<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION NO. 333-24365
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
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>
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. JOHN D. WILSON, ESQ.
ROSENMAN & COLIN LLP SHEARMAN & STERLING
575 MADISON AVENUE 199 BISHOPSGATE
NEW YORK, NY 10022 LONDON EC2M 3TY ENGLAND
(212) 940-8800 (44 171) 920-9000
</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. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES BEING REGISTERED REGISTERED(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Notes Due 2004.................. $155,000,000 $155,000,000 $46,971
===========================================================================================================
</TABLE>
(1) A portion of the Senior Notes Due 2004 ("Notes") being registered will be
denominated in German Deutsche Marks. The translation rate for the Deutsche
Mark is $1.00 = DM 1.8350 (the Noon Buying Rate on August 13, 1997). The
proposed maximum aggregate offering price of Notes being offered in Deutsche
Marks and Dollars, based on such translation rate, is $155,000,000.
(2) The Company has previously paid $43,561 of the registration fee in
connection with the initial filing of this Form S-3.
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> 2
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.
[CME LOGO]
PROSPECTUS (Subject to Completion)
Issued August 14, 1997
$100,000,000
DM 100,000,000
Central European Media Enterprises Ltd.
$100,000,000 % SENIOR NOTES DUE 2004
DM 100,000,000 % SENIOR NOTES DUE 2004
------------------------
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., A COMPANY INCORPORATED UNDER THE LAWS
OF BERMUDA ("CME," AND TOGETHER WITH ITS SUBSIDIARIES, THE "COMPANY"), IS
OFFERING (THE "OFFERING") $100,000,000 % SENIOR NOTES DUE 2004 (THE "DOLLAR
NOTES") AND DM 100,000,000 % SENIOR NOTES DUE 2004 (THE "DM NOTES," AND
TOGETHER WITH THE DOLLAR NOTES, THE "NOTES"). INTEREST ON THE NOTES WILL ACCRUE
FROM THE CLOSING DATE (AS DEFINED HEREIN) AND WILL BE PAYABLE IN CASH AT A RATE
OF % PER ANNUM IN THE CASE OF THE DOLLAR NOTES AND % PER ANNUM IN THE
CASE OF THE DM NOTES ON EACH FEBRUARY 15 AND AUGUST 15, COMMENCING FEBRUARY 15,
1998.
THE NOTES WILL BE REDEEMABLE AT THE OPTION OF CME, IN WHOLE OR IN PART, AT ANY
TIME ON OR AFTER AUGUST 15, 2001 AT THE REDEMPTION PRICES SET FORTH HEREIN, PLUS
ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REDEMPTION. IN ADDITION, IN
THE EVENT OF ONE OR MORE EQUITY OFFERINGS OR PLACINGS PRIOR TO AUGUST 15, 2000,
CME MAY, AT ITS OPTION, REDEEM UP TO 35% OF THE ORIGINAL AGGREGATE PRINCIPAL
AMOUNT OF EACH CLASS OF NOTES FROM SOME OR ALL OF THE NET PROCEEDS THEREOF AT
% OF THE PRINCIPAL AMOUNT IN THE CASE OF THE DOLLAR NOTES AND % OF THE
PRINCIPAL AMOUNT IN THE CASE OF THE DM NOTES, PLUS ACCRUED AND UNPAID INTEREST,
IF ANY, TO THE DATE OF REDEMPTION. IN THE EVENT OF CERTAIN CHANGES AFFECTING THE
WITHHOLDING TAX TREATMENT OF CERTAIN PAYMENTS ON A CLASS OF NOTES, SUCH CLASS OF
NOTES WILL ALSO BE REDEEMABLE AT THE OPTION OF CME, IN WHOLE, BUT NOT IN PART,
AT 100% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND UNPAID INTEREST, IF
ANY, TO THE DATE OF REDEMPTION. UPON A CHANGE OF CONTROL (AS DEFINED HEREIN) AND
IN CERTAIN CIRCUMSTANCES FOLLOWING ASSET SALES (AS DEFINED HEREIN), EACH HOLDER
OF THE NOTES WILL HAVE THE RIGHT TO REQUIRE CME TO REPURCHASE SUCH HOLDER'S
NOTES AT A PRICE OF 101% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND
UNPAID INTEREST, IF ANY, TO THE DATE OF REPURCHASE.
THE NOTES WILL CONSTITUTE UNSECURED SENIOR OBLIGATIONS OF CME, WILL RANK PARI
PASSU IN RIGHT OF PAYMENT WITH ALL EXISTING AND FUTURE UNSECURED UNSUBORDINATED
INDEBTEDNESS OF CME, WILL BE SENIOR IN RIGHT OF PAYMENT TO ALL FUTURE
SUBORDINATED INDEBTEDNESS OF CME, AND WILL BE EFFECTIVELY SUBORDINATED TO ALL
EXISTING AND FUTURE LIABILITIES OF CME'S SUBSIDIARIES. AT JUNE 30, 1997, AFTER
GIVING PRO FORMA EFFECT TO THE OFFERING AND THE APPLICATION OF THE PROCEEDS
THEREFROM, CME AND ITS CONSOLIDATED SUBSIDIARIES WOULD HAVE HAD APPROXIMATELY
$201,280,000 OF INDEBTEDNESS, $46,280,000 OF WHICH IS INDEBTEDNESS OF THE
CONSOLIDATED SUBSIDIARIES, AND CME'S CONSOLIDATED SUBSIDIARIES WOULD HAVE HAD
APPROXIMATELY $52,364,000 OF OTHER LIABILITIES (INCLUDING TRADE PAYABLES BUT
EXCLUDING INTERCOMPANY LIABILITIES) TO WHICH THE NOTES WILL ALSO BE EFFECTIVELY
SUBORDINATED.
------------------------
APPLICATION HAS BEEN MADE FOR THE NOTES TO BE LISTED ON THE LUXEMBOURG STOCK
EXCHANGE.
------------------------
THE DM NOTES SOLD OUTSIDE THE UNITED STATES WILL BE REPRESENTED BY A SINGLE,
PERMANENT GLOBAL CERTIFICATE IN BEARER FORM, DEPOSITED WITH DEUTSCHER
KASSENVEREIN AG, FRANKFURT AM MAIN ("DKV"), WHICH WILL REPRESENT THE DM NOTES
HELD BY ACCOUNTHOLDERS IN DKV, INCLUDING SUCH DM NOTES HELD THROUGH THE OPERATOR
OF EUROCLEAR SYSTEM ("EUROCLEAR") AND CEDEL BANK, SOCIETE ANONYME ("CEDEL"),
EACH OF WHICH HAS AN ACCOUNT WITH DKV. ALL DOLLAR NOTES, AND DM NOTES SOLD TO
U.S. INVESTORS, EACH WILL BE REPRESENTED BY A SINGLE, PERMANENT GLOBAL
CERTIFICATE IN REGISTERED FORM DEPOSITED WITH A CUSTODIAN FOR, AND REGISTERED IN
THE NAME OF, THE DEPOSITARY TRUST COMPANY ("DTC") OR ITS NOMINEE. SEE
"DESCRIPTION OF THE NOTES -- BOOK ENTRY; DELIVERY AND FORM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREOF FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE 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 COMMISSIONS(1) COMPANY(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Dollar Note........................ % % %
Per DM Note............................ % % %
Total(3)............................... $ $ $
</TABLE>
- ------------
(1) CME has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by CME estimated at $850,000.
(3) Translated at the rate of $1.00=DM 1.8350 (the Noon Buying Rate on
August 13, 1997.
------------------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about August 20, 1997 against payment therefor in U.S.
dollars for the Dollar Notes and Deutsche Marks for the DM Notes in immediately
available funds.
------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
, 1997
<PAGE> 3
[PAGE 2]
[MAP OF CENTRAL AND EASTERN EUROPE SETTING FORTH THE POPULATIONS IN, AND
HIGHLIGHTING, AREAS WHERE THE COMPANY HAS EXISTING BROADCAST OPERATIONS AND
AREAS WHERE THE COMPANY IS DEVELOPING BROADCAST OPERATIONS]
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION 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 ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION TO SUCH PERSON.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 13
The Company........................... 20
Use of Proceeds....................... 24
Capitalization........................ 25
Selected Consolidated Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 39
<CAPTION>
PAGE
----
<S> <C>
Management............................ 60
Description of the Notes.............. 63
Certain Tax Considerations............ 94
Underwriting.......................... 98
Legal Matters......................... 99
Experts............................... 99
Available Information................. 99
Information Incorporated by
Reference........................... 100
Index to Financial Statements......... F-1
</TABLE>
------------------------
This Prospectus has been prepared by CME solely for use in connection with
the Offering and the listing of the Notes. In preparing this Prospectus, CME has
taken reasonable care to ensure that the facts stated herein are true and
accurate in all material respects and that no material facts have been omitted
which would make any statements of fact or opinion herein misleading. CME
accepts responsibility accordingly.
------------------------
The permission of the Bermuda Monetary Authority has been obtained for the
issuance of $155,000,000 of Notes (which may include Notes to be issued in
German Deutsche Marks). In addition, a copy of this document has been delivered
to the Registrar of Companies in Bermuda for filing pursuant to The Companies
Act, 1981 of Bermuda. Approvals or permissions received from the Bermuda
Monetary Authority do not constitute a guaranty by the Authority as to the
performance or creditworthiness of CME. Furthermore, in giving such approvals
and permissions, the Authority shall not be liable for the performance or
default of CME or for the correctness of any opinions or statements expressed
herein.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR, AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE> 5
In this Prospectus, unless otherwise indicated, all references to the
"Company" include Central European Media Enterprises Ltd. ("CME"), its
predecessors and its direct and indirect Subsidiaries, and all references to
"Subsidiaries" (other than as used in "Description of the Notes") include each
corporation or partnership in which CME has a direct or indirect equity or
voting interest.
------------------------
All references to "$" or "dollars" are to United States dollars, all
references to "Kc" are to Czech korunas, all references to "DM" are to Deutsche
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. Except as otherwise noted,
dollar amounts provided herein as translations of non-U.S. currencies at a
future date have been converted into United States dollars using exchange rates
as of June 30, 1997 (Kc32.05 = $1.00; DM1.74 = $1.00; ROL7,032 = $1.00;
SIT156.87 = $1.00; Sk33.38 = $1.00; Zl3.29 = $1.00; Hrn1.85 = $1.00;
HUF187 = $1.00). Historical amounts have been translated at their historical
rates as 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." Proceeds of the sale of DM Notes are translated
into U.S. dollars at the rate of DM 1.8350 = $1.00, the noon buying rate in New
York City for cable transfers in Deutsche Marks as certified for customs
purposes by the Federal Reserve Bank of New York on August 13, 1997 (the "Noon
Buying Rate").
------------------------
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," "Dependence on
Additional Capital," "Risks Related to Investment Structure," "Dependence on
Local Strategic Partners," "Changes in Technology," "Dependence on Key
Personnel," "Competitive Industry," "Risks of Television Broadcast Operations,"
"Expansion into Early Stage Markets," "Risks Inherent in Foreign Investment,"
"Devaluation; Currency Risk," "Structural Subordination; Substantial Leverage;
Deficiency of Earnings to Fixed Charges; Ability to Service Debt," "Limitations
on Repurchase of the Notes," "Refinancing Risk," "Absence of Public Market for
the Notes," "Government Regulatory Restrictions," "Uncertainty of License
Renewals" and "Enforcement of Civil Liabilities and Judgments."
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary should be read in conjunction with and is qualified
in its entirety by the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
OVERVIEW
The Company is the leading commercial television company in Central and
Eastern Europe. The Company has developed and currently operates the leading
national private television stations and networks, as measured by audience share
within their respective areas of broadcast reach, in the Czech Republic, the
Slovak Republic, Slovenia and Romania. The Company also recently commenced
broadcasting in Ukraine and southern Poland and plans to launch a television
network in Poland and develop broadcasting operations in Hungary. The Company's
television studios, production facilities and editing suites at its national
television stations produced approximately 12,000 hours of original programming
in 1996 to support the Company's broadcasting operations, making it the largest
private producer of local television programming in Central and Eastern Europe.
To complement its commercial television activities, the Company also has
interests in national radio stations and is increasingly active in program
rights distribution and other media services.
In each market in which it operates, the Company's objective is to develop
a strong local identity for its television stations and networks by emphasizing
independent news and local reporting, introducing programming and production
techniques from the United States and Western Europe and, in particular,
establishing each of its operations as a joint venture with a recognized and
respected local partner. The Company believes that this approach gives it a
competitive advantage over public and other private television stations in the
Central and Eastern European markets and makes its stations more appealing to
local audiences and commercial advertisers.
The Company's current television stations and networks, which reach an
aggregate of approximately 90 million people in seven countries, consist of the
following:
<TABLE>
<CAPTION>
BROADCAST
STATIONS AND NETWORKS TERRITORY POPULATION(1) REACH(2) ECONOMIC INTEREST
- ----------------------------------------- --------------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
Nova TV.................................. Czech Republic 10.3 10.1 93.2%(3)
PRO TV................................... Romania 22.7 13.6 77.5%(4)
POP TV................................... Slovenia 2.0 1.6 85.3%
Markiza TV............................... Slovak Republic 5.4 4.2 80.0%
Studio 1+1 Group......................... Ukraine 52.1 49.5 50.0%
TV Wisla(5).............................. Poland 38.6 7.8 25.2%
------ ---------
Central and Eastern Europe Total....... 131.1 86.8
German Local Stations:
Nuremberg Station........................ Nuremberg 1.2 1.2 37.4%
Leipzig Station.......................... Saxony 0.7 0.7 16.7%
Dresden Station.......................... Saxony 1.1 1.1 16.7%
------ ---------
Germany Total.......................... 3.0 3.0
------ ---------
Total.......................... 134.1 89.8
========== =======
</TABLE>
- ---------------
(1) Lists the population in millions.
(2) "Broadcast Reach" measures the number of people in millions reached by the
Company's stations and networks.
(3) The Company recently purchased Nova Consulting a.s. ("NC"), which owns an
additional 5.8% interest in CNTS, which operates Nova TV.
(4) The Company's partners in Romania hold options to purchase equity in Media
Pro International, the company which operates PRO TV, from the Company
which, if exercised, could reduce the Company's equity interest to not less
than 66%. The Company has been informed that one of the partners intends to
exercise its option.
(5) The Company and ITI, its partner in TVN, expect to launch a national network
in Poland in the fourth quarter of 1997 which is expected to have an initial
broadcast reach of approximately 22.9 million people and in which the
Company will have a 50% direct interest and a 5% indirect economic interest.
5
<PAGE> 7
The Company's strategy is to continue to leverage its leading market
positions and its accumulated development expertise to capitalize on the
opportunities in commercial television broadcasting created by the economic
development of Central and Eastern Europe. The Company seeks to benefit from the
expanding television advertising markets in the region, which have realized
rates of growth that are significantly higher than those of the economies of the
region as a whole in recent years, as advertisers have increasingly relied on
television to reach mass market audiences. The Company will continue to assess
opportunities to develop new national television stations and networks in
countries where it believes it can achieve a market-leading position through
early market entrance and broadcasting expertise. The Company also seeks to
strengthen its existing operations through the development of second television
channels and by continuing to develop its local production and distribution
services to serve its own stations as well as third parties.
BACKGROUND
The Company's first national television operation began in February 1994
with the launch of Nova TV in the Czech Republic. As a fully operational
station, Nova TV has consistently achieved an audience share in excess of 55%,
and has benefited in particular from the growing television advertising market
in the Czech Republic. The Company estimates that television advertising
expenditures in the Czech Republic grew from approximately $67 million in 1993
to approximately $165 million in 1996. During 1996, CNTS, which operates 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 broadcast cash flow over 1995.
The Company believes that 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, and a format distinctly different from that offered by competing
stations in terms of image and local focus. During June 1997, Nova TV broadcast
19 of the 20 most watched television programs in the Czech Republic. In
launching its broadcast operations in Romania, Slovenia and the Slovak Republic
during 1995 and 1996, the Company capitalized on its successful launch of Nova
TV by adopting similar programming and operating strategies for PRO TV, POP TV
and Markiza TV, each of which currently has the leading audience share in its
respective area of broadcast reach.
In Ukraine, the Company owns a 50% 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 95%
of Ukraine's population of 52.1 million. The Studio 1+1 Group began broadcasting
on UT-2 in January 1997, and will introduce a new programming format in the fall
of 1997 which is similar to that used by the Company's other leading stations
and networks.
In Poland, the Company acquired a 33% interest in TVN in May 1995, which in
turn has a 76.3% interest in TV Wisla, a private television station broadcasting
to approximately 7.8 million people in southern Poland. In February 1997, TVN
was awarded 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 15.1 million additional people
in Poland. The Company and ITI, its partner in TVN, intend to launch a
television broadcast network in Poland, the TVN Network, which will broadcast
programming and sell advertising through affiliate stations, including TV Wisla
and stations broadcasting under the television broadcast licenses awarded to TVN
in northern Poland and the cities of Warsaw and Lodz. The TVN Network is
expected to be launched in the fourth quarter of 1997, and its affiliate
stations are expected to have an initial broadcast reach of approximately 60% of
the Polish population.
In Hungary, the Company owns a dubbing and production studio, has purchased
over 9,300 hours of programming rights including popular films and television
series produced by major international studios and is evaluating various
television broadcast opportunities.
The Company also owns interests in three private regional television
stations operating in Germany. These stations provide "total local" programming,
which involves delivering in-depth coverage of local and
6
<PAGE> 8
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.
The Company believes that its broadcast experience in Central and Eastern
Europe, its proven programming strategy, its extensive knowledge of the
political and economic climates in the region and its proven ability to attract
local strategic partners, position it to capitalize on new development
opportunities in countries where it currently operates and in other countries in
the region.
BUSINESS STRATEGY
The Company's strategic objective is to strengthen its position as the
leading developer and operator of national commercial television stations and
networks in Central and Eastern Europe by leveraging its operating, financial
and political expertise to achieve continued growth in revenues and
profitability in all of its existing broadcast operations and to invest in,
develop and operate additional television broadcast operations and related media
businesses. Key elements of the Company's strategy include:
- BEING AN EARLY MARKET ENTRANT. The Company strives to be an early market
entrant to establish national and regional television broadcast
operations in attractive regions of Central and Eastern Europe and to
capitalize on the benefits of early market entry by expanding its
existing operations into broadcasting support services and other
complementary activities. 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 in these markets, including securing
one of the limited frequencies available to broadcasters in the countries
of the region and being the first to establish strong local production
capabilities by drawing on the limited resources available in the
individual markets. The Company also believes early entrants have the
opportunity to establish significant market share by developing viewer
loyalty and station identity, as well as good relationships with
advertisers, before competitors commence significant operations. In
Central and Eastern Europe, early entrants also have the opportunity to
acquire exclusive rights to top international programming for their
respective markets.
- CREATING ALLIANCES WITH LOCAL STRATEGIC PARTNERS. A key element of the
Company's investment and operating strategy is to develop each of its
stations and networks through a strategic alliance with a strong local
partner who understands the political and business environment as well as
the local broadcasting market. The Company believes that such local
alliances ensure that each operation is responsive to local tastes and
interests and hence maximizes audience share and advertiser appeal. This
approach is also consistent with the objectives of local licensing
authorities, which the Company believes will enhance the likelihood that
the Company or its local strategic partners will be awarded and retain
broadcast licenses.
- BROADCASTING PROGRAMMING ATTRACTIVE TO A LARGE TARGET AUDIENCE. The
Company's strategy is to create and acquire programming that appeals to
the largest possible audience. In particular, the Company's programming
strategy is designed to attract the youthful and lifestyle-oriented
viewers most sought after by advertisers, which has enabled most of the
Company's stations and networks to consistently capture shares of
national television advertising revenues that exceed their respective
audience shares. To this end, the Company broadcasts a mix of locally and
internationally produced movies, series, talk shows, variety shows and
news which appeal to a mass market audience. The Company believes
broadcasting a significant amount of locally produced programming and
developing a distinctive independent news program gives a strong local
identity to its broadcast operations, increases audience share and
appeals 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, employs
lively program formats, and utilizes modern broadcast equipment to
provide high quality programming to its television audiences.
