Officer
of the Trustee in writing, or to such Holder, as the case may be, then and in
such event such payment shall be paid over and delivered forthwith to the
Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 10.2 would be applicable.
Section 10.5 Payment Permitted If No Default. Nothing contained in
this Article or elsewhere in this Indenture or in any of the Notes shall prevent
(a) the Company, at any time except during the pendency of any insolvency or
bankruptcy case, proceeding, dissolution, liquidation, or other winding up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 10.2 or under the conditions
described in Section 10.3 or 10.4, from making payments at any time of principal
of and premium, if any, or interest (including Additional Amounts, if any) on
the Notes, or other amounts due in respect of the Notes, or (b) the application
by the Trustee of any money deposited with it hereunder to the payment of or on
account of the principal of, premium, if any, or interest (including Additional
Amounts, if any) on, or other amounts due in respect of, the Notes or retention
of such payment by the Holders, if, at the time of such application by the
Trustee, a Trust Officer did not have knowledge that such payment would have
been prohibited by the provisions of this Article.
Section 10.6 Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the prior payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Notes shall be subrogated to the extent
of the payments or distributions made to the holders of such Senior
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Indebtedness pursuant to the provisions of this Article to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any, on, interest (including Additional Amounts, if
any) on, and any other amounts due in respect of, the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Notes or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Notes or
the Trustee, shall, as among the Company its creditors other than holders of
Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 10.7 Provisions Solely to Define Relative Rights. The
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Notes on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, the obligation of the Company which
is absolute and unconditional, to pay to the Holders of the Notes, the principal
of, premium, if any, on, interest (including Additional Amounts, if any) on, and
any other amounts due in respect of, the Notes as and when the same shall become
due and payable in accordance with their terms; or (b) affect the relative
rights against the Company of the Holders of the Notes and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Notes from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder.
Section 10.8 Trustee to Effectuate Subordination. Each Holder of a
Note by his acceptance thereof authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination provided for in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
Section 10.9 No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Notes to be holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment, of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company or any other Person.
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Section 10.10 Notice to Trustee. The Company shall give prompt
written notice to the Trustee of any fact known to the Company which would
prohibit the making of any payment to or by the Trustee in respect of the Notes.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes unless and until a Trust Officer of the Trustee shall have
received written notice thereof from the Company or a holder of Senior
Indebtedness or from any trustee therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that no
such facts exist; provided that if a Trust Officer of the Trustee shall not have
received the notice provided for in this Section at least three Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal of,
premium, if any, or interest (including Additional Amounts, if any) on, and any
other amounts due in respect of any Note), then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within three Business Days prior to such date.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee therefor) to establish that such notice has been
given by a holder of Senior Indebtedness (or a trustee therefor). In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the satisfaction of the Trustee
as to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such person under this Article, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 10.11 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee and the Holders of the Notes shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered in writing to the Trustee or to
the Holders of Notes, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 10.12 Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Notes or to
the Company or to any other Person cash, property or securities to which holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
Section 10.13 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
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Nothing in this Article shall apply to claims of, or payment to, the
Trustee under or pursuant to Section 7.7.
Section 10.14 Applicable to Paying Agents. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall in
such case (unless the context otherwise requires) be construed as extending to
and including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article in addition to or in
place of the Trustee; provided that Section 10.13 shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
Section 10.15 Certain Conversions Deemed Payment. For the purposes
of this Article only, (a) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XI shall not be deemed to
constitute a payment or distribution on account of the principal of, premium, if
any, on, interest (including Additional Amounts, if any) on, or other amounts
due in respect of, Notes or on account of the purchase or other acquisition of
Notes and (b) the payment, issuance or delivery of cash, property or securities
(other than junior securities) upon conversion of a Note shall be deemed to
constitute payment on account of the principal of such Note. For the purposes of
this Section, the term "junior securities" means (i) shares of any class of
Capital Stock of the Company and (ii) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among the Company, its respective creditors other than holders of Senior
Indebtedness and the Holders of the Notes, the right, which is absolute and
unconditional, of the Holder of any Note to convert such Notes in accordance
with and subject to the provisions of Article XI.
ARTICLE XI.
CONVERSION OF NOTES
Section 11.1 Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Article, at the option of the
Holder thereof, any Note or any portion of the principal amount thereof which
equals $1,000 or any integral multiple thereof may be converted at any time on
or after 9:00 a.m. New York City time on _______________, 1997 into fully paid
and nonassessable shares of Class A Common Stock (calculated as to each
conversion to the nearest 1/100 of a share), at the Conversion Price, determined
as hereinafter provided, in effect at the time of conversion. Such conversion
right shall expire at the close of business on the Business Day next preceding
the Stated Maturity of principal. In case a Note or portion thereof is called
for redemption, such conversion right in respect of the Note or portion so
called shall expire at the close of business on the Business Day next preceding
the Redemption Date, unless the Company defaults in making the payment due upon
redemption.
The price at which shares of Class A Common Stock of the Company shall
be delivered upon conversion (herein called the "Conversion Price") shall be
equal to $_________ per share.
Notwithstanding anything to the contrary contained herein, no Holder
shall be entitled to convert any of its Notes into shares of Class A Common
Stock of the Company to the extent that any such conversion would constitute a
violation of any applicable securities laws of the United States, or any other
applicable jurisdiction. Any certificates evidencing shares of Class A Common
Stock of the Company issued upon the conversion of Notes shall bear such
legends, including legends reflecting
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restrictions on transfer required in order to maintain compliance with the
provisions of the Securities Act, as the Company shall deem to be necessary or
appropriate.
Section 11.2 Exercise of Conversion Privileges. In order to exercise
the conversion privilege, the Holder of any Note shall surrender such Note, duly
endorsed or assigned to the Company or in blank, at any office or agency of the
Company maintained pursuant to Section 4.2, accompanied by written notice to the
Company in the form provided in the Note (or such other notice as is acceptable
to the Company) at such office or agency that the Holder elects to convert such
Note or, if less than the entire principal amount thereof is to be converted,
the portion thereof to be converted. In the case of any Note which is
surrendered for conversion during the period from the close of business on any
Record Date through and including the next succeeding Interest Payment Date
(other than any Note whose Maturity is prior to such Interest Payment Date),
interest that is payable on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Note is registered at the close of business on such
Record Date; provided that Notes surrendered for conversion subsequent to any
such Record Date shall (except in the case of Notes or portions thereof which
have been called for redemption on a Redemption Date within such period) be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest (including
Additional Amounts, if any) payable on such Interest Payment Date on the
principal amount being surrendered for conversion. Except as provided in the
immediately preceding sentence, in the case of any Note which is converted (a)
interest whose Stated Maturity is after the date of conversion of such Note
shall not be payable, and (b) no payment or adjustment shall be made upon
conversion on account of any dividends on the shares of Class A Common Stock of
the Company issued upon conversion.
Notes shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders shall cease, and the Person or Persons entitled
to receive the shares of Class A Common Stock of the Company issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Class A Common Stock as and after such time. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver at any office or agency of the Company maintained pursuant to Section
4.2 a certificate or certificates for the number of full shares of Class A
Common Stock of the Company issuable upon conversion, together with payment in
lieu of any fraction of a share, as provided in Section 11.3.
In the case of any Note which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Note or
Notes of authorized denominations in aggregate principal amount at Stated
Maturity equal to the unconverted portion of the principal amount at Stated
Maturity of such Note.
Section 11.3 Fractions of Shares. No fractional share of Class A
Common Stock of the Company shall be issued upon conversion of Notes. If more
than one Note shall be surrendered for conversion at one time by the same
Holder, the number of full shares of Class A Common Stock which shall be
issuable upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof) so surrendered.
Instead of any fractional share of such Class A Common Stock which would
otherwise be issuable upon conversion of any Note or Notes (or specified
portions thereof), the Company shall pay a cash adjustment in respect of such
fractional share in an amount equal to such fraction multiplied by the Closing
Price at the close of business on the day of conversion (or, if such day is not
a Trading Day, on the Trading Day immediately preceding such day).
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Section 11.4 Adjustment of Conversion Price.
(a) In case the Company shall make a dividend or other
distribution on any class or series of Capital Stock of the Company exclusively
in Common Stock of the Company, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock of the Company
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares of Common Stock
and the total number of shares of Common Stock constituting such dividend or
other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such determination.
In case the Company shall make a dividend or other distribution on its Common
Stock in shares of its Capital Stock other than Common Stock, and such dividend
or distribution would not otherwise require reduction of the Conversion Price
pursuant to paragraph (d), then the Conversion Price and the number and kind of
shares of Capital Stock of the Company issuable upon the conversion of a Note
(as in effect immediately prior to such dividend or distribution) shall be
proportionately adjusted, so that the Holder of any Note thereafter converted
may receive the aggregate number and kind of shares of Capital Stock of the
Company that such Holder would have owned immediately following such dividend or
distribution if such Note had been converted immediately prior thereto. For the
purpose of this paragraph (a), the amount of Common Stock of the Company at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of such Common Stock. The Company shall not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Company.
(b) In case outstanding shares of Common Stock of the Company
shall be subdivided into a greater number of shares of such Common Stock, the
Conversion Price in effect at the opening of business on the day following the
day upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of such Common Stock shall
be combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately increased,
such reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which
subdivision or combination becomes effective.
(c) (i) Subject to the last sentence of this paragraph (c)(i)
and the last sentence of paragraph (d) of this Section, in case the
Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock evidences of its Indebtedness, shares of any class of
its Capital Stock (other than Common Stock) or other assets (including
securities and excluding any dividend distribution or issuance referred
to in paragraph (a) , (b) or (c)(ii) of this Section or any dividend or
distribution of cash), the Conversion Price shall be reduced to the
Conversion Price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the date fixed for
the determination of shareholders entitled to such distribution by a
fraction of which the numerator shall be the Current Market Price
(determined as provided in paragraph (g) of this Section) on such date
less the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board
Resolution) on such date of the portion of the evidences of
Indebtedness, shares of Capital Stock and other assets to be
distributed applicable to one share of Common Stock and the denominator
shall be such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following such
date. If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (c)(i) by reference to the
actual or when-
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issued trading market for any securities comprising part or all of such
distribution, it must in doing so consider those prices in such market
over the same period used in computing the Current Market Price
pursuant to paragraph (g) of this Section, to the extent possible. For
purposes of this paragraph (c), any dividend or distribution of
evidences of Indebtedness, assets or shares of Capital Stock (other
than shares of Common Stock) that also includes shares of Common Stock
of the Company, rights, options or warrants to subscribe for or
purchase shares of such Common Stock or securities convertible into or
exchangeable for shares of Common Stock shall be deemed to be (x) a
dividend or distribution of the evidences of Indebtedness, assets or
shares of Capital Stock other than shares of Common Stock, such rights,
options or warrants or such convertible or exchangeable securities
(which results in any conversion price reduction required by this
paragraph (c)(i)) immediately followed by (y) in the case of shares of
Common Stock or such rights, options or warrants, a dividend or
distribution thereof (which would result in any further conversion
price reduction required by paragraph (a) or (c)(ii) of this Section,
except any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business
on the date fixed for such determination" within the meaning of
paragraph (a) of this Section), or (z) in the case of such convertible
or exchangeable securities, a dividend or distribution of the number of
shares of Common Stock as would then be issuable upon the conversion or
exchange thereof, whether or not the conversion or exchange of such
securities is subject to any conditions (which would result in any
further conversion price reduction required by paragraph (a) or (c)(ii)
of this Section, except that the shares deemed to constitute such
dividend or distribution shall not be deemed "outstanding at the close
of business on the date fixed for such determination" within the
meaning of paragraph (a) of this Section).
(ii) In case the Company shall issue to all holders
of its Common Stock, rights, options or warrants entitling the holders
thereof to subscribe for or purchase Common Stock at a price per share
(determined on an as-converted or as-exercised basis if the rights,
options or warrants pertain to securities convertible information or
exchangeable for Common Stock) which is less than the Current Market
Price (determined as provided in paragraph (g) of this Section), the
Conversion Price shall be reduced to the Conversion Price determined by
multiplying the Conversion Price in effect immediately prior to the
close of business on the date on which the Company fixes the offering
price of such additional Common Stock by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus a
fraction equal to the aggregate consideration which would be received
by the Company from the issuance of such additional shares of Common
Stock (including the consideration to be received for such rights,
options or warrants) over the Current Market Price on the date on which
the Company fixes the offering price of such additional shares of
Common Stock (determined as provided in paragraph (g) of this Section),
and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after giving effect to such issuance plus
the number of shares to be issued upon the exercise of such rights,
options or warrants. The reduction in the Conversion Price provided for
in the preceding sentence shall not apply to securities issued in
transactions described in this paragraph (c)(ii) or pursuant to the
conversion or exchange of any such securities (to the extent
applicable) if the below market portion of such issuances, taken
together with the below market portion of all other below market
issuances and with the above market portion of all above market tender
or exchange offers described in paragraph (f) of Section 11.4 is less
than 12.5% of the Total Market Capitalization of the Company
(determined by reference to the sum of the percentages of Total Market
Capitalization of the Company attributable to each such transaction on
the date thereof). If at the end of the period during which such
rights, options or warrants are exercisable not all rights, options or
warrants shall have been exercised,
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the adjusted Conversion Price shall be immediately readjusted to what
it would have been based upon the number of additional shares of Common
Stock actually issued (or the number of shares of Common Stock issuable
upon the conversion of convertible securities or the exchange of
exchangeable securities actually issued).
(d) The reclassification of Common Stock of the Company into
securities which include securities other than such Common Stock (other than any
reclassification upon a consolidation or merger to which Section 11.11 applies)
shall be deemed to involve (i) a distribution of such securities other than such
Common Stock to all holders of such Common Stock (and the effective date of such
reclassification shall be deemed to be "the date fixed for the determination of
stockholders entitled to such distribution" within the meaning of paragraph
(c)(i) of this Section), and (ii) a subdivision or combination, as the case may
be, of the number of shares of Common Stock of the Company outstanding
immediately prior to such reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (b) of this Section). Rights,
options or warrants issued by the Company to all holders of the Common Stock
entitling the holders thereof to subscribe for or purchase shares of such Common
Stock (either initially or under certain circumstances), which rights, options
or warrants (i) are deemed to be transferred with such Common Stock, (ii) are
not exercisable and (iii) are also issued in respect of future issuances of such
Common Stock, shall for purposes of this Section 11.4 not be deemed issued until
such rights, warrants or options are transferred separately from the Common
Stock or are exercisable.
(e) In case the Company shall, by dividend or otherwise, at
any time distribute to all holders of Common Stock cash in an aggregate amount
that, together with (i) the aggregate amount of any other distribution to all
holders of Common Stock made exclusively in cash within the twelve months
preceding the date fixed for the determination of shareholders entitled to
receive such distribution and in respect of which no Conversion Price adjustment
pursuant to paragraph (c) (i) of Section 11.4 or this paragraph (e) has been
made previously and (ii) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) as of such
date of determination of consideration payable in respect of any tender offer by
the Company for all or any portion of its Common Stock, consummated within the
12 months preceding such date of determination and in respect of which no
Conversion Price adjustment pursuant to this paragraph (e) has been made
previously, exceeds 12.5% of the product of the Current Market Price (determined
as provided in paragraph (g) of this Section) on such date of determination
times the number of shares of Common Stock of the Company outstanding on such
date, the Conversion Price shall be reduced to the Conversion Price determined
by multiplying the Conversion Price in effect immediately prior to the close of
business on such date of determination by a fraction of which the numerator
shall be the Current Market Price (determined as provided in paragraph (g) of
this Section) on such date less the amount of cash to be distributed at such
time applicable to one share of such Common Stock and the denominator shall be
such Current Market Price, such reduction to become effective immediately prior
to the opening of business on the day after such date.
(f) In case a tender or exchange offer made by the Company or
any Subsidiary for all or any portion of the Common Stock of the Company shall
be consummated, or in case the Company shall purchase shares of Common Stock in
the open market, the Conversion Price shall be reduced to the Conversion Price
determined by multiplying the Conversion Price in effect immediately prior to
the Expiration Time by a fraction of which (x) the numerator shall be the
product of the Current Market Price (determined as provided in paragraph (g) of
this Section) times the number of shares of such
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Common Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time and (y) the denominator shall be the sum of (A) the fair market
value (as determined by the Board of Directors whose determination shall be
conclusive and shall be described in a resolution of the Board of Directors) of
the aggregate consideration payable to shareholders upon consummation of such
tender or exchange offer, or upon such purchase, and (B) the product of such
Current Market Price times such number of outstanding shares at the Expiration
Time minus the number of shares accepted for payment in such tender or exchange
offer, or so purchased (the "Purchased Shares"). No such reduction need be made
for a transaction pursuant to this paragraph (f) if the above market portion of
such tender or exchange offers, taken together with the above market portion of
all other above market tender or exchange offers and with the below market
portion of all below market issuances described in paragraph (c)(ii) of Section
11.4 made on or after the date of this Indenture, is less than 12.5% of the
Total Market Capitalization of the Company (determined by reference to the sum
of the percentages of Total Market Capitalization of the Company attributable to
each such transaction on the date thereof). For the purpose of this paragraph,
"Expiration Time" means either the last time that tenders may be made pursuant
to a tender offer or exchanges may be made pursuant to an exchange offer, or the
time of an agreement to purchase shares in the open market, as the case may be.
Any reduction in the Conversion Price pursuant to this paragraph shall be made
immediately following the close of business on the last Trading Day used to
compute Current Market Price; provided, that, such reduction shall be deemed to
have become effective immediately prior to the opening of business on the day
following the Expiration Time. To the extent that a Holder converts Notes prior
to the conclusion of the period for which Current Market Price is to be
calculated, any adjustment in the amount of Common Stock of the Company issuable
upon exercise of such Note shall inure to the benefit of the Holder of such Note
at the close of business on the first Trading Day following the Expiration Time.