7
<PAGE> 9
- MAXIMIZING BROADCAST REACH WITHIN LICENSED TERRITORIES. The Company seeks
to maximize its potential broadcast reach, thereby increasing the
attractiveness of its programming to advertisers. In each area where the
Company's and its affiliate stations do not reach the entire population,
the Company seeks to create the largest possible network for its
programming and to distribute it through local broadcasters, cable
systems and other distribution systems. For example, in Romania, which
does not have a well-developed "terrestrial" or "over-the-air" television
distribution system, the Company employs satellite technology to
distribute programming to affiliate stations. 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 operational 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 link system in those
countries.
- LEVERAGING EXPERTISE AND CRITICAL MASS. The Company currently broadcasts
to approximately 90 million people in seven countries and is developing
or exploring operations in several other countries, including Hungary,
the Balkan and the Baltic regions and in certain countries in the
Commonwealth of Independent States. The Company believes it has
accumulated significant expertise in developing and operating broadcast
networks and their support services in Central and Eastern Europe and is
beginning to benefit from synergies among the Company's various
operations. For example, the Company is considering launching second
television channels in certain countries where it currently has broadcast
operations to take advantage of its large program libraries and existing
operations in order to enhance its overall audience share, and has also
begun to gain greater leverage in its purchasing, programming, news
gathering and production abilities. In order to benefit further from its
strategic position, the Company intends to develop related media
businesses which serve both affiliated and unaffiliated broadcasters, and
intends to market certain production services to producers and
broadcasters in Western Europe and the United States, where programming
and production costs are generally higher than in Central and Eastern
Europe.
- EMPLOYING A DEDICATED TEAM OF EXPERIENCED PROFESSIONALS. The Company
relies on its senior management team to identify and pursue investment
opportunities as well as to lead the Company through complex licensing
processes, seek broadcast rights, and develop and operate its businesses
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, nonexecutive Chairman
and founder of the Company, has been involved actively in the region for
many years and continues to play an important role in the Company's
activities. The Company believes its management and dedicated licensing
team provide a competitive advantage in obtaining broadcast rights. 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.
- INTEGRATING LOCAL OPERATIONS. In order to maximize potential returns and
to capitalize on other opportunities, particularly in its larger more
competitive markets, the Company intends to expand beyond television
broadcasting into related services where the advantages of being an early
market entrant can also be realized and significant synergies exist. For
example, the Company has established significant local production
capabilities in each country of operation, and is continuing to review
opportunities in radio, program rights distribution and other
media-related services.
8
<PAGE> 10
THE OFFERING
Aggregate Amount........... $100,000,000 % Senior Notes due 2004
DM100,000,000 % Senior Notes due 2004
Maturity Date.............. August 15, 2004
Interest................... Interest on the Notes will accrue from the Closing
Date and will be payable in cash at a rate of %
per annum in the case of the Dollar Notes, and %
per annum in the case of the DM Notes,
semi-annually in arrears on each February 15 and
August 15, commencing February 15, 1998.
Ranking.................... The Notes will be unsecured senior indebtedness of
CME, will rank pari passu in right of payment with
all existing and future unsecured unsubordinated
indebtedness of CME, will be senior in right of
payment to all future subordinated indebtedness of
CME, and will be effectively subordinated to all
existing and future liabilities of CME's
Subsidiaries. At June 30, 1997, after giving pro
forma effect to the Offering and the application of
the proceeds therefrom, CME and its consolidated
Subsidiaries would have had approximately
$201,280,000 of indebtedness, $46,280,000 of which
is indebtedness of the consolidated Subsidiaries,
and CME's consolidated Subsidiaries would have had
approximately $52,364,000 of other liabilities
(including trade payables but excluding
intercompany liabilities) to which the Notes will
also be effectively subordinated. See "Description
of the Notes -- Ranking."
Optional Redemption........ The Notes will be redeemable at the option of CME,
in whole or in part, at any time on or after August
15, 2001 at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the
date of redemption. In addition, in the event of
one or more equity offerings or placings prior to
August 15, 2000, CME may, at its option, redeem up
to 35% of the original aggregate principal amount
of each class of Notes from the net proceeds
thereof at % of the principal amount in the
case of the Dollar Notes and % of the
principal amount in the case of the DM Notes, plus
accrued and unpaid interest, if any, to the date of
redemption. See "Description of the
Notes -- Optional Redemption."
Redemption for Changes in
Bermuda Withholding
Taxes.................... Each class of Notes will be redeemable at the
option of CME, as a whole but not in part, at any
time at 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of
redemption if, as a result of certain changes
affecting Bermuda withholding taxes, CME becomes
obligated to pay additional amounts in accordance
with the Indentures (as defined herein) pursuant to
which the Notes are issued. See "Description of the
Notes -- Optional Redemption."
Mandatory Repurchase
Offers..................... Upon a Change of Control, each holder of Notes will
have the right to require CME to repurchase such
holder's Notes at a price of 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. There can be no
assurance that CME will have available the
financial resources necessary to repurchase any or
all Notes tendered upon a Change of Control. In
addition, CME will be required to offer to purchase
Notes with certain proceeds of Asset Sales at a
price of 101% of the principal amount thereof, plus
accrued and unpaid
9
<PAGE> 11
interest, if any, to the date of repurchase. See
"Description of the Notes -- Change of Control."
Additional Amounts......... All payments with respect to the Notes made by CME
will be made without withholding or deduction for
Bermuda taxes unless required by law or the
interpretation or administration thereof, in which
case CME will pay such additional amounts as may be
necessary so that the amount received by the
holders of the Notes and beneficial interest
therein after such withholding or deduction will
not be less than the amount that would have been
received in the absence of such withholding or
deduction. See "Description of the
Notes -- Additional Amounts" and "Certain Tax
Considerations."
Certain Covenants.......... The Indentures (as defined herein) will contain
certain covenants which, among other things, will
restrict the ability of CME and its Restricted
Subsidiaries (as defined herein) to: (i) incur
additional indebtedness; (ii) pay dividends or make
distributions in respect of CME's capital stock;
(iii) make certain investments and other restricted
payments; (iv) enter into certain transactions with
Affiliates (as defined herein); (v) create liens;
(vi) sell assets; and (vii) create restrictions on
the ability of its Restricted Subsidiaries to make
certain payments to CME. In addition, the
Indentures will limit the ability of CME to
consolidate, merge or sell all or substantially all
of its assets. The covenants contained in the
Indentures are subject to a number of important
exceptions, limitations and qualifications. See
"Description of the Notes -- Certain Covenants."
Form of Notes.............. DM Notes sold outside of the United States will be
represented by the global bearer Note deposited
with DKV. Beneficial interests in the global bearer
Note will be represented through accounts of
financial institutions acting on behalf of
beneficial owners as direct and indirect
participants in DKV, including Euroclear and Cedel,
each of which has an account with DKV. All Dollar
Notes, and DM Notes sold to U.S. investors (and
others requesting registered Notes), will be
represented by Global Registered Notes deposited
with a custodian for, and registered in the name
of, DTC or its nominee. Transfers of interests in
the Global Notes will be limited to transfers of
book-entry interests. See "Description of the
Notes -- Book Entry; Delivery and Form."
Stock Exchange Listing..... Application has been made to list the Notes on the
Luxembourg Stock Exchange.
RISK FACTORS
See "Risk Factors" immediately following this Summary for a discussion of
certain factors that should be considered by prospective investors in the Notes.
Such risks relate to (a) history of losses, (b) holding company structure,
limitations on access to cash flow and possible inability to service debt, (c)
lack of available current earnings from Subsidiaries other than Nova TV, (d)
dependence on additional capital, (e) investment structure, (f) dependence on
local strategic partners, (g) changes in technology, (h) dependence on key
personnel, (i) competitive industry, (j) risks of television broadcast
operations, (k) expansion into early stage markets, (l) risks inherent in
foreign investment, (m) devaluation and currency risk, (n) structural
subordination, substantial leverage, deficiency of earnings to fixed charges and
ability to service debt, (o) limitations on repurchase of the Notes, (p)
refinancing risk, (q) absence of public market for the Notes, (r) government
regulatory restrictions, (s) uncertainty of license renewals, and (t)
enforcement of civil liabilities and judgments.
10
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The financial information presented below for the three years ended
December 31, 1996 is derived from the audited Consolidated Financial Statements
of the Company. The financial information presented below for the six months
ended June 30, 1996 and 1997 is derived from unaudited financial statements of
the Company. In the opinion of the Company, such information reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data on a basis consistent with that of the audited
data presented herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year. The
following 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 and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ -------------------------------
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- ------------ ------- -------- ------------
ACTUAL ACTUAL ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(1)
-------- -------- -------- ------------ ------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATION OPERATING DATA:
Net revenues............................... $ 53,566 $ 98,919 $135,985 $135,985 $61,805 $ 70,634 $ 70,634
Operating income (loss).................... 957 22,308 9,996 9,996 5,096 424 424
Equity in loss of unconsolidated
affiliates............................... (13,677) (14,816) (17,867) (17,867) (5,936) (10,103) (10,103)
Loss on impairment of investments in
unconsolidated affiliates(2)............. 0 0 0 0 0 (20,707) (20,707)
Net loss................................... (20,505) (18,736) (30,003) (43,953) (12,380) (41,820) (48,795)
Fixed charges (interest on debt)........... (1,992) (4,959) (4,670) (18,620) (1,532) (3,287) (10,262)
Interest income............................ 179 1,238 2,876 2,876 1,079 2,616 2,616
-------- -------- -------- ------------ ------- -------- ------------
Net fixed charges.......................... (1,813) (3,721) (1,794) (15,744) (453) (671) (7,646)
======== ======== ======== ============= ======= ======== =============
OTHER DATA:
Broadcast cash flow(3)
CNTS..................................... $ 12,233 $ 44,789 $ 53,128 $ 53,128 $24,341 $ 23,258 $ 23,358
PRO TV................................... 0 (2,483) (5,290) (5,290) (5,519) (1,918) (1,918)
POP TV................................... 0 (4,124) (6,394) (6,394) (3,528) (444) (444)
-------- -------- -------- ------------ ------- -------- ------------
Subtotal broadcast cash flow........... 12,233 38,182 41,444 41,444 15,294 20,896 20,896
Markiza TV(4)............................ 0 0 (4,502) (4,502) 0 547 547
Studio 1 + 1 Group (5)................... 0 0 0 0 0 (1,722) (1,722)
-------- -------- -------- ------------ ------- -------- ------------
Adjusted broadcast cash flow(6)............ 12,233 38,182 36,942 36,942 15,294 19,721 19,721
Corporate operating costs and development
expenses................................. (3,699) (10,669) (15,782) (15,782) (6,760) (9,441) (9,441)
-------- -------- -------- ------------ ------- -------- ------------
Corporate broadcast cash flow(7)........... $ 8,534 $ 27,513 $ 21,160 $ 21,160 $ 8,534 $ 10,280 $ 10,280
======== ======== ======== ============= ======= ======== =============
Cash flow from operations.................. $ (1,532) $ 1,943 $ (6,619) $(20,569) $ 4,068 $(12,715) $(18,340)
Ratio of earnings to fixed charges(8)...... n/a 4.8x 2.1x n/a 3.0x n/a n/a
Ratio of corporate broadcast cash flow to
fixed charges............................ 4.3x 5.5x 4.5x 1.1x 5.6x 3.1x 1.0x
Ratio of corporate broadcast cash flow to
net fixed charges........................ 4.7x 7.4x 11.8x 1.3x 18.8x 15.3x 1.3x
Ratio of total debt to corporate broadcast
cash flow................................ 3.8x 0.7x 2.6x 9.9x -- -- --
Number of television broadcast operations
at the end of period..................... 3 5 10 10 7 9 9
</TABLE>
(footnotes on following page)
11
<PAGE> 13
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, --------------------------------------------
------------------------------ AS
1994 1995 1996 ACTUAL PRO FORMA(9) ADJUSTED(10)
-------- -------- -------- -------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........... $ 71,447 $116,728 $146,159 $ 88,039 $108,039 $239,314
Total assets............. 115,332 222,027 365,130 303,519 323,519 458,519
Total debt............... 32,592 20,285 55,096 46,280 66,280 201,280
Shareholders' equity..... 62,631 138,936 249,320 200,559 200,559 200,559
</TABLE>
- ---------------
(1) Pro forma to reflect the issuance and sale of the Notes by the Company and
the application of the estimated net proceeds therefrom as if such
transactions had occurred on January 1, 1996. See "Use of Proceeds" and
"Capitalization."
(2) On May 13, 1997, the Company announced its decision to discontinue funding
of PULS, a regional television station in the Berlin-Brandenburg area of
Germany which declared bankruptcy on May 27, 1997. The Company wrote down
its investments in Germany by $20,707,000 in the first quarter of 1997 and
eliminated the carrying value of such investments.
(3) "Broadcast cash flow" is commonly used as a measure of performance for
broadcast companies and, 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."
(4) Markiza TV commenced operations on August 31, 1996.
(5) Studio 1+1 Group commenced operations in January 1997 and did not generate
significant revenues until the second quarter of 1997.
(6) "Adjusted broadcast cash flow" is consolidated broadcast cash flow plus
broadcast cash flow of Markiza TV. Although the Company has an 80% economic
interest in Markiza TV, it does not consolidate Markiza TV because it only
has a 49% equity interest in Markiza TV. The Company accounts for Markiza TV
using the equity method.
(7) "Corporate broadcast cash flow" is defined as adjusted broadcast cash flow
less corporate operating costs and development expenses.
(8) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes, plus fixed charges, losses
attributable to unconsolidated 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 $1,101,000 in 1994, and
$4,833,000 in the six months ended June 30, 1997. Pro forma deficiency of
earnings available to cover fixed charges was $8,609,000 in 1996 and
$11,808,000 in the six months ended June 30, 1997. See "Risk
Factors -- Structural Subordination; Substantial Leverage; Deficiency of
Earnings to Fixed Charges; Ability to Service Debt."
(9) Pro forma to reflect the incurrence by the Company in the third quarter of
1997 of short-term bank debt of $20 million under the ING Bridge Facility as
if such transaction had occurred on June 30, 1997.
(10) 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 as
if such transaction had occurred on June 30, 1997. See "Use of Proceeds"
and "Capitalization."
12
<PAGE> 14
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.
FACTORS RELATING TO THE COMPANY
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 November 1996, in Poland in September
1996, 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 six months ended June 30,
1997, the Company incurred net losses of $41.8 million (including a provision
for impairment of $20.7 million related to the Company's write-down of its
investments in Germany), and 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 June 30, 1997, the Company had an accumulated
deficit of $119.8 million. See "The Company" and "Capitalization."
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, 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 certain of 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. All
but one of the Subsidiaries were formed under the laws of, and have their
operations in, a country other than Bermuda, the jurisdiction of CME's
organization. In addition, each of CME's operating Subsidiaries receives
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 is 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 CNTS.
Currently, CNTS is the only Subsidiary with sufficient earnings to make
distributions to CME. There is no assurance that CNTS 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."
Dependence on Additional Capital. The ownership, development and operation
of start-up television broadcast operations require substantial capital
investment. The net proceeds of the Offering together with the Company's current
cash balances, the Proposed ING Credit Facility, distributions from CNTS and
local
13
<PAGE> 15
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. 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
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."
Risks Related to Investment Structure. 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 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."
Dependence on Local Strategic Partners. The Company's strategy is to form
joint ventures with local strategic partners in each country or region where it
seeks to establish broadcast operations. The Company seeks joint ventures with
local strategic partners who are known to local licensing authorities, are well
respected in their local media and business communities and who support
independent non-partisan news reporting. There can be no assurance, however,
that certain of the Company's local strategic partners will not desire to sell
their equity interests to the Company or to third parties. While the Company's
agreements with its partners generally contain rights of first refusal that
permit one partner to purchase the equity interests of the other at the price at
which such interests could be sold to third parties, there can be no assurance
that the Company will be able to find suitable replacements for local strategic
partners who might wish to exit from their investments, or that any inability to
find and maintain local strategic partners will not have a material adverse
affect on the Company.
Changes in Technology. The television industry is subject to rapid and
significant changes in technology. In particular, the development of systems
other than analog television terrestrial broadcasting, such as digital
terrestrial broadcasting and cable and satellite distribution systems, could
adversely affect the Company's business. Although the Company believes that
several factors still hinder the development of these technologies in the short
term, there can be no assurance as to the effect of such technological changes
on the Company or that the Company will not be required to expend substantial
financial resources in the development or implementation of new competitive
technologies in the future. 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 operational in the fourth quarter of 1997
as scheduled, (ii) that the satellite or the Satellite Transponder will not
function as expected and (iii) that the 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.
14
<PAGE> 16
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, nonexecutive 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 needs of the Company. Mr. Lauder's
involvement has been greatest in connection with the acquisition of broadcast
rights, in locating local strategic partners, in setting executive compensation
policies, and in corporate governance. 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 continue 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 qualified
personnel it requires to grow. See "Management."
FACTORS RELATING TO THE COMPANY'S OPERATING ENVIRONMENT
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: TVN/TV Wisla -- Competition," and
"Business -- Operations in Germany: the German Stations."
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 Company expects its cost of programming to 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 aggressively pursue 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 to 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.
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
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<PAGE> 17
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, criminal activity 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," and "Business -- Operations in Poland: TVN/TV Wisla."
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.
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 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 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."
A large majority of the revenues and expenses of the Company will be
denominated in currencies other than dollars or Deutsche Marks, the currencies
in which interest on and the principal at maturity of the Notes must be paid.
Significant increases in the value of the dollar or Deutsche Mark relative to
other currencies in which the Company conducts its operations could have an
adverse effect on its ability to meet interest and principal obligations on the
Notes. Because the indebtedness of the Company is denominated in several
European currencies, increases in the values of such currencies relative to
other currencies in which the Company conducts its operations could have an
adverse effect on the Company's ability to meet principal and interest
obligations.
Stage III of the European Economic and Monetary Union ("Stage III") is
presently anticipated to commence on Janauary 1, 1999 for those member states of
the European Union that satisfy the convergence criteria set forth in the Treaty
on European Union. Part of Stage III is the introduction of a single currency
(the "Euro") which will be legal tender in such member states. It is anticipated
that such member states will adopt legislation providing specific rules for the
introduction of the Euro. Investors in the DM Notes should recognize that if the
Euro is adopted by Germany, it will replace the Deutsche Mark as legal tender in
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<PAGE> 18
Germany, and result in the effective redenomination of the DM Notes in Euro. See
"Description of the Notes -- Substitution of Currency."
FACTORS RELATING TO THE OFFERING
Structural Subordination; Substantial Leverage; Deficiency of Earnings to
Fixed Charges; Ability to Service Debt. The Notes will be effectively
subordinated to all indebtedness of the Subsidiaries. See "Description of the
Notes -- Ranking." As of June 30, 1997, on a pro forma basis, after giving
effect to the Offering and the application of proceeds therefrom, CME and its
consolidated Subsidiaries would have had approximately $201,280,000 of total
debt, $46,280,000 of which is debt of the consolidated Subsidiaries, and CME's
consolidated Subsidiaries would have had approximately $52,364,000 of other
liabilities (including trade payables but excluding intercompany liabilities) to
which the Notes will also be effectively subordinated. Assuming CME issued and
sold the Notes as of January 1, 1995, and assuming an interest rate of 9%, the
Company would have had a ratio of earnings to fixed charges of 1.3x for the year
ended December 31, 1995 and a pro forma deficiency of earnings available to
cover fixed charges of $8,609,000 for the year ended December 31, 1996. The
Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by CME and its Subsidiaries. See "Description of the Notes." The
Company is currently negotiating a $35 million credit facility, which would be
incurred by a subsidiary of CME. See "Capitalization." 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 make debt
service payments, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures and other general corporate purposes.
Limitations on Repurchase of the Notes. Upon a Change of Control, 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 of Notes Upon a Change of Control." If a Change of Control
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.