In no event shall the Exercise Price be increased as a result of the
consummation of any of the transactions contemplated by this paragraph (f).
(g) For the purpose of any computation under this paragraph
and paragraphs (c) or (e), of this Section, the current market price per share
of Common Stock (the "Current Market Price") on any date shall be deemed to be
the average of the daily Closing Prices for the 30 consecutive Trading Days
commencing 45 Trading Days before the date in question. For the purposes of any
computation under paragraph (f) of this Section, the Current Market Price on any
date shall be deemed to be the average Closing Price for the five consecutive
Trading Days commencing on the first Trading Date following the Expiration Time.
If on any date there is no Closing Price available for the Common Stock of the
Company on any date, the Current Market Price shall be determined (a) in good
faith by the Board of Directors of the Company and certified in a Board
Resolution, based on the most recently completed arms-length transaction between
the Company and a Person other than an Affiliate (as defined in Rule 405 of the
Securities Act of 1933, as amended) of the Company, the closing of which occurs
within a six-month period preceding such date, or (b) if no transaction shall
have occurred within the six-month period preceding such date or if such
transaction is in excess of $1 million, by an Independent Financial Expert
appointed in the manner provided for in subparagraph (i) of paragraph (h) of
this Section 11.4.
(h) (i) If any event shall occur as to which the other
provisions of this Section 11.4 are not strictly applicable but the
failure to make any adjustment would have the effect of depriving
Holders of the benefit of all or a portion of the conversion rights in
respect of any Note in accordance with the essential intent and
principles of this Section 11.4, then, in each such case, the Company
shall appoint an Independent Financial Expert, which shall give its
opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Section 11.4
necessary to preserve, without dilution, such conversion rights. Upon
receipt of such opinion, the Company will promptly mail a copy thereof
to the Holders and shall make the adjustments described therein. As
used herein, an "Independent Financial Expert" is a firm (A) which does
not, and whose directors, officers and employees or Affiliates do not,
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have a direct or indirect financial interest in the Company and (B)
which, in the judgment of the Board of Directors, is otherwise
independent and qualified to perform the task for which it is to be
engaged.
(ii) The Company will not, by amendment of its
certificate or articles of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Notes, but will at
all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holders thereof against dilution
or other impairment. Without limiting the generality of the foregoing,
the Company (i) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of its Common Stock on the
conversion of the Notes from time to time outstanding and (ii) will not
take any action which results in any adjustment of the Conversion Price
if the total number of shares of its Common Stock issuable after the
action upon the conversion of all of the Notes would exceed the total
number of shares of such Common Stock then authorized by the Company's
certificate of incorporation and available for the purposes of issue
upon such exercise.
(i) The Company may, but shall not be obligated to, make such
reductions in the Conversion Price, in addition to those required by paragraphs
(a), (b), (c) and (d) of this Section, as it considers to be advisable in order
that any event treated for United States federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment (plus any other adjustments not previously made by reason
of this paragraph (j) would require an increase or decrease of at least 1
percent in the Conversion Price; provided that any adjustments which by reason
of this paragraph (j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(k) Notwithstanding any other provision of this Section 11.4,
no adjustment to the Conversion Price shall reduce the Conversion Price below
the then par value per share of the Common Stock of the Company, and any such
purported adjustment shall instead reduce the Conversion Price to such par
value. The Company hereby covenants not to take any action to increase the par
value per share of its Common Stock, unless such action shall be required by
law.
(l) In any case in which this Section 11.4 shall require that
an adjustment in the Conversion Price be made effective as of or immediately
after a record date for a specified event, the Company may elect to defer until
the occurrence of such event (i) issuing to the Holder of any Note exercised
after such record date the shares of Common Stock and other Capital Stock of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and other Capital Stock of the Company, if any, issuable upon such
exercise on the basis of the Conversion Price prior to such adjustment and (ii)
paying to such Holder any amount in cash in lieu of a fractional share pursuant
to Section 11.3 hereof; provided that the Company shall deliver to such Holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares of Common Stock, other Capital Stock and cash
upon the occurrence of the event requiring such adjustment.
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(m) When No Adjustment Required. (i) No adjustment
need be made for a transaction referred to in subsections (a), (b),
(c), (d) or (e) of this Section 11.4 if Holders are to participate in
the transaction on a basis and with notice that the Board of Directors
determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock of the Company participate in the
transaction.
(ii) No adjustment need be made for a change in the
par value, or from par value to no par value, or from no par value to
par value, of the Common Stock of the Company.
Section 11.5 Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 11.4 and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the adjusted
Conversion Price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed (with a copy
to the Trustee) at each office or agency maintained for the purpose of
conversion of Notes pursuant to Section 4.2; and
(b) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall forthwith be
prepared, and as soon as practicable after it is prepared, such notice shall be
furnished by the Company to the Trustee and mailed by the Company at its expense
to all Holders at their last addresses as they shall appear in the Security
Register.
Section 11.6 Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than exclusively in cash
or (ii) exclusively in cash in an amount that would require a Conversion Price
adjustment pursuant to paragraph (c) (i) of Section 11.4; or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights, options or warrants to subscribe for or purchase any
shares of Capital Stock of any class or of any other rights (excluding shares of
Capital Stock or options for Capital Stock issued pursuant to a benefit plan for
employees, officers or directors of the Company) which would require a
Conversion Price adjustment pursuant to paragraph (c) (ii) of Section 11.4; or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of the outstanding shares of such
Common Stock), or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender or
exchange offer (other than an exchange offer contemplated by clause (c) above)
for all or a portion of the outstanding shares of Common Stock (or shall amend
any such tender or exchange offer to change the maximum number of shares being
sought or the amount or type of consideration being offered (including by
exchange) therefor) which would require a Conversion Price adjustment pursuant
to paragraph (f) of Section 11.4;
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then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 4.2, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Note Register, at least 21 days (or
11 days in any case specified in clause (a), (b) or (e) above) prior to the
applicable record, effective or expiration date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, options or warrants, or, if a
record is not to be taken, the date as of which the holders of its Common Stock
of record who will be entitled to such dividend, distribution, rights, options
or warrants are to be determined, (y) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of its Common Stock of record shall be entitled to
exchange their Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up, or (z) the date on which such
tender or exchange offer (other than an exchange offer contemplated by clause
(y) above) commenced, the date on which such tender or exchange offer is
scheduled to expire unless extended, the consideration offered and the other
material terms thereof (or the material terms of any amendment thereto). Neither
the failure to give any such notice nor any defect therein shall affect the
legality or validity of any action described in clauses (a) through (e) of this
Section 11.6.
Section 11.7 Company to Reserve Common Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock or out of its Common Stock held in
treasury, for the purpose of effecting the conversion of Notes, the full number
of shares of its Common Stock then issuable upon the conversion of all
outstanding Notes.
Section 11.8 Taxes on Conversions. The Company will pay any and all
original issuance, transfer, stamp and other similar taxes that may be payable
in respect of the issue or delivery of shares of its Common Stock on conversion
of Notes pursuant hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares of its Common Stock in a name other than that of the Holder
of the Note or Notes to be converted, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the Company
the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
Section 11.9 Covenant as to Common Stock.
(a) The Company covenants that all shares of its Common Stock
which may be issued upon conversion of Notes will upon issue be validly issued,
fully paid and nonassessable.
(b) The Company shall from time to time take all action
necessary so that the Common Stock which may be issued upon conversion of Notes,
immediately upon their issuance, will be listed on the principal securities
exchanges, interdealer quotation systems and markets, if any, on which other
shares of Common Stock of the Company are then listed or quoted.
Section 11.10 Cancellation of Converted Notes. All Notes delivered for
conversion shall be delivered to the Trustee to be canceled by or at the
direction of the Trustee, which shall dispose of or retain the same as provided
in Section 2.10.
Section 11.11 Provisions as to Consolidation, Merger or Sale of
Assets. In case of any consolidation of the Company with, or merger of the
Company into, any other person, any merger of another person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any sale or transfer of all or substantially all of the assets of the
Company, the Person formed by such
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consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Note then outstanding shall have the
right thereafter, during the period such Note shall be convertible as specified
in Section 11.1, to convert such Note only into the kind and amount of
securities, cash and other Property, if any, receivable upon such consolidation,
merger, sale or transfer by a holder of the amount of Common Stock of the
Company into which such Note might have been converted immediately prior to such
consolidation, merger, sale or transfer, assuming such holder of Common Stock
(i) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be (a "Constituent Person"), or an Affiliate
of a Constituent Person and (ii) failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other Property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock held immediately prior to such consolidation, merger, sale or transfer by
other than a Constituent Person or an Affiliate thereof and in respect of which
such rights of election shall not have been exercised ("nonelecting share"),
then for the purpose of this Section the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by
each nonelecting share shall be deemed to be the kind and amount so receivable
per share by a plurality of the nonelecting shares). Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
ARTICLE XII.
SATISFACTION AND DISCHARGE
Section 12.1 Satisfaction and Discharge. This Indenture shall upon the
request of the Company cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of Notes herein expressly
provided for, the Company's obligations under Sections 4.9, 7.7 and 12.4 hereof,
and the Company's, obligations under Section 11.3 hereof) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(a) either
(i) all Notes theretofore authenticated and delivered
(other than (A) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.7 and (B)
Notes for whose payment money has been deposited in trust with the
Trustee or any Paying Agent and thereafter paid to the Company or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
(ii) all such Notes not theretofore delivered to
the Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their
Stated Maturity within one year, or
(C) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the
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Trustee in the name, and at the expense, of the Company,
and the Company, in the case of clause (A), (B) or (C) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose money or U.S. Government
Obligations in an amount sufficient (as certified by an independent
public accountant designated by the Company) to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest and Additional Amounts, if any, to the date of such deposit
(in the case of Notes which have become due and payable) or the Stated
Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums
then due and payable hereunder by the Company including, without limitation, all
amounts then required to be paid to the Trustee pursuant to Section 7.7;
(c) no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit and after
giving effect to such deposit; and
(d) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 2.3, 2.4, 2.6, 2.7, 2.11, 4.9, 7.7, 7.8, 12.2,
12.3 and 12.4 and the conversion provisions contained in Article XI and the
Trustee's and Paying Agent's obligations in Section 12.3 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.7, 12.3 and 12.4 and the Trustee's and Paying Agent's obligations in
Section 12.3 shall survive.
In order to have money available on a payment date to pay principal or
interest on the Notes, the U.S. Government Obligations shall be payable as to
principal or interest at least one Business Day before such payment date in such
amounts as will provide the necessary money. U.S. Government Obligations shall
not be callable at the issuer's option.
Section 12.2 Application of Trust Money. All money deposited with the
Trustee pursuant to Section 12.1 shall be held in trust and, at the written
direction of the Company, be invested prior to maturity in U.S. Government
Obligations, and applied by the Trustee in accordance with the provisions of the
Notes and this Indenture, to the payment, either directly or through any Paying
Agent as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium if any) and interest (including Additional Amounts, if
any) for the payment of which money has been deposited with the Trustee; but
such money need not be segregated from other funds except to the extent required
by law.
Section 12.3 Repayment to the Company. The Trustee and the Paying
Agent shall promptly pay to the Company upon written request any excess money or
securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, that the Company shall have either caused notice of
such payment to be mailed to each Holder of the Notes entitled thereto no less
than 30 days prior to such repayment or within such period shall have published
such notice in a financial newspaper of widespread circulation published in The
City of New York, including, without limitation, The Wall Street Journal. After
payment to the Company, Holders entitled to the money must look to the Company
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for payment as general creditors unless an applicable abandoned property law
designates another person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
Section 12.4 Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
12.1 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Notes shall be revived and reinstated as though no deposit has occurred
pursuant to Section 12.1 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 13.2; provided that if the Company has made any payment of interest
on or principal of any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE XIII.
MISCELLANEOUSARTICLE
Section 13.1 Trust Indenture Act Controls. If and to the extent that
any provision of this Indenture limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, Sections 310 to 318, inclusive, of the Trust
Indenture Act, such imposed duties or incorporated provision shall control. If
any provisions of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or excluded, as the case may
be.
Section 13.2 Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first class mail, postage prepaid,
addressed as follows: if to the Company: Central European Media Enterprises
Ltd., c/o CME Development Corporation, 18 D'Arblay Street, London, WIV 3FP
England, Attention: General Counsel, with copies to Rosenman & Colin, 575
Madison Avenue, New York, New York 10022, Attention: Robert L. Kohl; if to the
Trustee: IBJ Schroder Bank & Trust Company, One State Street, New York, NY
10004, Attention: Corporate Trust Administration.
The Company or the Trustee, by notice to the other, many designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Holder shall be sent to the Holder by first
class mail, postage prepaid, at the Holder's address as it appears in the
Security Register and shall be duly given if so sent within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed to the Company, the Trustee or a Holder in the manner
provided above, it is duly given, whether or not the addressee receives it, but
shall not be effective in the case of the Trustee unless it is actually
received. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give notice by mail to
Holders, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
Section 13.3 Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee: (a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
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Section 13.4 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture (other than pursuant to Section 4.7 hereof) shall
include: (a) a statement that the individual making such certificate or opinion
has read such covenant or condition; (b) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (c) a statement that, in the
opinion of such individual, such person has made such examination or
investigation as is necessary to enable such person to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with, provided that with respect to
matters of fact, an Opinion of Counsel may rely upon Officers' Certificates or
certificates of public officials.
Section 13.5 Communications by Holders with Other Holders. Holders may
communicate pursuant to Section 312(b) of the Trust Indenture Act with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
Section 312(c) of the Trust Indenture Act.
Section 13.6 Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Holders, and any
Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with terms of this Indenture or the
Trust Indenture Act.
Section 13.7 Payments on Business Days. If a payment hereunder is
scheduled to be made on a date that is not a Business Day, payment shall be made
on the next succeeding date that is a Business Day, and no interest shall accrue
with respect to that payment during the intervening period. If a regular record
date is a date that is not a Business Day, such record date shall not be
affected.
Section 13.8 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT WITH REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
Section 13.9 Legal Proceedings. Any suit, action or proceeding against
the Company or its properties, assets or revenues with respect to this Indenture
or a Note (a "Related Proceeding") may be brought in any federal or state court
located in the State of New York, County of New York. The Company hereby
irrevocably consents to the jurisdiction of each such court for the purposes of
any Related Proceeding, and irrevocably waives, to the fullest extent it may
effectively and lawfully do so, any objection to the laying of venue of any
Related Proceeding in any such court and the defense of an inconvenient forum to
the maintenance of any Related Proceeding in any such court. The Company further
submits to the jurisdiction of the courts of its own corporate domicile in any
Related Proceeding.
Section 13.10 Service of Process. The Company hereby agrees that
service of all writs, process and summonses in any Related Proceeding brought
against it in the State of New York may be made upon Corporation Service Company
in the City of New York, presently located at 375 Hudson Street 10014 (the
"Process Agent"), and the Company has irrevocably appointed the Process Agent as
its agent and true and lawful attorney-in-fact in its name, place and stead to
accept such service of any and all such writs, process and summonses. The
Company agrees that service of process on the Process Agent in such instances
shall be deemed in every respect effective service of process upon it in any
such Related Proceeding and further agrees that the failure of the Process Agent
to give any notice to it of any such service of process shall not impair or
affect the validity of such service or of any judgment based thereon. The
Company agrees to
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maintain at all times an agent with an office in New York to act as Process
Agent as aforesaid. The Company agrees to take any and all actions as may be
necessary to maintain such designation and appointment of such Process Agent in
full force and effect. Nothing herein shall in any way be deemed to limit the
ability to serve any such writs, process and summonses in any other manner
permitted by applicable law.
Section 13.11 Waiver of Immunities. To the extent that the Company or
any of its revenues, assets or Property shall be entitled, with respect to any
Related Proceeding at any time brought against the Company or any of its
revenues, assets or Property in the courts identified above, to any immunity
from suit, from attachment prior to judgment, from attachment in aid of
execution of judgment, or from any other legal or judicial remedy, and to the
extent that in any such jurisdiction there shall be attributed such an immunity,
the Company hereby irrevocably agrees not to claim and irrevocably waives such
immunity, and any defense based on such immunity, to the extent permitted by law
in respect of its obligations under this Indenture or any Note. Without limiting
the foregoing, the Company hereby, to the fullest extent permitted by applicable
law, expressly and irrevocably waives any defense of sovereign immunity from
jurisdiction, attachment in aid of execution and execution to which it might
otherwise be entitled in any Related Proceeding; provided that the Company
hereby expressly reserves its rights, if any, to claim immunity from attachment
prior to judgment to which it may now or hereafter be entitled. The Company
agrees that final judgment in any such Related Proceeding brought in such a
court will be conclusive and binding on it and may be enforced in other
jurisdictions by suit on the judgment or in any other matter provided by law,
provided that service of process is effected upon the Company in the manner
specified in Section 13.9 above or as otherwise permitted by law.
Section 13.12 Judgment Currency; Currency Indemnity. If for the
purposes of obtaining judgment in any court it is necessary to convert a sum due
from the Company hereunder or under any of the Notes in U.S. Dollars into
another currency, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Trustee could purchase U.S.
Dollars with such other currency at the Trustee's New York office on the
Business Day preceding that on which final judgment is given. Any amount
received or recovered in a currency other than U.S. Dollars (whether as a result
of a judgment or order of a court of any jurisdiction, or the enforcement
thereof, in the winding up or dissolution of the Company or otherwise) by the
Trustee or any Holder in respect of any sum expressed to be due to it from the
Company shall only constitute discharge of the Company to the extent of the U.S.