Refinancing Risk. The Company may not be able to repay the Notes with cash
from operations. Accordingly, the Company may need to seek capital from outside
sources in order to repay principal on the Notes. The Company's ability to do so
will depend on its financial condition at the time, market conditions and other
factors, including factors beyond the Company's control. If the Company is
unable to effect such refinancings or obtain additional funds, the value of the
Notes would be adversely affected and CME may be unable to repay the principal
of the Notes.
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 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. The
Company to list the Notes on the Luxembourg Stock Exchange and the Company has
been advised by the Underwriters that they presently intend to make a market in
the Notes, as permitted by applicable laws and regulations. The Underwriters are
not obligated, however, to make a market in the Notes and any such market-making
may be discontinued at any time without notice, at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Notes.
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<PAGE> 19
LEGAL AND REGULATORY FACTORS
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 and the content and quantity of advertising which may be broadcast.
While CME believes that it and the 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: TVN/TV Wisla -- Regulation," and "Business --
Operations in Germany: the German Stations -- Regulation."
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 POP TV's
affiliate stations in Slovenia expire in 2003, with respect to licenses reaching
53% of the population, and in 2006 and 2007 with respect to the remaining
licenses; (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 TVN Network licenses, other than the TV Wisla license, expire in
2007; (viii) the license to operate the Nuremberg Station expires in 2001; (ix)
the licenses to operate the Leipzig Station and the Dresden Station expire in
2003; and (x) the license to operate Radio Alfa, a private Czech Republic
national radio broadcaster, expires in 1999. All of the licenses pursuant to
which the Company's or its local partners' television stations operate are by
their terms, and according to relevant national media laws, renewable. The
Company has no reason to believe that these licenses will not be renewed.
However, in most cases, no statutory or regulatory presumption exists for the
current license holder, no precedent has yet been established in Central and
Eastern Europe for the renewal of broadcast licenses, 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.
Enforcement of Civil Liabilities and Judgments. CME is a Bermuda company,
and substantially all of the Company's 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
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<PAGE> 20
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.
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THE COMPANY
Central European Media Enterprises Ltd. was incorporated in June 1994 under
the laws of Bermuda. The following chart sets forth the functional corporate
structure of the Company:*
[CHART REFLECTING THE ORGANIZATIONAL STRUCTURE OF THE COMPANY]
- ---------------
* All interests indicated are economic interests; equity and/or voting
interests may vary.
(1) The Company recently purchased NC, which owns an additional 5.8% interest in
CNTS.
(2) 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%. The Company has been informed that one of the partners
intends to exercise its option.
(3) The Company owns 78% of the equity in Pro Plus, but has an effective 85.3%
economic interest, as a result of its rights to 33% of the profits of MMTV
and 33% of the profits of Tele 59.
(4) The Company has an 80% economic interest and a 49% voting interest in STS.
(5) The Company has outstanding loans to Radio Alfa which are convertible into
an additional equity interest which, when combined with its current 62%
interest, would give the Company an 83.7% interest in Radio Alfa.
(6) The Company has a 85% economic interest in IRISZ TV.
(7) The Company also owns a 10% equity interest in ITI Media Group, N.V., the
company through which ITI, a Polish media group, has made its investment in
Federation, which will be the operator of the TVN Network.
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The Company's ownership interest in Ceska Nezavisla Televizni Spolecnost
s.r.o. ("CNTS"), which operates Nova TV, the Company's national television
station in the Czech Republic, 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. The
Company is entitled to 93.2% of the total profits of CNTS and has 91.2% of the
voting power in CNTS. CET 21 owns 1.0% of CNTS. On August 11, 1997, the Company
purchased NC from certain of the partners of CET 21, including Vladimir Zelezny,
for a purchase price of $28,537,000 to be paid on an installment basis through
February 15, 2000, subject to adjustment as described below. NC owns an
additional 5.8% interest in CNTS. A portion of the payments are indexed based
upon the performance of the Company's Class A Common Stock. The Company intends
to seek to sell a minority interest in CNTS to one or more strategic Czech
investors or in a public offering in the Czech Republic. CET 21 has granted to
CNTS the exclusive access to the use of the broadcast license. The Company has
the right to appoint five of the seven members of CNTS's Committee of
Representatives, which directs the affairs of CNTS. With respect to certain
fundamental corporate decisions, including the declaration of dividends, a 67%
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. (together with
Netherlands limited liability companies wholly owned by CME Media Enterprises
B.V., "CME BV"), Adrian Sarbu and Ion Tiriac, forming Media Pro International
S.A. ("MPI"). Pursuant to the Romanian Agreement, the Company owns 77.5% of the
equity of MPI. Interests in profits of MPI are equal to the partners' equity
interests. The Company's partners in MPI hold options to purchase equity from
the Company which if exercised could reduce the Company's equity interest to not
less than 66%. The Company has been informed that one of the partners intends to
exercise its option. The Company has the right to appoint three of the five
members of the Council of Administration which directs the affairs of MPI.
Although the Company has majority voting power in MPI, with respect to certain
fundamental financial and corporate matters the affirmative vote of either Mr.
Sarbu or Mr. Tiriac is required. The Company owns 49% of the equity of PRO TV,
SRL, an affiliate station of MPI which holds many of the licenses for the
stations which comprise the PRO TV network. Messrs. Sarbu and Tiriac own
substantially all of the remainder of PRO TV, SRL. The Company also owns a 95%
equity interest in Unimedia SRL ("Unimedia"), which owns a 10% equity interest
in a consortium, MobilRom ("MobilRom"). MobilRom holds a license to operate a
GSM cellular telephone network in Romania. Mr. Sarbu owns the remaining 5% of
Unimedia.
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 million
(the "Additional Pro Plus Purchase"). After giving effect to the Additional Pro
Plus Purchase, the Company currently owns 78% of the equity in Pro Plus, but has
an effective economic interest of 85.3% as a result of its right to 33% of the
profits of MMTV and 33% of the profits of Tele 59. Tele 59 currently owns a 21%
equity interest in Pro Plus, and MMTV currently owns a 1% equity interest in Pro
Plus. The Company owns 10% of the equity of Tele 59. 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% affirmative vote. Certain fundamental financial and
corporate matters require an 85% affirmative vote of the partners. 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, 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
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to fund all of the capital requirements of, and holds a 49% voting interest and
an 80% 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% of the profits of STS, except that until
the Company is repaid its capital contributions plus a priority return at the
rate of 6% per annum on such capital contributions, 90% of the profits will be
paid to the Company. 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% of its members. In addition,
certain fundamental corporate matters are reserved for decision by a general
meeting of partners and require a 67% 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% equity interest in each of Innova Film GmbH ("Innova")
and International Media Services ("IMS"). In addition, this wholly owned
subsidiary owns an indirect 25% equity interest in Prioritet, a Ukrainian
company ("Prioritet"). Innova holds 100% of Intermedia, a Ukrainian company
("Intermedia"), which in turn holds a 30% equity interest in a separate
Ukrainian company which holds the license to broadcast programming and sell
advertising on UT-2 (the "UT-2 License"). This Ukrainian company has, in turn,
assigned its right to sell advertising on UT-2 to Innova. In addition, Innova,
IMS, Intermedia 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 company which holds the UT-2 broadcast
license, which require a 75% vote). Certain fundamental corporate matters of
these entities require unanimous shareholder approval.
The TVN Network is expected to be launched in Poland in the fourth quarter
of 1997 and will operate through Federacja Sp.zo.o. ("Federation") pursuant to
the terms of a shareholder's agreement entered into by the shareholders of
Federation. The Company and ITI each own 50% of Federation. In addition, the
Company owns an additional 5% indirect interest in Federation through its 10%
equity interest in ITI Media Group N.V., the company through which ITI holds its
50% interest in Federation. Approval of at least 51% of the shareholders of
Federation is required for certain fundamental corporate matters, including the
payment of dividends by Federation. The day-to-day affairs of Federation will be
directed by a Management Board which is overseen by a Supervisory Board. The
Company and ITI have an equal number of representatives on the Supervisory
Board. The Company has three representatives and ITI has two representatives on
the Management Board. The Company, together with ITI, is also a partner in TVN
Sp.zo.o. ("TVN") in Poland which (i) holds the licenses pursuant to which the
TVN Network stations will broadcast and (ii) owns 76.3% of TV Wisla. ITI holds
67% of the equity in TVN and the Company holds the remaining 33%. 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 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.
The Company owns 24.9% of the equity of 2002 Tanacsado es Szolgaltato
Korlatolt Felelosegu Tarsasag ("2002 Kft"), a broadcasting company in Hungary.
Through CME BV, the Company wholly owns Videovox Studio Limited Liability
Company, a Hungarian dubbing and production company ("Videovox"). In January
1997, the Hungarian Television Commission announced tender procedures for the
award of two national television broadcast licenses. The Company formed a
consortium, MKTV Rt. ("IRISZ TV"), which submitted an application for these
licenses. The consortium presently includes 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. Two other consortia
submitted bids by the April 10, 1997 deadline.
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On June 30, 1997, the Hungarian Television Commission announced the award of the
licenses to the other consortia. On July 4, 1997, IRISZ TV filed a complaint in
the Budapest Capital Court against the Hungarian Television Commission and the
other consortia challenging the license awards. See "Business -- Litigation."
The Company's 37.4% equity interest in the Nuremberg Station was obtained
by acquiring a 50% 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% equity interest and 100%
voting interest in FFF), and FFF. A 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% of
FFF's profits and losses and 50% of the proceeds upon liquidation of its assets.
The Company has a 49% equity and voting interest in Sachsen Funk &
Fernsehen ("SFF") and the Company is entitled to distributions of 50% 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.
CME Development Corporation, a wholly owned Subsidiary of the Company,
provides financial, legal, marketing, business development and administrative
support services to the Company. CME Programming Services, Inc., a wholly owned
Subsidiary of the Company, provides programming and production services to the
Company's television broadcast operations in Central and Eastern Europe, and
will also provide satellite transmission services to the Company's television
stations in Central and Eastern Europe. See "Business -- Corporate Operations."
The Company's registered offices are located at Clarendon House, Church
Street, Hamilton HM CX Bermuda, and its telephone number is 441-296-1431.
Certain of the Subsidiaries maintain offices at 18 D'Arblay Street, London W1V
3FP England, telephone number 44-171-292-7900.
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USE OF PROCEEDS
The estimated net proceeds for the Offering are expected to be
approximately $150 million after deducting underwriting discounts and
commissions and estimated offering expenses (and based on a Dollar-Deutsche Mark
exchange rate of $1.00 = DM1.8350, the Noon Buying Rate on August 13, 1997). The
Company intends to use the net proceeds to (i) fund potential development of new
television broadcast operations in Hungary, the Balkan and Baltic regions and
certain countries in the Commonwealth of Independent States and fund expansion
of existing operations, including the further development of operations in
Romania, Ukraine and Poland, the development of second channels in certain
countries where the Company currently has broadcast operations, and the
development of radio, programming and production operations, including
investments in satellite delivery systems (approximately $130 million); and (ii)
repay a bridge credit facility with ING Bank N.V. (the "ING Bridge Facility")
(approximately $20 million). Because a number of variable factors will determine
the use of proceeds from the Offering, the Company will retain a significant
amount of discretion over the application of the net proceeds from the Offering.
Pending their application, the net proceeds from the Offering will be invested
in short-term interest bearing instruments.
The ING Bridge Facility bears interest at a rate equal to LIBOR plus 1.6%
per annum and matures on the earlier of October 31, 1997 and the consummation of
the Offering. Funds borrowed under the ING Bridge Facility were used primarily
to develop broadcast operations in Hungary and to fund existing operations. In
conjunction with the ING Bridge Facility, the Company has agreed to a term sheet
with ING Bank N.V. ("ING") for a $35 million secured revolving credit facility
with ING (the "Proposed ING Credit Facility"), with a term of up to three and
one-half years which will be available to fund working capital requirements, as
well as operating and capital expenditures. Such facility is expected to be
incurred by a Subsidiary. The availability of such facility is subject to
definitive documentation and satisfaction of various conditions.
In the event that the Company is successful in developing additional
broadcast or other media operations, additional debt or equity may be required
to fully finance these operations. The Company expects to finance any such
additional operations with funds from various possible sources, including the
Proposed ING Credit Facility, local bank credit lines, partner equity
contributions, local public debt and equity offerings by Subsidiaries, sales of
equity in the Subsidiaries to strategic partners, as well as possible equity
offerings at the CME level. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
24
<PAGE> 26
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company
at June 30, 1997, pro forma for the incurrence of the ING Bridge Facility and as
adjusted to reflect the Offering and the application of the estimated proceeds
therefrom (and based on a dollar-Deutsche Mark exchange rate of $1.00 =
DM1.8350, the Noon Buying Rate on August 13, 1997). This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto, and
other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO
ACTUAL FORMA(1) AS ADJUSTED(2)(3)
--------- --------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Short-term debt:
ING Bridge Facility................................. $ -- $ 20,000 $ --
Bank credit facilities.............................. 8,111 8,111 8,111
Capital lease obligations........................... 67 67 67
Investments payable................................. 7,730 7,730 7,730
--------- --------- -----------------
Total short-term debt....................... $ 15,908 $ 35,908 $ 15,908
========= ========= =============
Long-term debt:
Bank credit facilities.............................. $ 30,333 $ 30,333 $ 30,333
Capital lease obligations........................... 39 39 39
Investment payable.................................. -- -- --
% Senior Notes due 2004.......................... -- -- 100,000
% Senior Notes due 2004(4)....................... 54,496
--------- --------- -----------------
Total long-term debt........................ 30,372 30,372 184,868
--------- --------- -----------------
Shareholders' equity:
Preferred Stock, $.01 par value; authorized:
5,000,000 shares; issued and outstanding: none...... -- -- --
Class A Common Stock, $.01 par value; authorized:
100,000,000 shares; issued and outstanding:
16,732,178 shares................................ 167 167 167
Class B Common Stock, $.01 par value; authorized:
15,000,000 shares; issued and outstanding:
7,149,475 shares................................. 72 72 72
Additional paid-in capital.......................... 330,644 330,644 330,644
Accumulated deficit................................. (119,824) (119,824) (119,824)
Cumulative currency translation adjustment.......... (10,500) (10,500) (10,500)
--------- --------- -----------------
Total shareholders' equity..................... 200,559 200,559 200,559
--------- --------- -----------------
Total capitalization........................ $ 230,931 $ 230,931 $ 385,427
========= ========= =============
</TABLE>
- ---------------
(1) Pro forma to reflect the incurrence by the Company of short-term bank debt
of $20.0 million under the ING Bridge Facility as if such transaction had
occurred on June 30, 1997.
(2) As adjusted to reflect the issuance and sale of the Notes by the Company in
the Offering and the application of the estimated proceeds therefrom. See
"Use of Proceeds."
(3) In connection with the ING Bridge Facility, the Company has agreed to a term
sheet with ING Bank N.V. for a $35 million secured revolving credit facility
not reflected herein with a term of up to three and one-half years which
will be available to fund working capital requirements, as well as operating
and capital expenditures. Such facility is expected to be incurred by a
Subsidiary. The availability of such facility is subject to definitive
documentation and satisfaction of various conditions.
(4) Translated at the exchange rate of $1.00 = DM1.8350, the Noon Buying Rate on
August 13, 1997.
25
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL 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 selected information for the six months ended June 30, 1996
and 1997 is derived from unaudited financial statements of the Company. In the
opinion of the Company, such information reflects all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
data on a basis consistent with that of the audited data presented herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full year. 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
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
----- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues..................................... $ -- $ -- $ 53,566 $ 98,919 $135,985 $ 61,805 $ 70,634
----- ------- -------- -------- -------- -------- --------
Total station operating costs and expenses....... -- 1,802 36,083 52,542 85,101 40,801 45,340
Selling, general and administrative
expenses....................................... 20 811 6,009 7,725 21,357 8,735 10,834
Corporate operating and development
expenses....................................... 171 2,708 3,699 10,669 15,782 6,760 9,441
Amortization of goodwill and allowance for
development costs.............................. -- -- 985 3,442 2,940 413 4,595
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 56,709 70,210
----- ------- -------- -------- -------- -------- --------
Operating (loss) income.......................... (191) (5,321) 957 22,308 9,996 5,096 424
Equity in loss of unconsolidated affiliates...... (141) (3,671) (13,677) (14,816) (17,867) (5,936) (10,103)
Loss on impairment of investments in
unconsolidated affiliates(1)................... -- -- -- -- -- -- (20,707)
Interest and other income........................ -- 64 179 1,238 2,876 1,079 2,616
Interest expense................................. -- (140) (1,992) (4,959) (4,670) (1,532) (3,287)
Foreign currency exchange (losses) gains......... -- (176) (245) 324 (2,861) (1,630) (4,586)
----- ------- -------- -------- -------- -------- --------
(Loss) income before provision for income
taxes.......................................... (332) (9,244) (14,778) 4,095 (12,526) (2,923) (35,643)
Provision for income taxes....................... -- -- (3,331) (16,340) (16,405) (8,313) (6,833)
----- ------- -------- -------- -------- -------- --------
Loss before minority interest in
consolidated subsidiaries...................... (332) (9,244) (18,109) (12,245) (28,931) (11,236) (42,476)
Minority interest in loss (income) of
consolidated subsidiaries...................... 7 884 (2,396) (6,491) (1,072) (1,144) 656
----- ------- -------- -------- -------- -------- --------
Net loss......................................... $(325) $(8,360) $(20,505) $(18,736) $(30,003) $(12,380) $(41,820)
===== ======= ======== ======== ======== ======== ========
Ratio (deficiency) of earnings to fixed
charges(2)..................................... -- (5,573) (1,101) 4.8x 2.1x 3.0x (4,833)
OTHER DATA:
Broadcast cash flow(3)........................... $ -- $ -- $ 12,233 $ 38,182 $ 41,444 $ 15,294 $ 20,896
Cash flow from operations........................ (14) (3,826) (1,532) 1,943 (6,619) 4,068 (12,715)
Number of television broadcast operations
at the end of period........................... -- 1 3 5 10 7 9
BALANCE SHEET DATA:
Current assets................................... $ -- $ 4,773 $ 71,447 $116,728 $146,159 $ 84,379 $ 88,039
Total assets..................................... -- 17,824 115,332 222,027 365,130 213,445 303,519
Total debt....................................... -- 5,142 32,592 20,285 55,096 16,602 46,280
Shareholders' equity............................. -- 3,464 62,631 138,936 249,320 125,751 200,559
</TABLE>
- ---------------
(1) On May 13, 1997, the Company announced its decision to discontinue funding
of PULS, a regional television station in the Berlin-Brandenburg area of
Germany which declared bankruptcy in May 1997. The Company wrote down its
investments in Germany by $20,707,000 in the first quarter of 1997 and
eliminated the carrying value of such investments.
(2) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes plus fixed charges, losses
attributable to unconsolidated affiliates with debt not guaranteed by the
Company, and minority interest in earnings (losses) of consolidated
Subsidiaries. Fixed charges consist of interest on debt.
(3) "Broadcast cash flow" is commonly used as a measure of performance for
broadcast companies and, 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> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is the leading commercial television company in Central and
Eastern Europe. The Company has developed and currently operates the leading
national private television stations and networks, as measured by audience share
within their respective areas of broadcast reach, in the Czech Republic, the
Slovak Republic, Slovenia and Romania. The Company also recently commenced
broadcasting in Ukraine and southern Poland and plans to launch a television
network in Poland and develop broadcasting operations in Hungary. The Company's
television studios, production facilities and editing suites at its national
television stations produced approximately 12,000 hours of original programming
in 1996 to support the Company's broadcasting operations, making it the largest
private producer of local television programming in Central and Eastern Europe.
To complement its commercial television activities, the Company also has
interests in national radio stations and is increasingly active in program
rights distribution and other media services.
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, like other television operators, experiences seasonality,
with advertising sales tending to be lowest during the third quarter of each
calendar year, which includes the summer holiday period (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. 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 broadcast licenses.
The primary internal sources of cash available for corporate operating
costs and development expenses are dividends and other distributions from
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
is also subject to the legal availability of sufficient operating funds 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 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.
Central Europe, including parts of the Czech Republic, the Slovak Republic,
Poland and Germany, has recently experienced extensive flooding. The Company is
not able to predict at this time what impact, if any, the flooding will have on
the Company's financial condition and results of operations.
27
<PAGE> 29
SELECTED COMBINED FINANCIAL INFORMATION -- BROADCAST CASH FLOW
The following tables are neither required by United States generally
accepted accounting principles ("GAAP") nor intended to replace the Consolidated
Financial Statements prepared in accordance with GAAP. The tables set forth
certain combined operating data for the six months ended June 30, 1996 and 1997
and for the years ended December 31, 1994, 1995 and 1996 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. The Company's television operations in Poland
and Ukraine are not included in this analysis, as these operations are in the
early stages of development. Regional television stations in Germany are not
included in this analysis as these operations are dissimilar from those of
national television broadcast entities. The investments in the German operations
are accounted for under the equity method and operating data for these companies
are set forth in Note 14 to the Consolidated Financial Statements.
The Company accounts for its 80% non-controlling interest in Markiza TV and
its 50% interest in the Studio 1+1 Group using the equity method of accounting.
Under this method of accounting, the Company's interest in net earnings or
losses of Markiza TV and the Studio 1+1 Group 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 and the Studio 1+1 Group on a line-by-line basis, similar to that of the
Company's consolidated entities, which include CNTS, PRO TV and POP TV.
Management service charges to the stations 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, Markiza TV began
operations in August 1996 and the Studio 1+1 Group began to generate significant
revenues during the second quarter of 1997. The Company believes that this
unaudited combined and combining operating information provides useful
disclosure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1996
1994 1995 ------------------------------------------------------------------------
-------- -------- MARKIZA TOTAL
CNTS CNTS CNTS PRO TV POP TV SUBTOTAL(1) TV ADJUSTED(2)
-------- -------- -------- -------- -------- ----------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATION OPERATING DATA:
Net revenues.............. $ 53,566 $ 98,305 $109,242 $15,803 $ 9,080 $ 134,125 $7,462 $ 141,587
Station operating
expense................. (36,083) (49,894) (54,578) (16,497) (12,764) (83,839) (9,570) (93,409)
Selling, general and
administrative
expenses................ (6,009) (5,533) (9,247) (6,351) (3,989) (19,587) (1,605) (21,192)
-------- -------- -------- -------- -------- ----------- ------- -------------
Station operating income
(loss).................. 11,474 42,878 45,417 (7,045) (7,673) 30,699 (3,713) 26,986
Depreciation of assets.... 3,773 6,904 8,024 2,678 2,516 13,218 1,473 14,691
-------- -------- -------- -------- -------- ----------- ------- -------------
EBITDA(3)................. 15,247 49,782 53,441 (4,367) (5,157) 43,917 (2,240) 41,677
Amortization of
programming rights...... 10,403 16,077 16,207 3,725 1,667 21,599 2,401 24,000
Cash program rights
costs................... (13,417) (21,070) (16,520) (4,648) (2,904) (24,072) (4,663) (28,735)
-------- -------- -------- -------- -------- ----------- ------- -------------
Broadcast cash flow....... $ 12,233 $ 44,789 $ 53,128 $(5,290) (6,394) $ 41,444 $(4,502) $ 36,942
======== ======== ======== ======== ======== =========== ======== =============
Broadcast cash flow
margin.................. 22.8% 45.6% 48.6% -- -- 30.9% -- 26.1%
Broadcast cash flow
attributable to the
Company................. $ 8,074 $ 29,561 $ 46,753(4) $(4,100) $(4,604) $ 38,049 $(3,602) $ 34,447
</TABLE>
(footnotes on following page)
28
<PAGE> 30
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
CNTS PRO TV POP TV SUBTOTAL(1) MARKIZA TV
-------------------- ----------------- ---------------- ------------------ ----------
1996 1997 1996 1997 1996 1997 1996 1997 1997
-------- ------- ------ ------- ------ ------ ------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATION OPERATING DATA:
Net revenues.............. $ 52,878 48,495 4,980 13,083 3,656 7,142 61,514 68,720 13,829
Station operating
expense................. (26,421) (24,717) (7,730) (11,114) (6,275) (7,654) (40,426) (43,485) (12,517)
Selling, General and
Administrative
expenses................ (4,356) (3,137) (2,253) (5,139) (1,765) (1,766) (8,374) (10,042) (1,755)
Station operating income
(loss).................. 22,104 20,641 (5,003) (3,170) (4,384) (2,278) 12,714 15,193 (443)
Depreciation of assets.... 3,786 3,981 1,149 1,999 1,163 1,274 6,098 7,254 2,118
------- ------- ------ ------- ------ ------ ------- ------- -------
EBITDA(3)................. 25,887 24,622 (3,854) (1,171) (3,221) (1,004) 18,812 22,447 1,675
Amortization of
programming rights...... 8,196 6,390 1,453 1,925 620 1,576 10,269 9,891 4,338
Cash program rights
costs................... (9,742) (7,754) (3,118) (2,672) (927) (1,016) (13,787) (11,442) (5,466)
------- ------- ------ ------- ------ ------ ------- ------- -------
Broadcast cash flow....... 24,341 23,258 (5,519) (1,918) (3,528) (444) 15,294 20,896 547
======= ======= ====== ======= ====== ====== ======= ======= =======
Broadcast cash flow
margin.................. 46.03% 47.96% -- -- -- -- 24.86% 30.41% 3.96%
Broadcast cash flow
attributable to the
Company................. 21,420(4) 21,676(6) (4,277) (1,486) (2,540) (379)(7) 14,603 19,811 438
<CAPTION>
STUDIO 1+1
GROUP TOTAL COMBINED(2)
---------- ------------------
1997 1996(5) 1997
---------- ------- -------
<S> <<C> <C> <C>
STATION OPERATING DATA:
Net revenues.............. 6,977 61,514 89,526
Station operating
expense................. (6,709) (40,426) (62,711)
Selling, General and
Administrative
expenses................ (1,761) (8,374) (13,558)
Station operating income
(loss).................. (1,493) 12,714 13,257
Depreciation of assets.... 282 6,098 9,654
------ ------- -------
EBITDA(3)................. (1,211) 18,812 22,911
Amortization of
programming rights...... 556 10,269 14,785
Cash program rights
costs................... (1,067) (13,787) (17,975)
------ ------- -------
Broadcast cash flow....... (1,722) 15,294 19,721
====== ======= =======
Broadcast cash flow
margin.................. -- 24.86% 22.03%
Broadcast cash flow
attributable to the
Company................. (861) 14,603 19,387
</TABLE>
- ---------------
(1) Includes consolidated television broadcast entities only.
(2) Represents combined operating data for national television broadcast
entities, including Markiza TV and the Studio 1+1 Group, on a line-by-line
basis, which are accounted for using the equity method of accounting in the
accompanying consolidated financial statements, and does not include (i)
regional television stations in Germany, because these operations are
dissimilar from those of national broadcast entities and (ii) television
operations in Poland, which are in the early stages of operations.
(3) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization of intangible assets (which do not include programming rights).
EBITDA is provided because it is a measure commonly used in the television
industry. It is presented to enhance an understanding of the Company's
operating results and is not intended to represent cash flow or results of
operations in accordance with GAAP for the periods indicated. See the
Company's Consolidated Financial Statements included in the accompanying
financial statements.
(4) Reflects the Company's purchase in August, 1996 of CS's 22% economic
interest in CNTS and virtually all of CS's voting power in CNTS (the
"Additional CNTS Purchase") as if such acquisition had been effective from
January 1, 1996.
(5) Does not include Markiza TV and the Studio 1+1 Group, which began operations
after June 30, 1996.
(6) Reflects the Company's purchase in March 1997 of an additional 5.2% economic
interest in CNTS (the "1997 CNTS Purchase") as if such acquisition had been
effective from January 1, 1997.
(7) Reflects the Company's purchase in March 1997 of an additional effective
interest in Pro Plus of 13.3% as if such acquisition had been effective from
January 1, 1997.
29
<PAGE> 31
"Broadcast cash flow," a broadcasting industry measure of performance, 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. "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 CNTS, PRO TV, POP
TV, Markiza TV and the Studio 1+1 Group as of June 30, 1997 which was 93.2%,
77.5%, 85.3%, 80.0% and 50%, respectively. 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.
EBITDA consists of earnings before interest, income taxes, depreciation and
amortization of intangible assets (which do not include programming rights).
EBITDA is provided because it is a measure commonly used in the television
industry. It is presented to enhance an understanding of the Company's operating
results and is not intended to represent cash flow or results of operations in
accordance with GAAP for the periods indicated. See the Company's Consolidated
Financial Statements included in the accompanying financial statements.
Total combined broadcast cash flow increased by $4,427,000 to $19,721,000,
or by 28.9%, for the six months ended June 30, 1997 compared to the same period
in 1996. The increase was primarily due to a positive change in broadcast cash
flow for POP TV and PRO TV of $3,084,000, and $3,601,000, respectively, for the
six months ended June 30, 1997 compared to the same period in 1996 and the
addition of positive broadcast cash flow for Markiza TV (launched in August
1996) of $547,000 for the six months ended June 30, 1997. This increase was
partially offset by a decrease in CNTS's broadcast cash flow measured in US
dollars (due primarily to devaluations in the Czech koruna) and negative
broadcast cash flow from the Studio 1+1 Group. Measured in local currency,
CNTS's broadcast cash flow increased by 4.6% for the six months ended June 30,
1997 compared to the same period in 1996. On a broadcast cash flow margin basis,
which is not impacted by currency fluctuations, CNTS's broadcast cash flow
margin was 48.0% for the second quarter of 1997 compared to 46.0% for the same
period in 1996. CNTS and Markiza TV reported positive broadcast cash flow of
$23,258,000 and $547,000, respectively, for the six months ended June 30, 1997.
Total combined EBITDA increased by $4,099,000, or 21.8%, for the six months
ended June 30, 1997 compared to the same period of 1996. The increase is
primarily attributable to a positive change in EBITDA of $2,217,000 and
$2,683,000 for POP TV and PRO TV, respectively, and of $1,675,000 for Markiza TV
for the six months ended June 30, 1997. This increase was partially offset by
decreases in EBITDA for CNTS of $1,265,000 (due primarily to currency
devaluations) and negative EBITDA for the Studio 1+1 Group of $1,211,000.
Measured in local currency, CNTS's EBITDA increased 4.1% for the six months
ended June 30, 1997 compared to the same period in 1996. CNTS and Markiza TV
reported positive EBITDA of $24,622,000 and $1,675,000, respectively, for the
six months ended June 30, 1997.
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 wholly owned subsidiaries and the results of CNTS, PRO TV, POP
TV, Videovox(wholly owned since April 1997) and Radio Alfa separately set forth
the minority interest attributable to other owners of CNTS, PRO TV, POP TV,
Videovox and Radio Alfa. The results of other broadcast operations, Markiza TV,
FFF, SFF, TVN, the Studio 1+1 Group and PULS, a regional television station in
the Berlin-Brandenburg area of Germany which declared bankruptcy in May 1997,
are accounted for using the equity method, which reflects the Company's share of
the net income or losses in those operations. The Company records other
investments at the lower of cost and market value.
30
<PAGE> 32
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"), Ukranian hryvna ("Hrn"), Polish zloty ("ZI")
and German marks ("DM"), and incur substantial operating expenses in those
currencies. The Romanian lei, Slovenian tolar, Ukrainian hryvna 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 CNTS, POP TV, Markiza TV, Videovox, Radio Alfa, 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, monetary assets are translated at
current exchange rates and 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
------------------------------------- -------------------------------
AT AT AVERAGE FOR THE SIX MONTHS
DECEMBER 31, JUNE 30, ENDED JUNE 30,
------------ -------- -------------------------------
1996 1997 % CHANGE 1996 1997 % CHANGE
------------ -------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of
$1.00........................... 27.33 32.05 -17.3% 27.46 30.05 -9.4%
German mark equivalent of $1.00... 1.55 1.74 -12.3% 1.50 1.69 -12.7%
Hungarian forint equivalent of
$1.00........................... 162.00 187 -15.4% n/a 179 n/a
Polish zloty equivalent of
$1.00........................... 2.88 3.29 -14.2% n/a 3.08 n/a
Romanian lei equivalent of
$1.00........................... 4,035 7,032 -74.3% 2,888 6,563 -127.3%
Slovak koruna equivalent of
$1.00........................... 31.90 33.38 -4.6% n/a 33.19 n/a
Slovenian tolar equivalent of
$1.00........................... 141.48 156.87 -10.9% 134.34 154.64 -15.1%
Ukrainian hryvna equivalent of
$1.00........................... 1.89 1.85 2.1% n/a 1.85 n/a
</TABLE>
The Company's results of operations and financial position during the first
half of 1997 were impacted by changes in foreign currency exchange rates since
December 31, 1996. 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, virtually all operating currencies
have weakened against the United States dollar during the six months ended June
30, 1997.
The underlying Czech koruna and Slovenian tolar assets and liabilities of
CNTS and POP TV decreased by 17.3% and 10.9%, respectively, in United States
dollar terms during the six months ended June 30, 1997, due to foreign exchange
movements. PRO TV's local currency monetary assets and liabilities decreased by
up to 74.3% during the six months ended June 30, 1997, depending on the time
they remained outstanding during the period. CNTS's operating income, interest
costs and minority interest in income, are approximately 9.4% lower than would
be the case had the weighted average exchange rate during the six months ended
June 30, 1997 remained the same as during the six months ended June 30, 1996.
The six months ended June 30, 1997 compared to the six months ended June 30,
1996
The Company's net revenues increased by $8,829,000, or 14.3%, to
$70,634,000, in the six months ended June 30, 1997 from $61,805,000 in the six
months ended June 30, 1996. This increase was attributable to the increase in
PRO TV and POP TV net revenues in the six months ended June 30, 1997 compared to
the six months ended June 30, 1996. PRO TV and POP TV achieved net revenues of
$13,083,000 and $7,142,000, respectively, for the six months ended June 30,
1997, reflecting increases of $8,103,000, or 162.7%, and
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<PAGE> 33
$3,486,000, or 95.4%, respectively, over the same period in 1996. This
significant revenue growth is primarily the result of the growth in audience
share and PRO TV's and POP TV's ability to convert their dominant audience
shares into larger shares of their respective advertising markets. Videovox and
Radio Alfa, with combined net revenues of $1,914,000, for the six months ended
June 30, 1997, also contributed to the increase in the Company's net revenues.
Videovox was acquired in May 1996 and Radio Alfa was acquired in December 1996.
CNTS's net advertising sales, measured in local currency, increased by Kc
99,564,000, or 7.5%, to Kc 1,421,406,000 in the six months ended June 30, 1997
compared to the same period in 1996. This increase was offset by a 9.4%
depreciation of the Czech koruna. As a result, CNTS's United States dollar net
revenues from advertising sales were approximately $4,600,000 lower than they
would have been if the currency had remained unchanged from exchange rates for
the same period in 1996. Other revenues (principally game show revenues)
decreased by $3,547,000. The decline in game show revenues is principally
attributable to fewer game shows due to a current lack of game show sponsors. As
a result, CNTS's net revenues decreased by $4,383,000, to $48,495,000 in the six
months ended June 30, 1997 from $52,878,000 in the six months ended June 30,
1996.
Total station operating costs and expenses increased by $4,539,000, or
11.1%, to $45,340,000 in the six months ended June 30, 1997 from $40,801,000 in
the six months ended June 30, 1996. The increase in total station operating
costs and expenses is primarily attributable to PRO TV's and POP TV's
achievement of full-scale operations, together with the inclusion of the
operating expenses of Videovox and Radio Alfa. This increase was partially
offset by a decrease in CNTS's operating costs and expenses in the six months
ended June 30, 1997 compared to the six months ended June 30, 1996.
Station selling, general and administrative expenses increased by
$2,099,000, or 24.0%, to $10,834,000 in the six months ended June 30, 1997 from
$8,735,000 in the six months ended June 30, 1996. This increase was primarily
attributable to the increase in marketing expenses at PRO TV. To a lesser
extent, the increase in station selling, general and administrative expenses was
attributable to the addition to the Company's operations of Radio Alfa in
December 1996 and Videovox in May 1996.
Corporate operating costs and development expenses for the six months ended
June 30, 1997 and the six months ended June 30, 1996 were $9,441,000 and
$6,760,000, respectively, an increase of $2,681,000. Corporate operating costs
and development expenses as a percentage of net revenues increased from 10.9% in
the six months ended June 30, 1996 to 13.4% in the six months ended June 30,
1997. The increase was primarily attributable to the Company's increased scope
of operations, the continued development of the Company's infrastructure, the
Company's new operations in Poland and Ukraine and development activities in
other countries, including Hungary.
Amortization of goodwill and allowance for development costs was $4,595,000
and $413,000 in the six months ended June 30, 1997 and 1996, respectively. This
increase was primarily attributable to amortization of goodwill related to the
Additional CNTS Purchase and the 1997 CNTS Purchase and, to a lesser extent, the
amortization of goodwill related to investments in Radio Alfa and additional
investments in POP TV.
As a result of the above factors, the Company's operating income decreased
by $4,672,000 to $424,000 in the six months ended June 30, 1997 compared to
$5,096,000, in the six months ended June 30, 1996.
Equity in loss of unconsolidated affiliates increased by $4,167,000 to
$10,103,000 in the six months ended June 30, 1997 from $5,936,000 in the six
months ended June 30, 1996. The increase reflects the addition of Markiza TV,
TVN and the Studio 1+1 Group to the Company's operations, together with
continued losses in the Company's German operations (for the three months ended
March 31, 1997 only), excluding the Company's write-down of its investments in
Germany, in the six months ended June 30, 1997.
Loss on impairment of investments in unconsolidated affiliates of
$20,707,000, was a result of the write-down of the Company's investments in
Germany. This write-down, together with losses incurred by the German operations
during the six months ended June 30, 1997, has resulted in a total charge of
$25,243,000 in the Company's Consolidated Statements of Operations in that
period.
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<PAGE> 34
Interest and other income increased by $1,537,000, to $2,616,000 for the
six months ended June 30, 1997 from $1,079,000 for the six months ended June 30,
1996. The increase in interest income was primarily attributable to the
Company's moving deposits into higher interest bearing accounts and to interest
income earned by CNTS on its cash balances during the first six months of 1997.
Interest expense increased by $1,755,000, to $3,287,000 in the six months
ended June 30, 1997 from $1,532,000 in the six months ended June 30, 1996. This
increase was primarily attributable to interest expense incurred on the Czech
koruna debt funding for the Additional CNTS Purchase and higher debt levels in
PRO TV, partially offset by lower debt levels at CNTS.
The net foreign currency exchange loss of $4,586,000 in the six months
ended June 30, 1997 is primarily attributable to the United States dollar
denominated liabilities of CNTS, PRO TV and POP TV (including intercompany
loans) and the devaluation during this period of the Czech koruna, Romanian lei
and Slovenian tolar against the dollar. Movements in these currencies during the
six months ended June 30, 1996 were significantly less than in the corresponding
period for 1997. These losses were partially offset by a gain the Company
realized on the Czech koruna debt funding for the Additional CNTS Purchase,
which is not considered as a hedge against net investments in the Czech
Republic.
Provision for income taxes was $6,833,000 for the six months ended June 30,
1997 and $8,313,000 for the six months ended June 30, 1996 as a result of
improved tax planning.
Minority interest in loss of consolidated subsidiaries was $656,000 in the
six months ended June 30, 1997 and minority interest in income of consolidated
subsidiaries was $1,144,000 in the six months ended June 30, 1996. This decrease
was primarily the result of the Additional CNTS Purchase and the 1997 CNTS
Purchase.
As a result of these factors, the net loss of the Company was $41,820,000
and $12,380,000 for the six months ended June 30, 1997 and 1996, respectively.