Dollar amount which the recipient is able to purchase with the amount so
received or recovered in such other currency on the date of such receipt or
recovery; provided that if it is not practicable to make such purchase on such
date, such purchase shall be made on the first date on which is practicable to
do so. If the amount of U.S. Dollars so purchased is less than the U.S. Dollar
amount expressed to be due to such recipient hereunder or under any Note, to the
extent permitted by applicable law the Company shall indemnify such recipient
against any loss sustained by it as a result and, in any event, the Company
shall indemnify such recipient against the cost of making any such purchase. For
the purposes of this Section 13.12, it shall be sufficient for any such
recipient to certify that it would have suffered a loss had an actual purchase
of U.S. Dollars been made with the amount so received in such other currency on
the date of receipt or recovery (or, if a purchase of Dollars on such date had
not been practicable, on the first date on which it would have been
practicable). To the extent permitted by applicable law, the indemnities granted
by this Section 13.12 constitute a separate and independent obligation from the
other obligations of the Company hereunder and shall give rise to a separate and
independent cause of action in favor of the Trustee or any Holder, as the case
may be.
Section 13.13 No Recourse Against Others. No director, officer,
employer, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Notes or this Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
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their creation, solely by reason of its status as a director, officer, employee,
incorporator or stockholder of the Company. By accepting a Note, each Holder
waives and releases all such liability (but only such liability) as part of the
consideration for issuance of such Note to such Holder.
Section 13.14 Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors and assigns whether so
expressed or not. All agreements of the Trustee in this Indenture shall bind its
successors and assigns whether so expressed or not.
Section 13.15 Counterparts. This Indenture may be executed in any
number of counterparts and by the parties thereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
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Section 13.16 Table of Contents; Headings. The table of contents,
cross-reference table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
of provisions hereof.
Section 13.17 Severability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 13.18 Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
Section 13.19 Independent Covenants. Each covenant contained in this
Indenture is intended by the parties to be a separate and independent covenant,
the compliance or noncompliance with such to be determined independently and
without regard to whether the Company or a Restricted Subsidiary is in
compliance with another covenant contained in this Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and in the case of the Company attested, all as of the day and
year first above written.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By _____________________________________
Name: Leonard M. Fertig
Title: Chief Executive Officer
Attest
- ---------------
IBJ BANK AND TRUST COMPANY,
as Trustee
By _____________________________________
Authorized Signatory
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of ______________, 1997, before me personally came
Leonard M. Fertig, to me known, who being by me duly sworn, did depose and say
that he is Chief Executive Officer of Central European Media Enterprises Ltd.,
one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
--------------------------
Notary Public
State of New York
My commission expires
[Seal]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of _______________, 1997, before me personally came
____________________, to me known, who being by me duly sworn, did depose and
say that he is , the Trustee described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
--------------------------
Notary Public
State of New York
My commission expires
[Seal]
<PAGE>
EXHIBIT A
FORM OF FACE OF NOTE
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
No. _______ CUSIP No. 153443AA4
____% CONVERTIBLE SUBORDINATED NOTE DUE 2004
Central European Media Enterprises Ltd., a Bermudian corporation (the
"Company"), for value received, hereby promises to pay to ________________, or
its registered assign, the principal sum of ___________________, on _________,
2004.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By: ___________________________________
Name:
Title:
[Corporate Seal]
By: ___________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee, certifies that this is one
of the Notes referred to in the Indenture.
By:______________________________
Authorized Signatory
Dated: _______________________
<PAGE>
FORM OF REVERSE SIDE OF NOTE
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
____% CONVERTIBLE SUBORDINATED NOTE DUE 2004
1. Indenture.
This Note is one of a duly authorized issue of debt securities of
Central European Media Enterprises Ltd., a Bermudian corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), designated as its "___%
Convertible Subordinated Notes due 2004" (herein called the "Notes") limited in
aggregate principal amount at Stated Maturity to $___________, issued under an
indenture dated as of ___________, 1997 (as amended or supplemented from time to
time, the `Indenture") between the Company and ____________, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and each Holder of Notes and of the terms upon which the Notes are,
and are to be, authenticated and delivered. The summary of the terms of this
Note contained herein does not purport to be complete and is qualified by
reference to the Indenture. All terms used in this Note which are not defined
herein shall have the meanings assigned to them in the Indenture.
The Indenture imposes limitations on the ability of the Company to
consolidate or merge with or into any other Person or permit any other Person to
merge with or into the Company, or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property of the Company to
any other Person. The Indenture does not contain any restrictions on the
incurrence of indebtedness, the creation of liens or the payment of dividends or
the making of distributions, investments or certain other restricted payments or
any financial covenants.
2. Principal and Interest.
The Company promises to pay the principal amount set forth on the face
hereof to the Holder hereof on __________, 2004.
This Note will bear interest from and including the Issue Date at the
rate of ___% per annum. The Company shall pay such interest from and including
the Issue Date, or from and including the most recent Interest Payment Date
thereafter to which interest has been paid or duly provided for, semi-annually
on _______ and _______ of each year, commencing on ______________, 1997, in
cash, to the Holder hereof until the principal amount hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions
provided in the Indenture, be paid to the Person in whose name this Note (or the
Note in exchange or substitution for which this Note was issued) is registered
at the close of business on the Record Date for interest payable on such
Interest Payment Date. The Record Date for any Interest Payment Date is the
close of business on ________ or ________, as the case may be, whether or not a
Business Day, immediately preceding the Interest Payment Date on which such
interest is payable. Any such interest not so punctually paid or duly provided
for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment Date will
include interest (including
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Additional Amounts (as hereinafter defined), if any) accrued through the day
before such Interest Payment Date. If an Interest Payment Date falls on a day
that is not a Business Day, the interest payment to be made on such Interest
Payment Date will be made on the next succeeding Business Day with the same
force and effect as if made on such Interest Payment Date, and no additional
interest will accrue as a result of such delayed payment.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) this Note, at the interest rate borne on
this Note, plus 1% per annum, and (ii) Defaulted Interest (without regard to any
applicable grace period), at the interest rate borne on the Notes, plus 1% per
annum. The Company's obligation pursuant to the previous sentence shall apply
whether such overdue amount is due at its Stated Maturity, as a result of the
Company's obligations pursuant to Section 3.7, Section 4.5 or Section 4.9 of the
Indenture, or otherwise.
3. Additional Amounts.
Except to the extent required by law, any and all payments of, or in
respect of, any Note shall be made free and clear of and without deduction for
or on account of any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
imposed by Bermuda, or any other jurisdiction under the laws of which the
Company is organized ("Other Jurisdiction") or any political subdivision of or
any taxing authority in Bermuda or in any Other Jurisdiction ("Bermudian Taxes"
or "Other Taxes," respectively). If the Company shall be required by law to
withhold or deduct any Bermudian Taxes or Other Taxes from or in respect of any
sum payable under a Note, the sum payable by the Company, as the case may be,
thereunder shall be increased by the amount ("Additional Amounts") necessary so
that after making all required withholdings and deductions, the Holder shall
receive an amount equal to the sum that it would have received had no such
withholdings and deductions been made; provided that any such sum shall not be
paid in respect of any of the following Bermudian Taxes or Other Taxes to a
Holder (an "Excluded Holder") (i) any tax, withholding, assessment or other
governmental charge which would not have been imposed but for (x) the existence
of any present or former connection between such Holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power over,
such Holder, if such Holder is an estate, trust, partnership or corporation) and
Bermuda or Other Jurisdiction including, without limitation, such Holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having had a permanent establishment
therein or (y) the presentation of a Note (where presentation is required) for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later; (ii) any estate, inheritance, gift, sale, transfer or
personal property tax; (iii) any tax, assessment or other governmental charge
that is withheld by reason of the failure by the Holder or the beneficial owner
of the Note to comply timely with a reasonable request in writing of the Company
(A) to provide information concerning the nationality, residence or identity of
the Holder or such beneficial owner or (B) to make any declaration or other
similar claim or satisfy any information or reporting requirement, which, in the
case of (A) or (B), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a precondition
to exemption from or reduction of all or part of such tax, assessment or other
governmental charge; provided, however, that this clause (iii) shall not apply
to the Company's obligation to pay Additional Amounts if the completing and
filling of the information described in (x) above or the declaration or other
claim described in (y) above would be materially more onerous in form, in
procedure or in substance of information disclosed, in comparison to the
information reporting requirements imposed under U.S. tax law with respect to
Forms 1001, W-8 and W-9; or (iv) any combination of items (i), (ii), and (iii)
above; nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, any Note to any Holder who is not the sole
beneficial
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owner of such Note or is a fiduciary or partnership, but only to the extent that
a beneficial owner, a beneficiary or a settlor with respect to a fiduciary or a
member of the partnership would not have been entitled to the payment of the
Additional Amount had the beneficial owner, beneficiary, settlor or member of
such partnership received directly its beneficial or distributive share of the
payments.