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 CNTS net revenues increased $10,937,000,
or 11%, to $109,242,000 in 1996 from $98,305,000 in 1995. CNTS'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 CNTS's total station operating costs and expenses of $4,684,000, or
9%, to $54,578,000 in 1996. The increase in CNTS'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, CNTS'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.
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
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<PAGE> 35
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 CNTS
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 CNTS 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 8%, 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% 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 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 CNTS,
including the early repayment of debt, during 1996 compared to 1995; partially
offset by interest expense from debt incurred to make the Additional CNTS
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 CNTS pre-tax profits which have increased
due to higher operating income at CNTS, 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 CNTS Purchase, together with losses for PRO TV and POP
TV.
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 CNTS as a result of growth in the
television advertising market in the Czech Republic and, to a lesser extent,
increased
34
<PAGE> 36
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 CNTS, 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 CNTS operations and CNTS 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 and certain start-up expenses
associated with CNTS early in 1994 not recurring in 1995, and was offset in part
by the costs of 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 would vest 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 CNTS 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 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 Nova TV building 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 CNTS pre-tax profits which were $39,050,000 in
1995 and $10,276,000 in 1994.
35
<PAGE> 37
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 CNTS, 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 CNTS offset in part 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
Net cash used in operating activities was $12,715,000 in the six months
ended June 30, 1997, compared to cash provided by operating activities of
$4,068,000 in the six months ended June 30, 1996. The increase in net cash used
for operating activities of $16,783,000 was primarily the result of the timing
of income tax payments in the Czech Republic and increased programming payments
at Markiza TV and in Poland.
Net cash used in investing activities was $32,882,000 in the six months
ended June 30, 1997 compared to $28,601,000 in the six months ended June 30,
1996. The increase was primarily attributable to an increase in investments in
unconsolidated affiliates and other investments in Poland and Hungary and in
MobilRom in Romania. This increase is partially offset by a reduction in capital
expenditures from levels during the start-up of PRO TV and POP TV in 1996. In
addition, the Company's investment in marketable securities during the six
months ended June 30, 1997 decreased compared to the same period in 1996.
Development costs decreased by $12,940,000 in the six months ended June 30, 1997
compared to the same period in 1996, as a result of the reduction of development
costs related to Markiza TV.
Net cash used in financing activities for the six months ended June 30,
1997 was $14,705,000 compared to $2,826,000 for the same period in 1996. The
increase was primarily due to payments made by CNTS in accordance with a
long-term bank facility that was repaid in full in April 1997 and loans and
advances to TVN and the Studio 1+1 Group.
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"), November 1995 and November 1996 (the "1996 Offering"), which raised
net proceeds of approximately $68,800,000, $86,600,000 and $143,600,000,
respectively. Prior to the IPO, the Company relied on Ronald S. Lauder and
entities controlled by or affiliated with him for capital in the form of both
debt and equity financing.
In May 1997, CNTS declared a total dividend of Kc 495,000,000 ($15,443,000)
of which the Company was paid Kc 150,150,000 ($4,684,000) in June 1997 and will
be paid Kc 231,000,000 ($7,207,000) in November 1997. The remaining Kc
113,850,000 ($3,552,000) is to be paid to minority shareholders.
As a result of the factors described above, the Company had cash of
$16,949,000 at June 30, 1997 ($78,507,000 at December 31, 1996) and marketable
securities of $2,880,000 at June 30, 1997 ($2,896,000 at December 31, 1996)
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 is currently
further developing broadcast operations in Ukraine and Poland. The Company's
cash needs for those investment activities may exceed cash generated from
operations, resulting in external financing requirements.
To finance developments, PULS received investment grants in an aggregate
amount of DM8,544,000 ($4,910,000) from a German public bank in 1993. These
grants were guaranteed by a wholly owned subsidiary of the Company. As a result
of the bankruptcy proceedings initiated by PULS, no assurance can be given that
the bank will not seek repayment of all or part of the investment grants from
the guarantor.
On August 11, 1997, the Company purchased NC from certain of the partners
of CET 21, including Vladimir Zelezny, the General Director of CNTS, for a
purchase price of $28,537,500 to be paid on an installment basis through
February 15, 2000, subject to adjustment as described below. NC owns a 5.8%
interest in CNTS. A portion of the payments are indexed based upon the
performance of the Company's Class A Common Stock. The Company intends to sell a
similar minority interest in CNTS to one or more strategic Czech investors or in
a public offering in the Czech Republic.
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<PAGE> 38
On August 1, 1996, the Company entered into the Additional CNTS Purchase
for the purchase of CS's 22% economic interest and virtually all of CS's voting
rights in CNTS for a purchase price of Kc 1 billion ($35,067,000). The Company
also entered into a loan agreement with CS to finance 85% of the purchase price.
The remainder of the purchase price, Kc 150,000,000 ($5,607,000), 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 in April 1997 in the amounts of Kc
450,000,000 ($16,464,000) and Kc 400,000,000 ($12,996,000), respectively, to
fund purchase payments due at those times. The loan bears an annual interest
rate of 12.9%. Quarterly repayments on the loan are required in the amount of Kc
22,500,000 ($702,000) during the period from November 1997 through November
1998, Kc 42,500,000 ($1,326,000) during the period from February 1999 through
August 2002, and Kc 20,000,000 ($624,000) during the period from November 2002
through November 2003.
The Company entered into a loan facility with ING Bank N.V. ("ING"), on
July 11, 1997 pursuant to which ING agreed to provide the Company with bank
financing of up to $25 million (the "ING Bridge Facility"). The ING Bridge
Facility bears interest at a per annum rate equal to LIBOR plus 1.6% and matures
on the earlier of October 31, 1997 and the consummation of the Offering. The ING
Bridge Facility is secured by pledges of the shares of certain of CME's
subsidiaries. The ING Bridge Facility also contains affirmative and negative
covenants, including limitations on additional borrowing, financial covenants
(such as consolidated indebtedness to consolidated net worth), and restrictions
on merger, sale or transfer of assets. As of August 11, 1997, $20,000,000 was
outstanding under the ING Bridge Facility. A portion of the proceeds from the
Offering will be used to repay the ING Bridge Facility. In connection with the
ING Bridge Facility, the Company has executed a term sheet with ING for a $35
million secured revolving credit facility anticipated to have a term of up to
three and one-half years to fund working capital requirements, as well as
operating and capital expenditures. Such facility is expected to be incurred by
a Subsidiary. The availability of such facility is subject to definitive
documentation and satisfaction of various conditions.
The Company expects CNTS's future cash requirements to continue to be
satisfied through operating cash flows and available borrowing facilities. As of
June 30, 1997, CNTS had a line of credit, obtained in October 1996, for up to Kc
250,000,000 ($7,800,000) bearing interest at a rate 0.5% over the Prague
Interbank Offer Rate ("PRIBOR"). Under this facility, which is secured by CNTS's
equipment, vehicles and receivables, CNTS had borrowings of Kc 58,006,000
($1,810,000) at June 30, 1997. CNTS also had a long-term loan bank facility that
was repaid in April 1997.
In June 1997, CEDC Praha s.r.o. ("CEDC Praha"), which owned the facility
that Nova TV uses as its main studios and its principal offices (the "Nova
Facility"), terminated the capital lease pursuant to which CEDC Praha leased the
Nova Facility to CNTS, and entered into an agreement with CNTS pursuant to which
(i) CEDC Praha assigned the Nova Facility to CNTS and (ii) CNTS assumed CEDC
Praha's obligations under a loan from CS (the "CS Loan") secured by a mortgage
on the Nova Facility. The CS Loan provides for quarterly payments of Kc
16,500,000 ($515,000), plus interest equal to CS's prime rate plus 1.5%, to be
paid through December 1999. As of June 30, 1997, the outstanding balance under
the CS Loan was Kc 159,000,000 ($4,961,000).
PRO TV has two borrowing facilities with Tiriac Bank in Romania. The first
facility consists of a $2,000,000 line of credit substantially payable by
September 30, 1997. The line of credit bears interest at a rate of 5% over
LIBOR, which was 6.00% at June 30, 1997. At June 30, 1997, $1,999,000 was
outstanding 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
and is to be repaid in monthly installments starting September 30, 1997. At June
30, 1997, $3,854,000 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 the second half of 1997.
The laws under which the Company's 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, 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 CNTS to make distributions. In the case
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<PAGE> 39
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. 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 Federation and TVN in Poland, there are no legal
reserve requirements with respect to distributions. The Company does not have
sufficient voting power in Federation or TVN to compel the making of
distributions. In general, 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, the Company's future
cash needs will depend on the Company's financial performance and its future
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
certain 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 strategic financial partners as well as local debt and lease financing, to
the extent that it is available and appropriate for each project.
The Company believes that the net proceeds from the Offering, together with
its current cash balances, cash from CNTS, the Proposed ING Credit Facility, 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 in these countries as well as the factors set forth under "Risk
Factors."
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BUSINESS
GENERAL
The Company is the leading commercial television company in Central and
Eastern Europe. The Company has developed and currently operates the leading
national private television stations and networks, as measured by audience share
within their respective areas of broadcast reach, in the Czech Republic, the
Slovak Republic, Slovenia and Romania. The Company also recently commenced
broadcasting in Ukraine and southern Poland and plans to launch a television
network in Poland and develop broadcasting operations in Hungary. The Company's
television studios, production facilities and editing suites at its national
television stations produced approximately 12,000 hours of original programming
in 1996 to support the Company's broadcasting operations, making it the largest
private producer of local television programming in Central and Eastern Europe.
To complement its commercial television activities, the Company also has
interests in national radio stations and is increasingly active in program
rights distribution and other media services.
In each market in which it operates, the Company's objective is to develop
a strong local identity for its television stations and networks by emphasizing
independent news and local reporting, introducing programming and production
techniques from the United States and Western Europe and, in particular,
establishing each of its operations as a joint venture with a recognized and
respected local partner. The Company believes that this approach gives it a
competitive advantage over public and other private television stations in the
Central and Eastern European markets and makes its stations more appealing to
local audiences and commercial advertisers.
The Company's current television stations and networks, which reach an
aggregate of approximately 90 million people in seven countries, consist of the
following:
<TABLE>
<CAPTION>
BROADCAST
STATIONS AND NETWORKS TERRITORY POPULATION(1) REACH(2) ECONOMIC INTEREST
- -------------------------------------- ---------------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
Nova TV............................... Czech Republic 10.3 10.1 93.2%(3)
PRO TV................................ Romania 22.7 13.6 77.5%(4)
POP TV................................ Slovenia 2.0 1.6 85.3%
Markiza TV............................ Slovak Republic 5.4 4.2 80.0%
Studio 1+1 Group...................... Ukraine 52.1 49.5 50.0%
TV Wisla(5)........................... Poland 38.6 7.8 25.2%
------ ---------
Central and Eastern Europe Total.... 131.1 86.8
German Local Stations:
Nuremberg Station..................... Nuremberg 1.2 1.2 37.4%
Leipzig Station....................... Saxony 0.7 0.7 16.7%
Dresden Station....................... Saxony 1.1 1.1 16.7%
------ ---------
Germany Total....................... 3.0 3.0
------ ---------
Total....................... 134.1 89.8
========== =======
</TABLE>
- ---------------
(1) Lists the population in millions.
(2) "Broadcast Reach" measures the number of people in millions reached by the
Company's stations and networks.
(3) The Company recently purchased NC, which owns an additional 5.8% interest in
CNTS.
(4) The Company's partners in MPI hold options to purchase equity from the
Company which, if exercised, could reduce the Company's equity interest to
not less than 66%. The Company has been informed that one of the partners
intends to exercise such option.
(5) The Company and ITI, its partner in TVN, expect to launch a network in
Poland, the TVN Network, in the fourth quarter of 1997. The TVN Network is
expected to have an initial broadcast reach of approximately 22.9 million
people. The Company has a 50% direct interest and a 5% indirect economic
interest through which the TVN Network will operate.
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<PAGE> 41
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 in Germany and the 1990s in Central and 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)
----------------------------------------------- ------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Czech Republic................................. 10.3 4.0
Romania........................................ 22.7 6.7
Slovenia....................................... 2.0 0.6
Slovak Republic................................ 5.4 1.8
Ukraine........................................ 52.1 17.3
Poland......................................... 38.6 12.3
Hungary........................................ 10.2 3.8
------ -----
Total................................ 141.3 46.5
========== =============
</TABLE>
- ---------------
(1) Source: Economist Intelligence Unit Limited, December 1996.
(2) Source: Zenith Media, January 1997, except for Ukraine: CIT Publications,
May 1997. A TV Household is a residential dwelling with one or more
television sets.
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<PAGE> 42
TV ADVERTISING EXPENDITURES
[CHART SHOWING ADVERTISING EXPENDITURES IN AREAS OF CENTRAL AND EASTERN EUROPE
IN WHICH THE COMPANY CONDUCTS OPERATIONS OR IS DEVELOPING BROADCAST OPERATIONS]
TV ADVERTISING EXPENDITURES CHART
Note: Romania, Slovenia and Ukraine data not available for certain years.
- ---------------
(1) Sources: DDB Needham Worldwide A.S. Praha Advertising, IP Prague and Company
estimates.
(2) Sources: Plus Advertising and Company estimates.
(3) Sources: DDB Needham Worldwide A.S. Praha Advertising, IP Bratisliava and
Company estimates.
(4) Sources: M&M Magazine, Mediana Research and Company estimates.
(5) Sources: IP Arbo and Company estimates.
(6) Sources: Company estimates.
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. Also, if any
Central or Eastern European country in which the Company operates becomes a
member of the European Union, the Company's broadcast operations in such country
would be subject to any content regulations which the European Union might
establish. The Company is aligning its broadcast operations with the anticipated
European Union regulations. The Czech Republic, Hungary, Poland and Slovenia are
being considered for admission to the European Union.
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. 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 98% and 83% of
the population, respectively, and two private commercial stations, Nova TV and
Prima TV, which reach 99% and 55% of the population, respectively. Since
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<PAGE> 43
the onset of privatization activities in 1992, the television advertising market
in the Czech Republic has expanded rapidly to approximately $165 million in
1996, according to the Company's estimates. The Czech media law, originally
adopted in 1991, and revised in 1996 and 1997, 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 60% to 70% of the Czech population watches television
at some point during prime time hours, 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 markets in Central and Eastern Europe.
Approximately 89% 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 virtually the entire Romanian population and
TVR2 reaches 50%. The two primary private competitors, Antena 1 and Tele 7ABC,
reach approximately 50% and 40% of the population, respectively. Private
broadcasters, such as PRO TV, cannot use more than 20% of their broadcast time
in any one hour for advertising, subject to an overall limit in advertising of
15% of total daily broadcast time, 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 approximately 60% of the Romanian population.
Slovenia
Slovenia is a parliamentary democracy of 2.0 million people and had an
estimated per capita GDP of approximately $8,600 in 1996, the highest among the
former Eastern bloc countries. Approximately 97% of Slovenian households have
television. According to the Company's estimates, 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 1997. 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. POP TV has a
broadcast reach of approximately 80% of the Slovenian population. 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 32%.
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 6.8% 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 50% in 1996 to $39 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.
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. Markiza TV has a broadcast reach of
approximately 79% of the Slovak population.
Ukraine
Ukraine, a parliamentary democracy of 52.1 million people, is the largest
market served by the Company. Approximately 92% of Ukrainian households have
television, and cable penetration is approximately 4%. Although television
advertising in Ukraine was only $21 million in 1996 according to the Company's
estimates, 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
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<PAGE> 44
is permitted to use up to 15% of its broadcasting time for advertising and has a
broadcast reach through UT-2 of 95% 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, as
estimated by the Company. The Company estimates that television advertising
expenditures increased by 15% in 1996 from 1995. Approximately 98% of Polish
households have television, and cable and satellite penetration are 20% and 14%,
respectively. Competition in Poland consists of two national public broadcast
channels, TVP1 and TVP2, with broadcast reaches of 98% and 97% of Poland's
population, respectively; Polsat, the largest private broadcaster, with a
broadcast reach of 84%; and 18 public and private regional channels. TV Wisla
currently has a broadcast reach of approximately 21% of the Polish population.
The stations affiliated with the TVN Network are expected to have an initial
reach after launch of approximately 60% of the population. 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 networks, 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 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.
BUSINESS STRATEGY
The Company's strategic objective is to strengthen its position as the
leading developer and operator of national commercial television stations and
networks in Central and Eastern Europe by leveraging its operating, financial
and political expertise to achieve continued growth in revenues and
profitability in all of its existing broadcast operations and to invest in,
develop and operate additional television broadcast operations and related media
businesses. The Company seeks to benefit from the expanding television
advertising markets in the region, which have realized rates of growth that are
significantly higher than those of the economies of the region as a whole in
recent years, as advertisers have increasingly relied on television to reach
mass market audiences. The Company will continue to assess opportunities to
develop new national television stations and networks in countries where it
believes it can achieve a market-leading position through early market entrance
and broadcasting expertise. The Company also seeks to strengthen its existing
operations through the development of second television channels and by
continuing to develop its local production and distribution services to serve
its own stations and networks as well as those of third parties. Key elements of
the Company's strategy include:
- BEING AN EARLY MARKET ENTRANT. The Company strives to be an early market
entrant to establish national and regional television broadcast
operations in attractive regions of Central and Eastern
43
<PAGE> 45
Europe and to capitalize on the benefits of early market entry by
expanding its existing operations into broadcasting support services and
other complementary activities. 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 in these markets,
including securing one of the limited frequencies available to
broadcasters in the countries of the region and being the first to
establish strong local production capabilities by drawing on the limited
resources available in the individual markets. The Company also believes
early entrants have the opportunity to establish significant market share
by developing viewer loyalty and station identity, as well as good
relationships with advertisers, before competitors commence significant
operations. In Central and Eastern Europe, early entrants also have the
opportunity to acquire exclusive rights to top international programming
for their respective markets.
- CREATING ALLIANCES WITH LOCAL STRATEGIC PARTNERS. A key element of the
Company's investment and operating strategy is to develop each of its
stations and networks through a strategic alliance with a strong local
partner who understands the political and business environment as well as
the local broadcasting market. The Company believes that such local
alliances ensure that each operation is responsive to local tastes and
interests and hence maximizes audience share and advertiser appeal. This
approach is also consistent with the objectives of local licensing
authorities, which the Company believes will enhance the likelihood that
the Company or its local strategic partners will be awarded and retain
broadcast licenses.
- BROADCASTING PROGRAMMING ATTRACTIVE TO A LARGE TARGET AUDIENCE. The
Company's strategy is to create and acquire programming that appeals to
the largest possible audience. In particular, the Company's programming
strategy is designed to attract the youthful and lifestyle-oriented
viewers most sought after by advertisers, which has enabled most of the
Company's stations and networks to consistently capture shares of
national television advertising revenues that exceed their respective
audience shares. To this end, the Company broadcasts a mix of locally and
internationally produced movies, series, talk shows, variety shows and
news which appeal to a mass market audience. The Company believes
broadcasting a significant amount of locally produced programming and
developing a distinctive independent news program gives a strong local
identity to its broadcast operations, increases audience share and
appeals 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, employs
lively program formats, and utilizes modern broadcast equipment to
provide high quality programming to its television audiences.
- MAXIMIZING BROADCAST REACH WITHIN LICENSED TERRITORIES. The Company seeks
to maximize its potential broadcast reach, thereby increasing the
attractiveness of its programming to advertisers. In each area where the
Company's and its affiliate stations do not reach the entire population,
the Company seeks to create the largest possible network for its
programming and to distribute it through local broadcasters, cable
systems and other distribution systems. For example, in Romania, which
does not have a well-developed "terrestrial" or "over-the-air" television
distribution system, the Company employs satellite technology to
distribute programming to affiliate stations. To serve Romania and other
markets, the Company has obtained a 12-year lease on the Satellite
Transponder, which is scheduled to be operational 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
link system in those countries.
- LEVERAGING EXPERTISE AND CRITICAL MASS. The Company currently broadcasts
to approximately 90 million people in seven countries and is developing
or exploring operations in several other countries, including Hungary,
the Balkan and the Baltic regions and in certain countries in the
Commonwealth of Independent States. The Company believes it has
accumulated significant expertise in developing and operating broadcast
networks and their support services in Central and Eastern Europe and is
beginning to benefit from synergies among the Company's various
operations. For example, the
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<PAGE> 46
Company is considering launching second television channels in certain
countries where it currently has broadcast operations to take advantage
of its large program libraries and existing operations in order to
enhance its overall audience share, and has also begun to gain greater
leverage in its purchasing, programming, news gathering and production
abilities. In order to benefit further from its strategic position, the
Company intends to develop related media businesses which serve both
affiliated and unaffiliated broadcasters, and intends to market certain
production services to producers and broadcasters in Western Europe and
the United States, where programming and production costs are generally
higher than in Central and Eastern Europe.
- EMPLOYING A DEDICATED TEAM OF EXPERIENCED PROFESSIONALS. The Company
relies on its senior management team to identify and pursue investment
opportunities as well as to lead the Company through complex licensing
processes, seek broadcast rights, and develop and operate its businesses
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, nonexecutive Chairman
and founder of the Company, has been involved actively in the region for
many years and continues to play an important role in the Company's
activities. The Company believes its management and dedicated licensing
team provide a competitive advantage in obtaining broadcast rights. 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.
- INTEGRATING LOCAL OPERATIONS. In order to maximize potential returns and
to capitalize on other opportunities, particularly in its larger more
competitive markets, the Company intends to expand beyond television
broadcasting into related services where the advantages of being an early
market entrant can also be realized and significant synergies exist. For
example, the Company has established significant local production
capabilities in each country of operation, and is continuing to review
opportunities in radio, program rights distribution and other
media-related services.
CORPORATE OPERATIONS
The Company has a central service organization which provides each
broadcast operation with a central resource, particularly in the start-up or
early development phase of any project. The service functions provided from
offices in London, Prague, Moscow and Amsterdam include the following:
Development
CME Development Corporation ("CMEDC") provides services to the Company to
assist it in managing the growth of its current operations, expanding its
operations into new strategic markets, forming potential joint ventures and
strategic alliances and executing acquisitions. CMEDC also assists the Company
in identifying attractive markets for expansion as well as local partners in
such markets, determines the vehicles through which, as well as the manner in
which, the Company will enter such markets and oversees the implementation of
these plans.
Programming Services
Through CME Programming Services, Inc. ("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. In
addition, CMEPS advises the Company's broadcast operations in connection with
locally produced programming. As the Company expands its broadcast operations in
Central and Eastern Europe, the Company intends to reduce overall program costs
by centralizing the purchase of rights to films and programming on a regional
basis, which the Company believes will provide it significant advantages with
international studios relative to national competitors. The Company also intends
to create a program exchange
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<PAGE> 47
service among the Company's broadcast operations and identify opportunities for
co-production and co-financing of programming among these broadcast operations.
Advertising Sales
The Company's advertising sales department initiates, develops and
maintains relationships between individual stations and networks and
multinational advertisers and advertising agencies. The advertising sales
department also provides the Company's stations and networks with advertising
sales training and marketing, pricing and operational expertise.
Other
The Company provides technical expertise and support relating to
broadcasting and transmission for all of its operations. The Company also
provides certain centralized financial and legal services for all of its
broadcast operations, including financial planning and analysis, cost control
and network management.
OPERATIONS IN THE CZECH REPUBLIC: NOVA TV
General
CNTS is the leading commercial television operator in the Czech Republic,
broadcasting pursuant to a 12-year license awarded in February 1993. The signal
of CNTS's Nova TV reaches 99% of the Czech Republic's population of
approximately 10.3 million, including approximately 4 million TV households.
CNTS generated $109.2 million and $48.5 million in net advertising revenues in
1996 and in the first six months of 1997, respectively.
By adopting a different programming strategy to that historically followed
by public television stations, including a mix of locally produced news and
entertainment formats and film and television series acquired from international
distributors, Nova TV has built and maintained significant market share during
its first three years of operations. According to independent surveys undertaken
by Rapid Dema, an independent polling agency, for the first five months of 1997,
Nova TV achieved an overall 58% 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, such original local programming
produced by the Company, together with Czech films and other Czech origin
programming, comprised approximately 41% of Nova TV's broadcast time.
CNTS 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 (e.g., "Millennium," "X-Files," A Few Good Men, Interview
With The Vampire) produced by such companies as Canal+, Paramount Pictures, Sony
Pictures, Twentieth Century Fox, Walt Disney, Warner Bros., Metro Goldwyn
Mayer/United Artists, Universal Pictures, NBC Enterprises and CBS International.
CNTS has the rights to broadcast over 4,500 internationally released films and
approximately 23,000 television episodes during the next several years. CNTS 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.
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Advertising
CNTS 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. CNTS currently serves over
200 advertisers, including such large multinational advertisers as
Colgate-Palmolive, Jacobs Suchard, Procter & Gamble and Unilever. In 1996, no
single advertiser accounted for more than 10% of CNTS's revenues.
In May 1997, the television association in the Czech Republic launched an
initiative to gather data automatically on television viewing statistics.
Metering devices commonly known as "people meters" have been placed in a
representative number of television homes and the data collected is distributed
to interested parties. The Company believes that the availability of detailed
data on viewing patterns will enable it to market to multinational advertisers
more effectively and potentially increase future advertising revenues. This is
the first market in which the Company operates where such information is
produced for advertisers.
CNTS is permitted to broadcast advertising on Nova TV 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 CNTS, 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 and its ability to interrupt
programming with advertising.
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 approximately 55% 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.
Limited competition for viewers also comes from local and foreign stations
transmitted through cable and satellite television. Approximately 14% of all
Czech Republic households currently 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
CNTS 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 until 2005 under terms which require CET 21 to cooperate with the
Company in operating CNTS. CET 21 has given Nova TV the exclusive access to the
use of the license.
Under Czech legislation or the license pursuant to which CNTS operates Nova
TV, CNTS is required to comply with certain restrictions on programming and
advertising, none of which the Company believes have had a material adverse
effect on CNTS.
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In addition to the restrictions discussed above under "-- 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.
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 ($3,339,000) 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. Since that time, the Company has purchased a 62%
interest in Radio Alfa for a purchase price of Kc37,500,000 ($1,372,000). The
Company has also paid Kc11,300,000 ($353,000) in order to purchase a
Kc17,300,000 loan ($540,000) 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% interest, would give the Company an 83.7% interest in Radio Alfa.
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 9.5% for the
first five months of 1997. Radio competition in the Czech Republic is provided
by Czech public radio, one other national private radio station and over 40
local radio stations.
The license for Radio Alfa expires in February 1999. Although the Company
intends to reapply for the license, there can be no assurance that the license
will be renewed. Radio Alfa also has a 50% interest in Media Marketing Services
s.r.o. ("MMS"), which sells advertising time for radio stations throughout the
Czech Republic, including Radio Alfa.
OPERATIONS IN ROMANIA: PRO TV
General
PRO TV is a national television broadcast network in Romania which was
launched in December 1995 and 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 is operated through MPI, in which the
Company has a 77.5% interest. PRO TV reaches approximately 60% of the Romanian
population of 22.7 million, primarily in 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. To serve Romania and other markets, the Company has obtained a 12-year
lease on the Satellite Transponder, which is scheduled to be operational 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. The Company anticipates that PRO TV will be able to continue to
increase its reach from current levels through utilizing 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. 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 49% during prime time for the
first five months of 1997.
MPI also operates PRO FM, a radio network which is broadcast through owned
and affiliated stations to approximately 9.2 million people in Romania.
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Programming
PRO TV's programming strategy is to appeal to a mass market audience
through a wide range of programming, including movies, comedies, dramatic
series, talk shows, news and reports. 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. In the fall of 1997, PRO TV intends to expand its
locally produced programming and begin broadcasting locally produced game shows.
PRO TV has secured exclusive broadcast rights in Romania to a large number
of successful American and Western European programs and films (e.g.,
"Millennium," "Perfect Strangers," "Suddenly Susan," Home Alone, Dying Young)
produced by such companies as CBS, Granada, Universal Pictures, Metro Goldwyn
Mayer/United Artists, Paramount Pictures, Sony Pictures, Twentieth Century Fox,
Warner Bros., Gaumont and BBC Worldwide. PRO TV's library includes approximately
2,000 feature films and over 6,400 television episodes. 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, the public national station TVR 1, 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.
Competition
Prior to the launch of PRO TV, TVR 1 was the dominant broadcaster in
Romania due to its coverage of 100% of the population, a popular news show and
light entertainment programming. Other competitors include the second public
national station, TVR 2, with a 50% broadcast reach, and privately owned Antena
1 and Tele 7 ABC, which reach approximately 50% and 40% of the population,
respectively.
Additional competitors include cable and satellite stations, which
currently penetrate approximately 37% and 5% of the Romanian market,
respectively. 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.
In addition to the restrictions discussed above under "-- Advertising,"
regulations related to advertising content include (i) restrictions related to
tobacco and alcohol advertising, (ii) advertising targeted at children
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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% equity interest in Unimedia, which owns a 10% equity
interest in MobilRom. In December 1996, MobilRom was awarded one of two national
GSM cellular telephone licenses in Romania, and in June 1997, MobilRom began
operations in Bucharest and Romania's next seven largest cities. 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
additional affiliates TV Robin and Euro 3. POP TV is operated through Pro Plus,
in which the Company has an effective economic interest of 85.3%. In addition,
the Company has a 10% interest in each of its two major Slovenian affiliate
stations, MMTV and Tele 59. 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. Independent industry research shows that in the areas of
Slovenia in which POP TV can be seen, the network had an average television
viewer share of approximately 43% for the first five months of 1997, the largest
share of television viewers in Slovenia.
Programming
POP TV's programming strategy is to appeal to a mass market audience
through a wide range of programming, including movies, comedies, dramatic
series, talk shows, news and sports. POP TV provides an average of 18 hours of
programming daily. Approximately 28% of POP TV's programming is comprised of
locally produced programming, including a nightly news program, a daily game
show and a daily music chart show.
POP TV has secured exclusive program rights in Slovenia to a large number
of successful American and Western European programs and films (e.g., "X-Files,"
"ER," "Friends," The Bodyguard, Forever Young, Robin Hood: Prince of Thieves)
produced by such companies as Twentieth Century Fox, Warner Bros., Metro Goldwyn
Mayer/United Artists, Universal Pictures, Paramount Pictures, Sony Pictures, NBC
Enterprises, CBS International and Polygram. POP TV's library includes over
2,300 feature films and over 8,000 television episodes. All foreign language
programs and films are subtitled in Slovenian.
To meet local license regulations, affiliates of POP TV broadcast locally
produced programming.
Advertising
POP TV derives revenues principally from the sale of commercial advertising
time. Historically, unlike the other markets in which the Company operates, the
majority of commercial advertising has come from local as opposed to
multinational firms. The Company believes that this is due, in part, to the
limited number of multinational advertising agencies currently operating in
Slovenia and that as the market develops, multinational firms which advertise
extensively through the Company's broadcast operations in other Central and
Eastern European countries will account for an increasingly larger share of the
Slovenian advertising market. Current multinational advertisers include 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
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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 national public television station. SLO 1 is entertainment oriented while
the other national public station, SLO 2, focuses on sports programming and
special events. SLO 1 reaches 100% of the Slovenian population, and SLO 2
reaches 95% of the Slovenian population. No national private television
frequency has been made available in Slovenia. Two private television stations
which compete with POP TV in Slovenia, Kanal A and TV3, have achieved a
relatively small audience share, together less than 15%, due primarily to their
low budget programming and lack of extensive news programming, which the Company
believes are important contributors to attracting significant audience share.
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 and Eastern 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.
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. There is currently an
injunction in effect preventing the completion of the Kanal A Agreement. See
"Business -- Litigation."
Regulation
The licenses granted to POP TV's affiliate stations have been granted for
10-year terms expiring in 2003, with respect to licenses reaching 53% of the
population, and in 2006 and 2007, with respect to the remaining licenses. 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.
In addition to the restrictions discussed above under "-- Advertising,"
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.
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 in August 1996.
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 first five months of 1997.
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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 (e.g., "NYPD
Blue," "ER," "Friends," "Lois and Clark") produced by major studios including
BBC, Universal Pictures, Twentieth Century Fox, Warner Bros., Sony Pictures,
Metro Goldwyn Mayer/United Artists and Paramount Pictures. Markiza TV's library
includes over 1,500 films and over 6,700 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.
Currently, approximately 60% of Markiza TV's advertising revenues are
sourced from agencies based in the Czech Republic which are more developed and
have stronger relationships with international advertisers than with those in
the Slovak Republic. The Company expects that in the future, a greater
proportion of advertising revenues will be sourced from the Slovak Republic as
the local advertising market develops.
Competition
The Slovak Republic is served by two national public television stations,
STV1 and STV2, which dominated the ratings until Nova TV and Markiza TV began
broadcasting in 1994 and 1996, respectively. Nova TV's signal reaches a portion
of the Slovak Republic and its launch provided the first alternative in the
country to public television. Nova TV has maintained its popularity in the
Slovak Republic, where it has an approximate 11% audience share through the
first five months of 1997. 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 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
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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.
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.
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 all the prime time hours.
UT-2 reaches approximately 95% of Ukraine's population. Although television
advertising in Ukraine was only $21 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, and that
the Company's investments in Ukraine will position it to take advantage of any
such growth. According to SOCIS Gallup, audience share for Studio 1+1 Group was
approximately 28% for the first five months of 1997.
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.
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 (e.g., "Friends," "Cheers," Batman,
Dances with Wolves) 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 Studio 1+1 Group intends to change the program mix to one
closer to that used by other Company stations by increasing the percentage of
its programming that is locally produced, including talk shows and entertainment
shows, and emphasizing the local audience appeal. The Company expects that
changing the station's image and programming will have a significant benefit in
terms of audience share and will increase the stations appeal to advertisers.
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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.
Competition
Ukraine is served by four television stations, including UT-1, UT-2 and
UT-3, which are Ukrainian public stations, and ICTV, a private network. The
Studio 1+1 Group, through UT-2, has a broadcast reach of 95% of the Ukrainian
population. UT-1 and ICTV reach 98% and 35% of Ukraine's population,
respectively. Inter, through UT-3, has a broadcast reach of approximately 62% of
the Ukrainian population. Inter's program schedule consists primarily of
rebroadcasts of the Russian-language ORT network.
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.
OPERATIONS IN POLAND: TVN/TV WISLA
General
The Company, together with ITI, is a partner in TVN, which has been awarded
television broadcast licenses for northern Poland and the cities of Warsaw and
Lodz in Poland and which holds a 76.3% interest in TV Wisla. TVN acquired its
initial interest in TV Wisla in September 1996, although TV Wisla began
broadcasting in December 1994. TV Wisla operates a television station in
southern Poland with a broadcast reach of approximately 7.8 million people. The
Company and ITI also each own 50% of Federation, the entity through which the
Company will launch the TVN Network in Poland described below under "-- Recent
Developments." In anticipation of the integration of TV Wisla into the TVN
Network, the Company has not committed significant resources to the development
of the station.
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.
Principally in preparation for the Company's planned national broadcast network,
the Company has secured exclusive programming rights in Poland to a number of
popular programs and films (e.g., "Falcon Crest," "Star Trek: The Next
Generation," Sudden Impact, Arthur, Batman Returns, Rain Man) produced by
companies such as Metro Goldwyn Mayer/United Artists, Mediaset, Paramount and
Warner Bros. This library includes over 700 feature films and approximately
3,200 television episodes, some of which will be broadcast by TV Wisla.
Advertising
TV Wisla derives revenues principally from the sale of commercial
advertising time, most of which is sold through independent agencies.
Advertisers include a number of local, national and multinational companies such
as Benckiser, Henkel and S.C. Johnson. However, TV Wisla has limited
attractiveness for multinational advertisers due to the regional nature of its
operations. Restrictions on advertising provide that advertising on TV Wisla may
not exceed 15% of daily broadcasting time and 12 minutes in any one hour.
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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
84%, and 18 regional public and private channels. Cable and satellite stations
currently have an approximate 23% and 12% 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%. New media regulations under discussion could increase
the maximum foreign ownership to 49%. If such regulations are introduced, the
Company has the ability to raise its shareholdings to the maximum permitted. 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.
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 15.1 million people. These licenses also contain restrictions on
programming and advertising. Programming produced in Poland is required to
account for 30% of total programming in 1997 and 1998, 35% in 1999 and 40% in
2000 and thereafter, of which 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 at least 15% of annual programming.
The Company has been notified that certain unsuccessful bidders for the
licenses for northern Poland and Warsaw have filed challenges to the awards of
these licenses to TVN in the Polish courts based on alleged administrative
inconsistencies. The Company does not believe these challenges will be
successful or will impair the Company's licenses.
Through the network company Federation, the Company and ITI are developing
a television broadcast network in Poland, the TVN Network, which will broadcast
programming and sell advertising through affiliate stations, including TV Wisla.
The Company anticipates that the TVN Network will be launched in the fourth
quarter of 1997. The Company owns a 50% direct interest and an additional 5%
indirect interest in Federation. The television broadcasters to be served by
Federation are expected to broadcast 19 hours of acquired and self-produced
programming daily. As part of its development plans for the TVN Network, the
Company has identified and signed some of the leading Polish television
personalities to long-term contracts in order to maximize the impact of the TVN
Network's launch. The stations affiliated with the TVN Network intend to
broadcast the television signal through terrestrial transmitters as well as via
digitally encoded satellite signals. The Company expects the stations affiliated
with the TVN Network to have an initial reach of approximately 60% of the Polish
population and plans to expand the signal to reach 80-85% of the population over
the next two years through affiliations with other license holders, transmitter
upgrades, the use of analog satellite transmission, the growth of the cable
industry and the anticipated privatization of additional frequencies currently
held by the military and regional public stations. These are forward-looking
statements. The timing of this launch and the potential reach of the network
depend upon the timely completion of broadcast
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facilities, sourcing programming, satellite transponder availability, obtaining
access to transmitters and recruiting and retaining qualified staff.
OPERATIONS IN GERMANY: THE GERMAN STATIONS
General
The Company owns interests in three regional television stations operating
in Germany: the Nuremberg Station, the Leipzig Station and the Dresden Station.
The German Stations reach an aggregate of approximately 3 million people.
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. Other German television broadcasters include several private
television stations, providers of regional windows, and television stations
delivered only by cable or satellite.
Recent Developments
On May 13, 1997, the Company announced its decision to discontinue funding
of PULS, a regional television station in the Berlin-Brandenburg area of Germany
in which the Company has a 58% non-controlling interest. On May 27, 1997, PULS
initiated a bankruptcy proceeding in the Bankruptcy Court of
Berlin -- Charlottenburg. See " -- Litigation." The Company wrote down its
investments in Germany by $20,707,000 in the first quarter of 1997 and
eliminated the carrying value of such investments.
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.
The Nuremberg Station broadcasts original programming for 4.5 hours each
day and repeats this programming. The Leipzig Station and the Dresden Station
broadcast 2.5 hours of original programming per day and repeat 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 p.m., 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. Some of their competitors are
public operations or are larger and have greater financial, marketing and other
resources than the German Stations.
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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 interstate 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.
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.
SEASONALITY
The Company, like other television operators, experiences seasonality, with
advertising sales tending to be lowest during the third quarter of each calendar
year, which includes the summer holiday period (typically July and August), and
highest during the fourth quarter of each calendar year.
EMPLOYEES
As of May 31, 1997, CME had a corporate operations staff of 65 employees
and its Subsidiaries had a total of approximately 2,500 employees. None of CME'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
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.
In June 1997, CEDC, which owned the Nova Facility, terminated the
capitalized lease pursuant to which CEDC leased the Nova Facility to CNTS, and
entered into an agreement with CNTS pursuant to which (i) CEDC assigned the Nova
Facility to CNTS and (ii) CNTS assumed CEDC's obligations under the CS Loan. The
CS Loan provides for quarterly payments of Kc 16,500,000 ($515,000), plus
interest equal to CS's prime rate plus 1.5%, to be paid through December 1999.