In addition, the Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
in respect of the creation, issue and offering the Notes payable in Bermuda, the
United States or any political subdivision thereof or taxing authority of or in
the foregoing. The Company will also pay and indemnify the Trustee and the
Holders of the Notes from and against all court fees and taxes or other taxes
and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the Trustee
or the Holders to enforce the obligations of the Company under the Notes or the
Indenture.
4. Method of Payment.
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender the Note to a Paying Agent to collect principal payments. The Company
will pay principal and interest in money of the United States of America that at
the time of payment is legal tender for payment of all debts public and private.
Principal and interest will be payable at the office of the Paying Agent but, at
the option of the Company, interest may be paid by check mailed to the
registered Holders at their registered addresses.
5. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar under the
Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its subsidiaries may
act as Paying Agent or Registrar.
6. Optional Redemption.
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to __________, 2000. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at a Redemption
Price equal to the percentage of the principal amount at Stated Maturity set
forth below if redeemed in the 12-month period beginning __________ of the years
indicated:
Redemption
Year Price
2000 %
2001 %
2002 %
and thereafter at a Redemption Price equal to 100% of the principal amount at
Stated Maturity, together in each case with accrued and unpaid interest
(including Additional Amounts, if any) to the Redemption Date (subject to the
right of Holders of record on Record Dates to receive interest due on an
Interest Payment Date).
If, at any time, the Company is or would be required on the next
succeeding Interest Payment Date to pay Additional Amounts with respect to the
Notes and the payment of such Additional Amounts
4
<PAGE>
cannot be avoided by the use of any reasonable measures available to the
Company, the Notes may be redeemed, at the option of the Company, in whole but
not in part, upon not less than 30 or more than 60 calendar days' notice to the
Holders in accordance with the terms of the Indenture, at a redemption price
equal to the principal amount thereof, plus accrued and unpaid interest, if any
(including Additional Amounts, if any). The Company will also pay to holders on
the Redemption Date any Additional Amounts payable in respect of the period
ending on the Redemption Date. Prior to the publication of any notice of
redemption pursuant to this provision, which in no event will be given earlier
than 90 days prior to the earliest date on which the Company would be required
to pay such Additional Amounts were a payment in respect of the Notes then due,
the Company shall deliver to the Trustee (i) an Officers' Certificate stating
that the obligation to pay such Additional Amounts cannot be avoided by the
Company taking reasonable measures and (ii) an Opinion of Counsel, independent
of the Company and approved by the Trustee, to the effect that the Company has
or will become obligated to pay such Additional Amounts as a result of such
change or amendment. Such notice, once delivered by the Company to the Trustee,
will be irrevocable. The Trustee shall accept such Officers' Certificate and
Opinion of Counsel as sufficient evidence of the satisfaction of the condition
precedent set forth in clauses (i) and (ii) above, in which event it shall be
conclusive and binding on the Holders.
7. Notice of Redemption.
At least 30 calendar days but not more than 60 calendar days before a
Redemption Date, the Company will send or cause to be sent a notice of
redemption, first class mail, postage prepaid, to Holders of Notes to be
redeemed at the addresses of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time, the Notes
to be redeemed will be chosen by the Trustee in accordance with the Indenture.
If any Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest (including Additional Amounts, if any) will be paid on such
Interest Payment Date to the Holder of the Note on such Record Date. If money in
an amount sufficient to pay the Redemption Price of all Notes (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent on or before the applicable Redemption Date and certain other conditions
are satisfied, interest (including Additional Amounts, if any) on the Notes to
be redeemed on the applicable Redemption Date will cease to accrue.
The Notes are not subject to any sinking fund.
8. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to purchase such Holder's Notes, in whole
or in part in a principal amount that is an integral multiple of $1,000,
pursuant to a Change of Control Offer, at a purchase price in cash equal to 100%
of the principal amount at Stated Maturity thereof on any Change of Control
Payment Date, plus accrued and unpaid interest, if any, and Additional Amounts,
if any, thereon to the Change of Control Payment Date.
Within 15 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first-class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Notes. The holder of
this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or
5
<PAGE>
portions thereof accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest and Additional Amounts, if any, from and after the
Change of Control Payment Date.
9. Repurchase at the Option of Holders upon a Termination of
Trading.
In the event of any Termination of Trading (as defined in the
Indenture) occurring after the Issue Date and on or prior to Maturity, each
Holder of Notes will have the right, at the Holder's option, to require the
Company to repurchase all or any part of such Holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Termination of Trading at a price (the "Repurchase Price") equal to 100% of
the principal amount at Stated Maturity thereof, together with accrued and
unpaid interest, if any, and Additional Amounts, if any, thereon to the
Repurchase Date.
On or before the 15th day after the occurrence of a Termination
Trading, the Company shall mail to all Holders of Notes a notice of the
occurrence of such Termination of Trading, the Repurchase Price and the
procedures which the Holder must follow to exercise the repurchase right. To
exercise such right, the Holder of the Note must deliver, on or before the close
of business on the Repurchase Date, irrevocable written notice to the Company
(or an agent designated by the Company for such purpose) and to the Trustee of
the Holder's exercise of such right, together with the certificates evidencing
the Notes with respect to which the right is being exercised, duly endorsed for
transfer and with the form entitled "Option of Holder to Require Purchase"
appearing below completed. Such written notice is irrevocable.
10. Mandatory Redemption.
Except as set forth in Sections 8 and 9, the Company is not required to
make any mandatory redemption payments or sinking fund payments with respect to
the Notes.
11. Transfer and Exchange.
A Holder may transfer a Note only upon the surrender of such Note for
registration of transfer. No such transfer shall be effected until, and such
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of transfer in the Note register by the Registrar. When Notes
are presented to the registrar with a request to register the transfer of, or to
exchange such Notes, the Registrar shall register the transfer or make such
exchange as requested if its requirements for such transactions and any
applicable requirements hereunder are satisfied.
12. Denominations.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof of principal amounts.
13. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment unless such abandoned property law designates
another Person.
14. Discharge and Defeasance.
6
<PAGE>
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Notes and the Indenture if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations for
the payment of principal, premium, if any, and interest (and Additional Amounts,
if any) on the Notes to redemption or Maturity, as the case may be.
15. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture and the Notes may be amended with the written consent of the Holders
of at least two-thirds in principal amount at Stated Maturity of the outstanding
Notes and (ii) any past Default and its consequences may be waived with the
written consent of the Holders of at least a majority in principal amount at
Stated Maturity of the outstanding Notes. Without the consent of any Holder of
Notes, the Company, the Guarantors and the Trustee may amend the Indenture and
the Notes (i) to evidence the succession of another Person to the Company and
the assumption by such successor of the covenants of the Company under the
Indenture and the Notes; (ii) to add additional covenants or to surrender rights
and powers conferred on the Company by the Indenture; (iii) to add any
additional Events of Default; (iv) to provide for uncertificated Notes in
addition to or in place of certificated Notes; (v) to evidence and provide for
the acceptance of appointment under the Indenture of a successor Trustee; (vi)
to add security for the Notes; (vii) to cure any ambiguity in the Indenture, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provisions with respect to
matters or questions arising under the Indenture, provided that such actions
shall not adversely affect the interests of the Holders in any material respect;
(viii) to make provision with respect to the conversion rights of the Holders of
the Notes in the event of a consolidation, merger or sale of assets involving
the Company as required by the Indenture; or (ix) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
16. Defaults and Remedies.
Events of Default under the Indenture include in summary form: default
in payment of interest, including Additional Amounts, if any, on the Notes for
30 days; default in payment of principal on the Notes; failure to comply with
certain of the covenants in the Indenture, including the Change of Control
covenant and the Termination of Trading covenant; failure by the Company to
comply with certain of its other agreements in the Indenture or the Notes and
the continuance of such default or breach for 30 days after notice; defaults in
the payment of certain other Indebtedness, or defaults, other than such payment
defaults, which result in the acceleration prior to express maturity of certain
other Indebtedness or which consist of the failure to pay at maturity; certain
final judgments which remain undischarged, unwaived, unappealed, unbonded,
unstayed or unsatisfied; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount at Stated Maturity of the outstanding Notes,
subject to certain limitations, may declare all the Notes to be immediately due
and payable. Certain events of bankruptcy or insolvency are Events of Default
and shall result in the Notes being immediately due and payable upon the
occurrence of such Events of Default without any further act of the Trustee or
any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount at Stated
Maturity of the outstanding Notes may direct the Trustee in its exercise of any
trust or power under the Indenture. The Holders of a majority in principal
amount at the Stated Maturity of the outstanding Notes, by written notice to the
Company and
7
<PAGE>
the Trustee, may rescind any declaration of acceleration and its consequences if
the rescission would not conflict with any judgment or decree, and if all Events
of Default have been cured or waived except nonpayment of principal and interest
that has become due solely because of the acceleration.