As of June 1997, the outstanding balance under the CS Loan was Kc 159,000,000
($4,961,000). Nova TV occupies approximately 65,000 square feet, and modern
studios have been constructed in the building.
CME BV has entered into an agreement on behalf of MPI 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
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(approximately 46,823 square feet). 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.
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 operational 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 January 1997, the Hungarian Television Commission announced tender
procedures for the award of two national television broadcast licenses. Two
other consortia submitted bids by the April 10, 1997 deadline. On June 30, 1997,
the Hungarian Television Commission announced the two other consortia as winners
of the licenses. On July 4, 1997, IRISZ TV filed a complaint in the Budapest
Capital Court against the Hungarian Television Commission and the other
consortia. The complaint alleges that the Hungarian Television Commission (i)
violated the tender procedures in connection with the acceptance of bids; (ii)
violated the integrity and fairness of the tender; and (iii) breached its own
published guidelines in the bid evaluation process. IRISZ TV is seeking an order
to terminate the broadcasting agreements entered into by the other consortia and
has reserved its right to seek damages. At a hearing on July 16, 1997, the Court
denied IRISZ TV's request for interim relief. The trial on the merits of the
claim is to commence on September 12, 1997.
On May 13, 1997, the Company announced its decision to discontinue funding
of PULS, a regional television station operating in the Berlin-Brandenburg area
of Germany in which the Company has a 58% non-controlling interest. On May 27,
1997, PULS initiated a bankruptcy proceeding in the Bankruptcy Court of
Berlin-Charlottenburg. The Court has appointed a trustee to liquidate and
wind-up PULS. PULS's broadcast license will be re-tendered by the
Berlin-Brandenburg Media Council.
On April 30, 1997, Perekhid Media Enterprises Ltd. ("Perekhid") filed a
complaint in the Supreme Court of New York County, State of New York, against
the Company and Ronald S. Lauder, the nonexecutive Chairman of the Company's
Board of Directors. Perekhid alleges that the issuance of a license to the
Studio 1+1 Group pursuant to which the Studio 1+1 Group has been broadcasting
programming on UT-2, constitutes a tortious interference by the Company and Mr.
Lauder with a Perekhid contract with the Ukrainian authorities for Perekhid to
provide programming for and sell advertising time on UT-2. Perekhid's complaint
seeks compensatory damages of $250 million, punitive damages of $500 million,
and an injunction against the Company and Mr. Lauder to prevent the continuation
of the alleged conduct. Management believes that it has substantial defenses in
this matter and intends to defend the matter vigorously. On July 2, 1997 the
Company filed a motion to dismiss this complaint.
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 the Nuremberg Station have instituted legal action
against the media authorities for the Nuremberg area seeking to overturn their
decisions to award a broadcast license to the Nuremberg Station. These actions
were instituted in 1994, and there have been no decisions in relation thereto in
the last
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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
Regional Commercial 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 Nonexecutive 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........... 50 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, a founder of the Company, has served as nonexecutive
Chairman of the Board of the Company since its incorporation in 1994. He is also
the co-founder and has served as the Chairman of RSL Communications,
Ltd.("RSLC"), an international telecommunications company, since 1994. Mr.
Lauder has served as Chairman of Estee Lauder International and Chairman of
Clinique Laboratories, Inc., divisions of The Estee Lauder Companies Inc., since
returning to the private sector from government service in 1987. From 1986 until
1987, Mr. Lauder served as U.S. Ambassador to Austria. From 1983 to 1986, Mr.
Lauder served as Deputy Assistant Secretary of Defense for European and NATO
Affairs. Mr. Lauder currently serves as a director of The Estee Lauder Companies
Inc. He is Chairman of the Board of Trustees of the Museum of Modern Art,
President of the Jewish National Fund, Chairman of the International Public
Committee of the World Jewish Restitution Organization and Treasurer of the
World Jewish Congress.
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, MPI, 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 MPI and SFF, and as a director of the audit committee of Nova TV.
Andrew Gaspar, a Director of the Company, was a founder of the Company and
directed the activities of its predecessor from 1991 through June 1994. From 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 & Co. Inc. 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.
The address of each director of the Company is the registered address of
the Company.
GENERAL DIRECTORS OF BROADCAST OPERATIONS
The following persons are the Company's General Directors who manage the
Company's broadcast operations:
Vladimir Zelezny has served as General Director of CNTS, which operates
Nova TV, since it began operations in February 1994. Dr. Zelezny is also the
Company's President of Television Stations and 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 the former Czechoslovakia.
Gyorgy Balo serves as the General Director of 2002 Kft and IRISZ TV and has
been involved in journalism, television and radio in various capacities since
1970. Mr. Balo has been a columnist and an editor for several Hungarian
newspapers and monthlies, and has been a television producer, director, anchor
and correspondent. Mr. Balo has received many prestigious media awards,
including a Pulitzer Prize for television reporting in 1991, a Bela Balazs Prize
for filmmaking in 1988, a Grand Prix at the Hungarian Documentary Festival in
1982 and a Ferenc Rozsa Hungarian journalism award for international television
features in 1982.
Marjan Jurenec, the General Manager of POP TV, has been in POP TV
management since it was launched in July 1995. From 1992 until 1994, Mr. Jurenec
was a partner and a director of Tele 59, a private local television station.
Prior to entering the Slovenian television industry, Mr. Jurenec served as a
financial consultant in the founding of several international companies,
authored the financial analytical study on which the foundation of the
international partnership in Pro Plus was based and was responsible for export
activities at the TAM company, a Slovenian import-export company.
Alexander Rodnyansky serves as the General Director of Studio 1+1 and led
the launch of its broadcast operations in January 1997. Prior to joining Studio
1+1, from 1990 until 1994 Mr. Rodnyansky was the Producer-in-Chief and a film
director at Innova Film in Germany and Contact in Ukraine. From 1983 until 1990,
he served as a film director at Kievnauchfilm. Mr. Rodnyansky has directed and
produced more than 20 documentaries and feature films and has won numerous
international awards. Mr. Rodnyansky co-produced A Chef in Love, which was
nominated for an Academy Award for Best Foreign Film in 1996.
Pavol Rusko serves as the General Director of Markiza TV and led the launch
of its broadcast operations in August 1996. Mr. Rusko has worked in Slovak
television since 1985 as a sports editor, the head of a research department and
as a vice director for transmission. Mr. Rusko studied journalism at Comenius
University in Bratislava.
Adrian Sarbu serves as the General Director of MPI, through which PRO TV
and the PRO FM radio network are operated. Mr. Sarbu led the broadcast launch of
PRO TV in December 1995. Mr. Sarbu has directed and scripted over 150 films in
various genres including artistic, documentary and commercial
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productions. In 1990, Mr. Sarbu ran the electoral campaign of the National
Salvation Front and served as Secretary of State for Media Affairs in Romania.
In 1990, Mr. Sarbu founded "Curierul National," the first private newspaper in
Romania, and established MediaPro, now the largest media group in Romania. Mr.
Sarbu produced the first documentary film on the December 1989 Revolution in
Bucharest. He is a graduate of the Theatre and Film Academy of Romania.
Dietmar Straube founded the Leipzig and Dresden Stations in 1994 and the
Nuremberg Station in 1990, and since 1995 has headed the Company's German
operations. Previously, Dr. Straube owned and operated a medical publishing firm
for over 20 years, portions of which he sold in 1990.
Luc M. Tomasino has been the Deputy General Director of TVN since early
1997. In 1993, Mr. Tomasino joined the Company as Director of Development and
then served as the Company's Vice President of Marketing. Before joining the
Company, he served as a Strategic Planner in the areas of media and marketing at
the advertising agency Bozell, Inc. Mr. Tomasino received an M.B.A. from New
York University's Leonard M. Stern School of Business in 1993.
Mariusz Walter serves as the General Director of Federation and TVN. In
1984, he co-founded ITI, one of the largest media holding companies in Poland.
Previously, Mr. Walter worked for Public Television in Warsaw between 1963-1984.
Well known for his documentaries, Mr. Walter has won numerous Polish and
international media awards, including the Grand Prix Oberhausen twice, Sportagge
and the Prix Italia. He is best known in Poland for "Studio 2," a 24-hour
weekend program he created and directed.
OTHER MANAGEMENT
Bruce Allen has provided technical broadcast, satellite and cable
operations consultancy services to the Company since 1994 through Interlink
Network Corporation, which Mr. Allen founded in 1991. Mr. Allen was recently
named the Company's Managing Director of Operations and Engineering. From 1989
until 1991, Mr. Allen served as President and Chief Executive Officer of
Atlantic Satellite Communications Inc., a supplier of transmission services.
From 1985 until 1989, Mr. Allen served as Vice President of Operations and
Production at Reiss Media Enterprises, a pay-per-view network and from 1983
until 1985 he served as Vice President of Network Production and Operations at
Hearst/ABC-Viacom Entertainment Services.
Arthur M. Goldblatt has served as Managing Director of CMEPS since 1996.
Prior to joining the Company, Mr. Goldblatt was an independent film producer in
Los Angeles. Among his production credits are the films Men of Respect, Nervous
Ticks and Men of War. Mr. Goldblatt held a number of executive posts at Columbia
Pictures, including Vice President of Pay Cable and Home Entertainment from 1987
until 1989 and Vice President of Finance -- Columbia Pictures Television from
1986 until 1987.
Barry Hirsch has served as Vice President of Advertising Sales of the
Company since 1995. Mr. Hirsch served as the Director of Advertising Sales of
Nova TV from September 1993 until February 1995. Mr. Hirsch served as National
Advertising Sales Manager of WFLD in Chicago from 1988 until 1990 and as a sales
representative for WNYW in New York City from 1990 until 1991, both Fox
Television owned and operated stations. From 1979 until 1988 he served as an
Advertising Sales Manager for MMT Sales, a television advertising sales
representative company in the United States.
Victoria A.L. Rogers has served as Managing Director of Corporate Services
of the Company since 1996. Ms. Rogers served as Vice President of Organization
Development of the Company from 1994 until 1996. Until February 1994, Ms. Rogers
was the launch director of Nova TV and oversaw the renovation of the Nova
facility for CME. Ms. Rogers' previous experience includes over 14 years of
consulting in the media and airline industries.
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DESCRIPTION OF THE NOTES
Each class of Notes is to be issued under an Indenture, to be dated as of
the Closing Date (the "Dollar Note Indenture" and the "DM Note Indenture," and
together the "Indentures"), between CME, as issuer (defined for the purposes of
this section only as the "Issuer"), and Bankers Trust Company, as Trustee (the
"Trustee"). A copy of each Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indentures does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indentures, including the definitions of certain terms therein and those terms
made a part thereof by reference to the Trust Indenture Act of 1939, as amended.
Whenever particular defined terms of the Indentures not otherwise defined herein
are referred to, such defined terms are incorporated herein by reference. For
definitions of certain capitalized terms used in the following summary, see
" -- Certain Definitions."
GENERAL
The Notes will be senior obligations of the Issuer, limited to $100 million
aggregate principal amount of Dollar Notes and DM 100 million aggregate
principal amount of DM Notes, and will mature on August 15, 2004. Interest on
the Notes will accrue at the rates shown on the front cover of this Prospectus
from the Closing Date or from the most recent interest payment date to which
interest has been paid or provided for, payable semiannually (in the case of
registered Notes, to Holders of record at the close of business on February 1 or
August 1 immediately preceding the interest payment date) on February 15 and
August 15 of each year, commencing February 15, 1998.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Issuer in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee at 4 Albany Street, New York, New
York 10006) and at Bankers Trust Luxembourg, S.A., 14 Boulevard F.D. Roosevelt,
L-2450 Luxembourg. In addition, Bankers Trust International PLC (Frankfurt
Branch) will act as the DM Paying Agent for purposes of making payments in
Deutsche Marks on the DM Notes, and maintains an office therefor at Westend &
Carree, Grueneburgweg 16, D-60322 Frankfurt am Main, Germany.
The Dollar Notes will be issued only in registered form, without coupons,
in denominations of $1,000 and integral multiples thereof. The Dollar Notes will
initially be represented by one or more global Notes (the "Global Notes") and
will be deposited with, or on behalf of, DTC and registered in the name of a
nominee of DTC. The DM Notes sold outside the United States will be represented
by a single, permanent global certificate in bearer form, deposited with DKV,
which will represent the DM Notes held by accountholders in DKV, including such
DM Notes held through the operator of Euroclear and Cedel, each of which has an
account with DKV. DM Notes sold to U.S. investors will be represented by a
single, permanent global certificate in registered form deposited with a
custodian for, and registered in the name of, DTC or its nominee. Except as set
forth in " -- Book-Entry; Delivery and Form," owners of beneficial interests in
any of the Global Notes will not receive or be entitled to receive physical
delivery of Notes in definitive form and will not be considered the owners or
Holders thereof under the Indentures. No service charge will be made for any
registration of transfer or exchange of Notes, but the Issuer may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Application has been made to list the Notes on the Luxembourg Stock
Exchange.
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OPTIONAL REDEMPTION
The Notes will be redeemable, at the Issuer's option, in whole or in part,
at any time or from time to time, on or after August 15, 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on the next succeeding
Interest Payment Date), if redeemed during the 12-month period commencing August
15 of the years set forth below:
<TABLE>
<CAPTION>
DOLLAR NOTE DM NOTE
YEAR REDEMPTION PRICE REDEMPTION PRICE
----------------------------------------------------- ---------------- ----------------
<S> <C> <C>
2001 ................................................ % %
2002 ................................................ % %
2003 and thereafter.................................. % %
</TABLE>
In addition, at any time and from time to time, prior to August 15, 2000,
the Issuer may redeem Dollar Notes having a principal amount of up to $35
million and DM Notes having a principal amount of up to DM 35 million with the
Net Cash Proceeds that are actually received by the Issuer from one or more
sales of Common Stock of the Issuer, at a Redemption Price (expressed as a
percentage of principal amount) of % in the case of the Dollar Notes and
% in the case of the DM Notes, plus accrued and unpaid interest, if any, to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on the next succeeding Interest Payment Date); provided that each
such redemption occurs within 180 days of the related sales.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal securities exchange, if any, on which the Notes are listed or, if
the Notes are not listed on a securities exchange, on a pro rata basis, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 or DM 1,000, as the case
may be, in principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount at maturity thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original Note.
In the event that (i) the Issuer has become or would become obligated to
pay, on the next date on which any amount would be payable under or with respect
to either class of Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Issuer cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Issuer may redeem all, but not less than all,
of such class of Notes at any time at 100% of the principal amount thereof,
together with accrued interest thereon, if any, to the redemption date. See
"-- Additional Amounts."
SUBSTITUTION OF CURRENCY
Although there can be no assurance that a single European currency will be
adopted or, if adopted, on what time schedule, the Treaty on the European
Economic and Monetary Union provides for the introduction of the Euro in
substitution for the national currencies of the member states which adopt the
Euro. If the Federal Republic of Germany adopts the Euro, the regulations of the
European Commission relating to the Euro shall apply to the DM Notes and the
applicable Indenture. The circumstances and consequences described in this
paragraph entitle neither CME nor any Holder of DM Notes to early redemption,
rescission, notice, repudiation, adjustment or renegotiation of the terms and
conditions of DM Notes or the applicable Indenture or to raise other defenses or
to request any compensation claim, nor will they affect any of the other
obligations of CME under the DM Notes and the applicable Indenture.
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RANKING
The Notes will be unsubordinated and unsecured Indebtedness of the Issuer
and will rank pari passu with all existing and future unsubordinated and
unsecured indebtedness of the Issuer and senior to all subordinated indebtedness
of the Issuer. The Notes will be effectively subordinated to all indebtedness of
the Issuer's Subsidiaries. At June 30, 1997, after giving pro forma effect to
the Offering and the application of the proceeds therefrom, the Issuer and its
consolidated Subsidiaries would have had approximately $201,280,000 of
indebtedness, $46,280,000 of which is indebtedness of the consolidated
Subsidiaries, and the Issuer's consolidated Subsidiaries would have had
approximately $52,364,000 of other liabilities (including trade payables but
excluding inter-company liabilities) to which the Notes will also be effectively
subordinated.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indentures. Reference is made to the
Indentures for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the consolidated
net income (or loss) of the Issuer and its Restricted Subsidiaries for such
period determined in conformity with GAAP, plus the net income (or loss) of
Restricted Affiliates for such period determined in conformity with GAAP;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any Person
(other than net income attributable to a Restricted Subsidiary) in which any
Person (other than the Issuer or any of its Restricted Subsidiaries) has a joint
interest and the net income of any Unrestricted Subsidiary, except to the extent
of the amount of dividends or other distributions actually paid to the Issuer or
any of its Restricted Subsidiaries by such other Person or such Unrestricted
Subsidiary during such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (C) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Issuer or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Issuer or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Issuer or any
Restricted Subsidiary owned by Persons other than the Issuer and any of its
Restricted Subsidiaries; (vi) all extraordinary gains and extraordinary losses;
and (vii) to the extent not otherwise excluded in accordance with GAAP, the net
income (or loss) of any Restricted Subsidiary in an amount that corresponds to
the percentage ownership interest in the income of such Restricted Subsidiary
not owned on the last day of such period, directly or indirectly, by the Issuer.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Issuer and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for
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acquisitions in conformity with GAAP), after deducting therefrom (i) all current
liabilities of the Issuer and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as is
consistent with the most recent quarterly or annual consolidated balance sheet
of the Issuer and its Restricted Subsidiaries, prepared in conformity with GAAP
and filed with the Commission pursuant to the "Commission Reports and Reports to
Holders" covenant; provided, that Adjusted Consolidated Net Tangible Assets
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount that corresponds to the percentage ownership interest in the assets
of each Restricted Subsidiary not owned on the date of determination, directly
or indirectly, by the Issuer.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling, "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. "Affiliate" includes,
without limitation, any "Restricted Affiliate."
"Annualized Consolidated Leverage Ratio" means the ratio calculated as set
forth in the definition of Consolidated Leverage Ratio, except that (x) in
clause (ii) thereof, the Consolidated Adjusted Operating Cash Flow shall be
calculated for the latest two fiscal quarters for which consolidated financial
statements of the Issuer are available and then multiplied by two (rather than
calculating Consolidated Adjusted Operating Cash Flow for the then most recent
four fiscal quarters), and (y) the Reference Period shall be the period from the
beginning of the second most recent fiscal quarter through the Transaction Date.