17. Individual Rights of Trustee.
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, its Subsidiaries or its Affiliates with the same rights it would
have it if were not Trustee, Paying Agent or Registrar, as the case may be,
under the Indenture.
18. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of his or her
status as a director, officer, employee, incorporator or stockholder of the
Company. By accepting a Note, each Holder waives and releases all such liability
(but only such liability) as part of the consideration for issuance of such Note
to such Holder.
19. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (=Custodian),, and U/G/M/A (=Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon, and any such redemption shall not be
affected by any defect in or omission of such CUSIP numbers.
22. Subordination.
The indebtedness evidenced by this Note is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the
8
<PAGE>
subordination so provided, and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.
23. Conversion Rights.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Note is entitled, at his, her or its option, at any time on
or after 9:00 a.m. New York City time on ____________ and before the close of
business on the Business Day next preceding the Maturity of this Note or the
Redemption Date for this Note, or in case this Note or a portion hereof is
called for redemption, then in respect of this Note or such portion hereof until
and including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the Business Day next preceding
the Maturity or the Redemption Date, to convert this Note at the principal
amount hereof, or of such portion, in to fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of Common
Stock of the Company at a conversion price equal to $______ per share of such
Common Stock (or in each case at the current adjusted conversion price if an
adjustment has been made as provided in the Indenture) by surrender of this
Note, duly endorsed or assigned to the Company or in blank, to the Company at
its office or agency maintained for that purpose pursuant to the Indenture,
accompanied by written notice to the Company in the form provided in this Note
(or such other notice as is acceptable to the Company) that the Holder hereof
elects to convert this Note and, in case such surrender shall be made during the
period from the close of business on any regular Record Date next preceding any
Interest Payment Date to the close of business on such Interest Payment Date
(unless this Note or the portion thereof being converted has been called for
redemption on a Redemption Date within such period), also accompanied by payment
in New York Clearing House funds, or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the aforesaid
requirement for payment and, in the case of a conversion after the regular
Record Date next preceding any Interest Payment Date and on or before such
Interest Payment Date, to the right of the Holder of this Note (or any
Predecessor Security) of record at such regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made upon conversion on account of any interest
accrued hereon or on account of any dividends on the Common Stock issued on
conversion, but instead of any fractional share the Company shall pay a cash
adjustment as provided in the Indenture.
The Company will furnish to any Holder of Notes upon written request
and without charge to the Holder a copy of the Indenture which has in it the
text of this Note. Requests may be made to:
Central European Media Enterprises Ltd.
Clarendon House
Hamilton HM/CX
Bermuda
9
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder if such Holder
desires to transfer this Note)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
/ / / /-/ / /-/ / / / /
--------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint Attorney to transfer this Note on
the Security Register, with full power of substitution.
Dated:________________________
- --------------------------------------- ------------------------------------
Signature of Holder Signature Guaranteed:
Signatures must be guaranteed by an
"eligible" guarantor institution"
meeting the requirements of the
Registrar, which requirements
include membership or participation
in the Security Transfer Agent
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.
NOTICE: The signature to the foregoing Assignment must correspond to the
Name as written upon the face of this Note in every particular,
without alteration or any change whatsoever.
10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
|_| In connection with the Change of Control Offer made pursuant to
Section 4.7 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $ ________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note repurchased by the Company. The
undersigned hereby directs the Trustee or Paying Agent to pay
it or an amount in cash equal to 100% of the
principal amount indicated in the preceding sentences, as
the case may be, plus accrued and unpaid interest thereon,
if any, and Additional Amounts, if any, to the Change of
Control Payment Date.
|_| In connection with the option of the Holder to required the Company to
repurchase the Holder's Note upon a Termination of Trading pursuant to
Section 4.8 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $ ________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note repurchased by the Company. The
undersigned hereby directs the Trustee or Paying Agent to pay
it or an amount in cash equal to 100% of the
principal amount indicated in the preceding sentences, as
the case may be, plus accrued and unpaid interest thereon,
if any, and Additional Amounts, if any, to the Repurchase
Date.
Dated:_________________
- --------------------------------------- ------------------------------------
Signature of Holder Signature Guaranteed
Signatures must be guaranteed by an
"eligible" guarantor institution"
meeting the requirements of the
Registrar, which requirements
include membership or participation
in the Security Transfer Agent
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.
11
<PAGE>
NOTICE: The signature to the foregoing Assignment must correspond to the
Name as written upon the face of this Note in every particular,
without alteration or any change whatsoever.
FORM OF CONVERSION NOTICE
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which
is $1,000 or a multiple thereof) designated below, into shares of
Common Stock in accordance with the terms of the Indenture referred to
in this Note, and directs that the shares issuable and deliverable upon
the conversion, together with any check in payment for a fractional
share and any Note representing any unconverted principal amount
hereof, be issued and delivered to the registered owner hereof unless a
different name has been provided below. If this Notice is being
delivered on a date after the close of business on a regular Record
Date and prior to the close of business on the related Interest Payment
Date, this Notice is accompanied by payment in New York Clearing House
funds, or other funds acceptable to the Company, of an amount equal to
the interest payable on such Interest Payment Date on the principal of
this Note to be converted on such Note. If shares or any portion of
this Note not converted are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto.
Dated:_____________ ------------------------------------
NOTICE This signature must
correspond with the name as written
upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
Fill in for registration of
shares of Common Stock if
they are to be delivered, or
Securities if they are to be
issued, other than to and in
the name of the registered owner:
---------------------------------
(Name)
---------------------------------
(Street Address)
---------------------------------
(City, State and zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
12
<PAGE>
Principal amount to be converted (if
less than all):
$ ________,000
----------------------------------
Social Security or other Taxpayer
Identification Number of owner
13
<PAGE>
[CONYERS DILL & PEARMAN LETTERHEAD]
April 16, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs,
Re: Central European Media Enterprises Ltd. (the "Company")
Convertible Subordinated Notes Due 2004
We have acted as special legal counsel in Bermuda to the Company in
connection with the registration statement (the "Registration Statement") on
Form S-3 (Registration Number 333-24365), with respect to the registration of
$143,750,000 principal amount of convertible subordinated notes due 2004 (the
"Notes"), which Notes are convertible into shares (the "Shares") of the
Company's Class A common stock, par value $.01 per share.
For the purposes of giving this opinion, we have examined the following
documents:
(i) the form of indenture between the Company and IBJ Schroder
Bank & Trust Company, as trustee (the "Indenture"); and
(ii) the Registration Statement.
We have also reviewed the memorandum of association and the bye-laws of the
Company, minutes of a meeting of its directors held on March 19, 1997, minutes
of a meeting of the
<PAGE>
Page 2
Securities and Exchange Commission
April 16, 1997
administration committee of the Company dated April 11, 1997 and such other
documents and made such enquiries as to questions of law as we have deemed
necessary in order to render the opinion set forth below.
We have made no investigation of and express no opinion in relation to the
laws of any jurisdiction other than Bermuda. This opinion is to be governed by
and construed in accordance with the laws of Bermuda and is limited to and is
given on the basis of the current law and practice in Bermuda. This opinion is
issued solely for your benefit and is not to be relied upon by any other
person, firm or entity or in respect of any other matter.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company has taken all corporate action required to authorise its
execution, delivery and performance of the Indenture.
2. When the Registration Statement has become effective under the Securities
Act of 1933, when the Notes have been qualified as required under the laws
of those jurisdictions in which they are to be issued and sold and when the
Notes have been sold, issued and paid for in the manner described in the
Registration Statement, the Notes will have been validly issued and will be
fully paid and non-assessable, and that when the Shares have been issued
pursuant to the conversion of the Notes, the Shares will have been validly
issued and will be fully paid and non-assessable.
3. The discussion of tax law set forth under the heading "Certain Tax
Considerations -- Bermuda Taxation" in the prospectus included in the
Registration Statement is accurate as of the date hereof in all material
respects.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" and under the caption "Certain Tax Considerations -- Bermuda Taxation"
in the prospectus included in the Registration Statement.
Yours faithfully,
CONYERS, DILL & PEARMAN
/s/ Conyers, Dill & Pearman
<PAGE>
[ROSENMAN & COLIN LLP LETTERHEAD]
April 17, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Central European Media Enterprises Ltd.
Registration No. 333-24365
Gentlemen:
We have acted as U.S. counsel to Central European Media Enterprises Ltd., a
Bermuda corporation (the "Company"), in connectin with the Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission relating to the registration under the Securities Act of
1933, as amended, of $143,750,000 aggregate principal amount of Convertible
Subordinated Notes due 2004 (the "Notes") and shares of Class A Common Stock,
par value $.01 per share (the "Common Stock"), issuable upon conversion of the
Notes.
In rendering this opinion, we have examined the form of Indenture between the
Company and IBJ Schroder Bank & Trust Company (the "Indenture"), and we have
assumed that the Company has taken all corporate action required under Bermuda
law to authorize the execution, delivery and performance of the Indenture, which
is the subject of an opinion of Conyers, Dill & Pearman, Bermuda counsel to the
Company, which opinion is being filed as an exhibit to the Registration
Statement.
Based solely upon the foregoing and subject to the assumptions and
qualifications herein stated, we are of the opinion that when the Indenture has
been fuly executed and delivered and the Notes have been executed and
authenticated in accordance with the Indenture and have been issued, sold and
delivered in the manner and for the consideration stated in the Indenture and
the Underwriting Agreement between the Company and the underwriters named
therein, the form of which has been filed as an exhibit to the Registration
Statement, the Notes will be legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as enforcement
<PAGE>
Securities and Exchange Commission
April 17, 1997
Page 2
thereof may be limited by bankruptcy, insolvency, reorganization or other
similar laws not or hereafter in effect relating to creditor's rights and
remedies generally, and equitable considerations of any court before which
enforcement may be sought.
This opinion is limited to the laws of the State of New York, and we express no
opinion as to the laws of any other jurisdiction.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name in the Registration
Statement, including the Prospectus constituting a part thereof, and any
amendments or supplements thereto, under the heading "Legal Matters."
Very truly yours,
ROSENMAN & COLIN LLP
By /s/ ROBERT L KOHL
--------------------------
A Partner
<PAGE>
EXHIBIT 12.1
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ---------- -----------
ACTUAL
- ---------------------------------------------------------------------------
Net income (loss) before provision for income taxes*...................... $(14,778) $ 4,095 $(12,526)
Add: Equity in loss of unconsolidated affiliates.......................... 13,677 14,816 17,867
Add: Fixed charges (interest expense)..................................... 1,992 4,959 4,670
----------- ---------- -----------
Earnings available for fixed charges...................................... 891 23,870 10,011
Fixed Charges............................................................. 1,992 4,959 4,670
----------- ---------- -----------
Ratio of earnings to fixed charges........................................ N/A 4.8:1 2.1:1
----------- ---------- -----------
----------- ---------- -----------
Deficiency of earnings available to cover fixed charges................... $(1,101) N/A N/A
----------- ---------- -----------
----------- ---------- -----------
PRO FORMA
- ---------------------------------------------------------------------------
Earnings available for fixed charges--actual.............................. $891 $ 23,870 $10,011
Pro forma fixed charges(A)................................................ 10,117 13,084 12,795
----------- ---------- -----------
Pro forma ratio of earnings to fixed charges.............................. N/A 1.8:1 N/A
----------- ---------- -----------
----------- ---------- -----------
Pro forma deficiency of earnings available to cover fixed charges ........ $(9,226) N/A $(2,784)
----------- ---------- -----------
----------- ---------- -----------
(A) Calculation of Pro Forma Fixed Charges
Fixed charges--actual..................................................... $1,992 $ 4,959 $4,670
Pro forma interest expense ($125,000 at 6.5%)............................. 8,125 8,125 8,125
----------- ---------- -----------
Pro forma fixed charges................................................... $10,117 $ 13,084 $12,795
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
- ------------------
* Excludes minority interest in income (loss) of subsidiaries.
<PAGE>
[ROSENMAN & COLIN LLP LETTERHEAD]
April 17, 1997
Central European Media Enterprises Ltd.
Clarendon House, Church Street
Hamilton HM CX, Bermuda
Re: Central European Media Enterprises Ltd.
(the "Company") - Form S-3 Registration
Statement under The Securities Act of 1933,
Reg. No. 333-24365 (the "Form S-3")
Gentlemen:
You have requested our opinion with respect to the material set forth under the
heading "Certain Tax Considerations -- United States Federal Income Taxation" in
the prospectus (the "Prospectus") included in the Form S-3 filed by the Company
in connection with the Company's proposed offering and sale of certain
convertible subordinated notes due 2004.
In connection with your request, you have provided us with (a) the Form S-3,
including the Prospectus, and (b) such other documents as we have deemed
necessary or appropriate to review in rendering this opinion.
On the basis of our review of the aforementioned documents, on which we have
relied, and on the basis of the United States federal income tax law as
currently in effect, including the Internal Revenue Code of 1986, as amended,
existing judicial decisions and administrative regulations, including proposed
regulations, rulings, procedures and practice, all of which are subject to
change, it is our opinion that the discussion of the tax law set forth under the
heading "Certain Tax Considerations -- United States Federal Income Taxation" in
the Prospectus is accurate as of the date hereof in all material respects.
We hereby consent to the use of our name under the caption "Certain Tax
Considerations -- United States Federal Income
<PAGE>
Central European Media Enterprises Ltd.
April 17, 1997
Page 2
Taxation" in the Prospectus and to the use of this opinion as an exhibit to the
Prospectus which is part of the Form S-3.
Very truly yours,
Rosenman & Colin, LLP
By: /s/ Eugene L. Vogel
--------------------------
Eugene L. Vogel, A Partner
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)_
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
JAMES P. FREEMAN, ASST. VICE PRESIDENT
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact names of obligor as specified in its charter)
Bermuda Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Clarendon House
Church Street
Hamilton, Bermuda N/A
(Address of principal executive offices) (Zip code)
$143,750,000 Convertible Subordinated Notes due 2004
(Title of indenture securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Bank Department, Two Rector
Street, New York, New York
Federal Deposit Insurance Corporation,
Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of
any such default.
None
2
<PAGE>
(b) If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or participation in any
other securities, of the obligors are outstanding, or is trustee for more than
one outstanding series of securities under the indenture, state whether there
has been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit 4
to Form T-1, Securities and Exchange Commission File
No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended
to date (See Exhibit 4 to Form T-1, Securities and Exchange
Commission File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required
by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the Securities
and Exchange Commission, to which there have been no amendments or changes.
3
<PAGE>
NOTE
In answering any item in the Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 17th day of April, 1997.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ James P. Freeman
------------------------------
James P. Freeman
Assistant Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issuance by Central European
Media Enterprises Ltd, of its $143,750,000 Convertible Subordinated Notes due
2004, we hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ James P. Freeman
------------------------------
James P. Freeman
Assistant Vice President
Dated: April 17, 1997
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of December 31, 1996
Dollar Amounts
in Thousands
--------------
ASSETS
------
Cash and balance due from depository
institutions:
Noninterest-bearing balances and currency
and coin .................................. $ 32,466
Interest-bearing balances .................. $ 347,310
Securities: Held-to-maturity securities ...... $ 175,628
Available-for-sale securities .... $ 37,536
Federal funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries and in IBFs:
Federal Funds sold ........................ $ 13,900
Securities purchased under agreements to
resell ................................... $ 4,524
Loans and lease financing receivables:
Loans and leases, net of unearned income .... $1,844,295
LESS: Allowance for loan and lease losses ... $ 57,261
LESS: Allocated transfer risk reserve ....... $ -0-
Loans and leases, net of unearned income,
allowance, and reserve ..................... $1,787,034
Trading assets held in trading accounts ...... $ 403
Premises and fixed assets (including
capitalized leases) ......................... $ 4,123
Other real estate owned ...................... $ 202
Investments in unconsolidated subsidiaries
and associated companies .................... $ -0-
Customers' liability to this bank on
acceptances outstanding ..................... $ 463
Intangible assets ............................ $ -0-
Other assets ................................. $ 87,430
TOTAL ASSETS ................................. $2,491,019
<PAGE>
LIABILITIES
-----------
Deposits:
In domestic offices ......................... $ 792,944
Noninterest-bearing ...................... $ 228,711
Interest-bearing ......................... $ 564,233
In foreign offices, Edge and Agreement
subsidiaries, and IBFs ..................... $1,125,928
Noninterest-bearing ...................... $ 20,348
Interest-bearing ......................... $1,105,580
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal Funds purchased ..................... $ 185,300
Securities sold under agreements to
repurchase ................................. $ -0-
Demand notes issued to the U.S. Treasury ..... $ 5,098
Trading Liabilities .......................... $ 83
Other borrowed money:
a) With a remaining maturity of one year or
less ..................................... $ 74,686
b) With a remaining maturity of more than
one year ................................. $ 4,763
Mortgage indebtedness and obligations under
capitalized leases .......................... $ -0-
Bank's liability on acceptances executed and
outstanding ................................. $ 463
Subordinated notes and debentures ............ $ -0-
Other liabilities ............................ $ 82,930
TOTAL LIABILITIES ............................ $2,272,195
Limited-life preferred stock and related
surplus ..................................... $ -0-
EQUITY CAPITAL
--------------
Perpetual preferred stock and related
surplus ..................................... $ -0-
Common stock ................................. 29,649
Surplus (exclude all surplus related to
preferred stock) ............................ $ 217,008
Undivided profits and capital reserves ....... $ (27,849)
Net unrealized gains (losses) on available-
for-sale securities .......................... $ 16
Cumulative foreign currency translation
adjustments ................................. $ -0-
TOTAL EQUITY CAPITAL ......................... $ 218,824
TOTAL LIABILITIES AND EQUITY CAPITAL ......... $2,491,019