"Asset Acquisition" means (i) an investment by the Issuer or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Issuer or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Issuer and its Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by the Issuer or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Issuer or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; provided that the property and assets acquired are related,
ancillary or complementary to the businesses of the Issuer and its Restricted
Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Issuer or
any of its Restricted Subsidiaries (other than to the Issuer or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Issuer or (ii) all or substantially all of the
assets that constitute a division or line of business of the Issuer or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Issuer or any of its Restricted
Subsidiaries to any Person other than the Issuer or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Issuer or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Issuer or any of its Restricted
Subsidiaries outside the ordinary course of business of the Issuer or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations and sales of assets of
the Issuer; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables, advertising time, and other current
assets or obsolete or outdated equipment; provided that each such sale or other
disposition or series of such sales or other dispositions shall not involve
assets that are material to the business of the Issuer and its Restricted
Subsidiaries, taken as a whole, (b) a transfer of assets to the extent the
consideration received (A) is equal to the fair market value of the assets
transferred and (B) takes the form of Investments of the type described in
clause (iv) of the definition of Permitted Investment, (c) sales or other
dispositions of assets (including Common Stock of Restricted Subsidiaries) for
consideration at least equal to the fair market value of the assets sold or
disposed of, provided that the consideration received consists of assets used or
useful in the
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media, communications or entertainment business (or Common Stock in a Person
engaged in the media, communications or entertainment business), and provided
further that if such consideration received consists of Common Stock, such
transaction complies with the "Limitation on Restricted Payments" covenant
described below, or (d) issuances and sales of Common Stock permitted under
clause (v) of the "Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Issuer or any
committee of such Board duly authorized to act under the Indenture.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Issuer to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in the equity of such Person, whether now outstanding or
issued after the Closing Date, including, without limitation, all Common Stock
and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Issuer on a
fully diluted basis and such ownership is greater than the amount of voting
power of the Voting Stock of the Issuer, on a fully diluted basis, held by the
Existing Stockholders and their Affiliates on such date; or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination for
election by the Issuer's stockholders was approved by a vote of at least
two-thirds of the members of the Board of Directors then in office who either
were members of the Board of Directors on the Closing Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indentures.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of the Indentures, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Adjusted Operating Cash Flow" means, for any period, the sum
of the amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, and (vi) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less (x) all non-cash items increasing Adjusted
Consolidated Net Income, all as
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determined on a consolidated basis for the Issuer and its Restricted
Subsidiaries in conformity with GAAP, and (y) cash programming acquisition costs
for the period under consideration; provided that, if any Restricted Subsidiary
is not a Wholly Owned Restricted Subsidiary, Consolidated Adjusted Operating
Cash Flow shall be reduced (to the extent not otherwise reduced in accordance
with GAAP) by an amount equal to (A) the amount of Consolidated Adjusted
Operating Cash Flow attributable to such Restricted Subsidiary multiplied by (B)
the quotient of (1) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by the Issuer or
any of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of such
period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Issuer or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Issuer and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) or (vii) of the definition thereof (but only in the same proportion
as the net income of such Restricted Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) or (vii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Issuer and its Restricted
Subsidiaries on a consolidated basis, plus Indebtedness of Restricted Affiliates
not consolidated in the Issuer's financial statements, outstanding on such
Transaction Date to (ii) the aggregate amount of Consolidated Adjusted Operating
Cash Flow for the then most recent four fiscal quarters for which financial
statements of the Issuer have been filed with the Commission pursuant to the
"Commission Reports and Reports to Holders" covenant described below (such four
fiscal quarter period being the "Four Quarter Period"); provided that (A) pro
forma effect shall be given to (x) reflect the incurrence of any Indebtedness
Incurred from the beginning of the Four Quarter Period through the Transaction
Date (the "Reference Period"), to the extent such Indebtedness is outstanding on
the Transaction Date and (y) reflect the repayment of any Indebtedness that was
outstanding during such Reference Period but that is not outstanding or is to be
repaid on the Transaction Date; (B) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur during such
Reference Period, as if they had occurred and such proceeds had been applied on
the first day of such Reference Period; and (C) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Issuer or any Restricted Subsidiary during such Reference Period and
that would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed of for which financial information is,
in the good faith opinion of the Board of Directors of the Issuer, available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Issuer and its Restricted
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Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), plus stockholders' equity of Restricted Affiliates not
consolidated as of such date, less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for Indebtedness,
the cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Issuer or any of its
Restricted Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the "Limitation on Asset Sales"
and "Repurchase of Notes Upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Issuer's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes Upon a Change of Control"
covenants described below.
"EU Country" means any of the following countries: Austria; Belgium;
Denmark; France; Finland; Germany; Greece; Ireland; Italy; Luxembourg; The
Netherlands; Portugal; Spain; Sweden; and the United Kingdom; as well as any
other country which at the time of determination is a member of the European
Union or any successors thereof.
"Existing Stockholders" means (A) each beneficial holder of the Issuer's
Class B Common Stock on the Closing Date, (B) family members of any of the
foregoing, (C) trusts, the only beneficiaries of which are persons or entities
described in clauses (A) and (B) above, and (D) partnerships, corporations, or
limited liability companies which are controlled by the persons or entities
described in clauses (A) and (B) above.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those 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 are approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indentures shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indentures shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion No. 16 or other accounting literature related thereto.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of
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the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a Person becoming a
Restricted Subsidiary of the Issuer; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (A) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the original issue price of such Indebtedness as
increased to reflect any accretion thereof pursuant to the terms of such
Indebtedness, (B) that "Indebtedness" shall not include any amount of money
borrowed, at the time of the Incurrence of the related Indebtedness, for the
purpose of pre-funding any interest payable on such related Indebtedness and (C)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Issuer or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Issuer
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than
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liabilities to the Issuer or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Issuer or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered a reduction
in outstanding Investments, and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer. Notwithstanding the foregoing an acquisition of assets
(including, without limitation, Capital Stock or rights to acquire Capital
Stock) by the Issuer or any of its Restricted Subsidiaries shall be deemed not
to be an Investment to the extent that the consideration therefor consists of
Common Stock of the Issuer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Issuer or any Restricted Subsidiary) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Issuer and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale, and (iv) appropriate amounts to be provided by the
Issuer or any Restricted Subsidiary of the Issuer as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Issuer or any Restricted Subsidiary of the Issuer) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agent's fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Issuer from the
Holders commenced by mailing a notice to the applicable Trustee and providing
notice to each Holder stating: (i) the covenant pursuant to which the offer is
being made and that all Notes validly tendered will be accepted for payment on a
pro rata basis; (ii) the purchase price and the date of purchase (which shall be
a Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Issuer
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes
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purchased; and (vii) 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 Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount at maturity of $1,000 or DM 1,000, as the
case may be, or integral multiples thereof. On the Payment Date, the Issuer
shall (i) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent
money sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the applicable Trustee
all Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Issuer. The
Paying Agent shall promptly provide to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the applicable Trustee shall
promptly authenticate and provide to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or DM 1,000, as the case may be, or integral multiples thereof. The Issuer will
publicly announce the results of an Offer to Purchase as soon as practicable
after the Payment Date. The applicable Trustee shall act as the Paying Agent for
an Offer to Purchase. The Issuer will comply with Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that the Issuer is required to
repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Issuer or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Issuer or
a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Issuer and its
Restricted Subsidiaries on the date of such Investment and provided further that
in the case of an Investment in a Restricted Subsidiary that is a Restricted
Affiliate, at the time of and after giving effect to such Investment and any
Incurrence of Indebtedness in connection therewith or relating thereto, the pro
forma Annualized Consolidated Leverage Ratio would be greater than zero and less
than 5 to 1; (ii) Temporary Cash Investments; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) notes and
other evidences of Indebtedness, not to exceed $2 million at any one time
outstanding; and (v) stock, obligations or securities received in satisfaction
of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Issuer or its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal property or
any other asset acquired after the Closing Date; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred, in accordance
with the "Limitation on Indebtedness" covenant described below, (1) to finance
the cost (including the cost of improvement or construction) of property or
assets (including, without limitation, Capital Stock) and such Lien is created
prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property, (2) to refinance any Indebtedness so secured, or (3)
as Interest Rate Agreements and Currency Agreements relating solely to the
Indebtedness described in clause (1) or (2) above, (b) the
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principal amount of the Indebtedness secured by such Lien as of the time of the
Incurrence thereof does not exceed 100% of such cost and (c) any such Lien does
not extend to or cover any property or assets other than such item of property
or assets and any improvements on such item, provided that if 100% of the
Capital Stock of a Person is acquired (not including "qualifying" shares) such
Lien may extend to properties of such Person; (vii) leases or subleases granted
to others that do not materially interfere with the ordinary course of business
of the Issuer and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Issuer or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a part of,
any Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of the Issuer or any Restricted Subsidiary other than the
property or assets acquired; (xii) Liens in favor of the Issuer or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Issuer or any Restricted Subsidiary of the Issuer
that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect the
Issuer or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Issuer or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Issuer and its Restricted Subsidiaries prior to the Closing Date; and (xviii)
Liens on or sales of receivables.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indenture, and includes, without limitation, all classes and
series of preferred or preference stock.
"Proposed ING Credit Facility" means any bank credit facility between a
bank and any Restricted Subsidiary in a maximum outstanding principal amount of
$35.0 million and any refinancing thereof.
"Restricted Affiliate" means any Person in which the Issuer or any
Restricted Subsidiary has an Investment (a) whose primary business is related,
ancillary or complementary to the business of the Issuer and its Restricted
Subsidiaries on the date of such Investment, (b) both (x) which is not
consolidated in such Person's consolidated financial statements under GAAP, and
(y) of which 50% or less of the voting power of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, (c) of which at least 50% of the economic interest
is owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, and (d) that has been designated by the Board of
Directors (as evidenced by a Board Resolution delivered to the Trustee) as a
Restricted Affiliate based on a determination by such Board of Directors that
(x) the Issuer has, directly or indirectly, the requisite control over such
Person to prevent it from Incurring Indebtedness, making Restricted Payments, or
taking any other action in contravention of any provisions of the Indentures,
and (y) such Person otherwise qualifies as a Restricted Affiliate pursuant to
the requirements hereof.
"Restricted Subsidiary" means any Subsidiary of the Issuer, or of any
Subsidiary of the Issuer, other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its successors.
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"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Restricted Subsidiaries, (i) for
the most recent fiscal year of the Issuer, accounted for more than 10% of the
sum of the consolidated revenues of the Issuer and its Restricted Subsidiaries
plus the revenues of its Restricted Affiliates or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the sum of the consolidated
assets of the Issuer and its Restricted Subsidiaries plus the assets of its
Restricted Affiliates, all as set forth on the most recently available financial
statements of the Issuer for such fiscal year.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity (a) of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person, (b) which is
consolidated in such Person's consolidated financial statements under GAAP, or
(c) which is a Restricted Affiliate.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Issuer) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P, (v) securities with
maturities of six months or less from the date of acquisition issued or fully
and unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by S&P or Moody's, and (vi) time deposits,
certificates of deposit, bank promissory notes and bankers' acceptances maturing
not more than 180 days after the acquisition thereof and guaranteed or issued by
any of the ten largest banks (based on assets as of the immediately preceding
December 31) organized under the laws of any jurisdiction in which one of the
Restricted Subsidiaries does business and which are not under intervention,
bankruptcy or similar proceeding, not to exceed $10 million outstanding at any
one time.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Issuer or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Issuer) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital
Stock of, or owns or holds any Lien on any property of, the Issuer or any
Restricted Subsidiary; provided that (A) any Guarantee by the Issuer or any
Restricted Subsidiary of any
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Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by the Issuer or such
Restricted Subsidiary (or both, if applicable) at the time of such designation;
(B) either (I) the Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the "Limitation on Restricted Payments" covenant
described below, and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would be permitted under
the "Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (x) the Issuer could Incur $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant described below and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Each Indenture will contain, among others, the following covenants:
Limitation on Indebtedness
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Dollar Notes and the DM
Notes and Indebtedness existing on the Closing Date); provided that the Issuer
and any Restricted Subsidiary may Incur Indebtedness (including Acquired
Indebtedness), if, after giving effect to the Incurrence of such Indebtedness
and the receipt and application of the proceeds therefrom, the pro forma
Consolidated Leverage Ratio would be greater than zero and less than 5 to 1;
provided that no more than 50% of the Indebtedness Incurred under this clause
may be incurred by Restricted Subsidiaries.
Notwithstanding the foregoing, the Issuer and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed the greater of (A) $200 million and (B) Consolidated Adjusted Operating
Cash Flow for the preceding four quarters for which reports have been filed
pursuant to the "Commission Reports and Reports to Holders" covenant, in each
case less any amount of Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below, provided that the
aggregate amount of Indebtedness of Restricted Subsidiaries outstanding at any
one time under this clause (i) shall not exceed one-half of the greater of the
amounts referred to in clause (A) and clause (B) above; (ii) Indebtedness (A) to
the Issuer evidenced by an unsubordinated promissory note or other evidence of
unsubordinated indebtedness (provided that such indebtedness may be subordinated
to the Proposed ING Credit Facility) or (B) to any of its Restricted
Subsidiaries; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Issuer or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (including, without limitation, the Notes), other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi), (vii), (viii), (ix), (x) or (xi) of
this paragraph (which clauses are either unlimited in amount or provide for the
refinancing of Indebtedness Incurred
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thereunder), and any refinancings thereof in an amount not to exceed the amount
so refinanced or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness the proceeds of which are used to refinance or refund
the Notes or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes, and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded (assuming such Indebtedness had a
final Stated Maturity three months later than its actual final stated maturity);
and provided further that in no event may Indebtedness of the Issuer be
refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to
this clause (iii); (iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a) are
designed solely to protect the Issuer or its Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Issuer or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Issuer (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of the Issuer for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Issuer or any
Restricted Subsidiary in connection with such disposition; (v) Indebtedness of
the Issuer, to the extent the net proceeds thereof are promptly (A) used to
purchase Notes tendered in an Offer to Purchase made as a result of Change in
Control or (B) deposited to defease the Notes as described below under
"Defeasance"; (vi) Guarantees of the Notes or Guarantees of Indebtedness of the
Issuer by any Restricted Subsidiary provided the Guarantee of such Indebtedness
is permitted by and made in accordance with the "Limitation on Issuance of
Guarantees by Restricted Subsidiaries" covenant described below; (vii) secured
Indebtedness, in an aggregate amount not to exceed $15 million at any one time
outstanding, Incurred to finance the cost (including the cost of purchase or
installation) of equipment or other tangible capital assets used or useful in
the media, communications or entertainment business, in each case acquired by
the Issuer or a Restricted Subsidiary after the Closing Date; (viii)
Indebtedness of the Issuer not to exceed, at any one time outstanding, two times
the Net Cash Proceeds (less the amount of such proceeds applied as provided in
clause (ii) or (iii) of the second paragraph of the "Limitation on Restricted
Payments" covenant or applied to repay Indebtedness of the Issuer) received by
the Issuer (or any Restricted Subsidiary that Guarantees the Notes in accordance
with the "Limitation on Issuances of Guarantees by Restricted Subsidiaries"
covenant; provided that the Company delivers to the Trustee an Opinion of
Counsel to the effect (subject to customary caveats) that such Guarantee is
enforceable and provided further that such Capital Stock is not subsequently
repurchased by the Issuer or any Restricted Subsidiary) after the Closing Date
from the issuance and sale of its Capital Stock (other than Disqualified Stock)
to a Person that is not a Subsidiary of the Issuer; provided that such
Indebtedness matures after the Stated Maturity of the Notes and has an Average
Life longer than the Notes; (ix) Indebtedness of the Issuer and each Restricted
Subsidiary, not to exceed in the aggregate at any one time outstanding 60% of
the accounts receivable (net of accounts more than 90 days past due, reserves
and allowances for doubtful accounts, determined in accordance with GAAP) of the
Issuer and its Restricted Subsidiaries on a consolidated basis as set forth on
the balance sheet of the Issuer most recently filed with the Commission pursuant
to the "Commission Reports and Reports to Holders" covenant; provided that any
such Indebtedness
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of any Restricted Subsidiary is not Guaranteed by the Issuer; (x) Indebtedness
of any Restricted Subsidiary, not to exceed at any one time outstanding the
amount of the commitment to lend to such Restricted Subsidiary by any Person not
an Affiliate thereof on the Closing Date (and refinancings of such
Indebtedness); and (xi) without duplication of Indebtedness permitted under
clause (x), Indebtedness incurred under the Proposed ING Credit Facility
(including any Guarantees relating thereto) up to $35 million in principal
amount at any one time outstanding, and any refinancings thereof.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Issuer or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness, due solely to the result of fluctuations in interest rates or the
exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant (1) Guarantees, Liens, or obligations
with respect to letters of credit, supporting Indebtedness of any Person
otherwise included in the determination of such particular amount of
Indebtedness of such Person shall not be included and (2) any Liens granted
pursuant to the equal and ratable provisions referred to in the "Limitation on
Liens" covenant described below shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses, the
Issuer, in its sole discretion, shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses.
Limitation on Restricted Payments
The Issuer will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to (i) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other than (x) dividends
or distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by other stockholders)held by Persons other than
the Issuer or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire
or otherwise acquire for value any shares of Capital Stock of (A) the Issuer or
an Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Person or (B) a Restricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Affiliate of the Issuer (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or
more of the Capital Stock of the Issuer, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, prior to the scheduled maturity,
of Indebtedness of the Issuer that is subordinated in right of payment to the
Notes (other than the purchase, repurchase or the acquisition of Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in any case due within one year of the date of acquisition) or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) except with respect to Investments, the
Issuer could not Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date, plus the
outstanding amount of all Permitted Investments permitted pursuant to the second
proviso of clause (i) of the definition of Permitted Investment, shall exceed
the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the
amount of such loss) (determined by excluding income resulting from transfers of
assets by the Issuer or a Restricted Subsidiary to an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed pursuant to the "Commission
Reports and Reports to Holders" covenant
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plus (2) the aggregate Net Cash Proceeds received by the Issuer after the
Closing Date from the issuance and sale permitted by the Indentures of Capital
Stock of the Issuer (other than Disqualified Stock), to a Person who is not a
Subsidiary of the Issuer or from the issuance to a Person who is not a
Subsidiary of the Issuer of any options, warrants or other rights to acquire
Capital Stock of the Issuer (in each case, exclusive of any Disqualified Stock
or any options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) plus (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments, except any reduction in the outstanding
amount of Permitted Investments permitted pursuant to the second proviso of
clause (i) of the definition of Permitted Investment) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Issuer or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Issuer or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes,
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Issuer (or
options, warrants or other rights to acquire such Capital Stock) in exchange
for, or out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of the Issuer; (iv) the making of
any principal payment or the repurchase, redemption, retirement, defeasance or
other acquisition for value of Indebtedness of the Issuer which is subordinated
in right of payment to the Notes, in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of the Capital Stock of the Issuer
(other than Disqualified Stock); (v) the declaration or payment of dividends on
the Common Stock of the Issuer of up to 6% per annum of the Net Cash Proceeds
received by the Issuer in the aggregate from any public offering of Common Stock
after the Closing Date; (vi) payments or distributions to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Issuer; (vii) any
Investments made after the Closing Date, provided that the sum of such
Investments does not exceed $25 million at any one time outstanding and that the
Board of Directors of the Issuer has determined in good faith that such
Investment will enable the Issuer or any of its Restricted Subsidiaries to
obtain additional business that it might not be able to obtain without making
such Investment; (viii) purchases or other acquisitions of Capital Stock in
compliance with the terms of written agreements in effect on the Closing Date,
as amended; provided that the Board of Directors determines that each such
amendment is not adverse to the interests of any Holder; (ix) cash payments in
lieu of the issuance of fractional shares upon the exercise of any warrants or
options on Common Stock; (x) Investments made after the Closing Date in
Restricted Affiliates in an aggregate amount at any one time outstanding not to
exceed the sum of (A) $50 million and (B) one-half of the aggregate Net Cash
Proceeds received by the Issuer after the Closing Date from the issuance and
sale permitted by the Indenture of Capital Stock of the Issuer (other than
Disqualified Stock) to a Person that is not a Subsidiary of the Issuer and not
otherwise used for a Restricted Payment described in clauses (i) through (iii)
of the first paragraph of this covenant or invested in an outstanding
Investment, or (xi) non pro rata dividends paid to minority shareholders of
Restricted Subsidiaries pursuant to agreements for the acquisition of such
Common Stock, provided that such dividends do not in the aggregate exceed the
minority shareholder's pro rata ownership share of such Restricted Subsidiary
for the period for which such dividend or distribution is paid, provided that,
except in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein. Any Restricted Payments made other than in cash
shall be valued at fair market value. The amount of any Investment "outstanding"
at any time shall be deemed
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to be equal to the amount of such Investment on the date made, less the return
of capital (including dividends) to the Issuer and its Restricted Subsidiaries
with respect to such Investment (up to the amount of such Investment on the date
made).
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Issuer are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Issuer will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Issuer or any Restricted Subsidiary, (ii) pay any Indebtedness owed to the
Issuer or any Restricted Subsidiary, (iii) make loans or advances to the Issuer
or any other Restricted Subsidiary, or (iv) transfer any of its property or
assets to the Issuer or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indentures or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law, rule or
regulation or, to the extent not material to the Issuer, at the behest of
regulatory authorities; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Issuer or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Issuer or any
Restricted Subsidiary not otherwise prohibited by the Indentures or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Issuer or any Restricted Subsidiary in
any manner material to the Issuer or any Restricted Subsidiary; (v) with respect
to a Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi)
with respect to Restricted Subsidiaries in which, on and subsequent to the
Closing Date, the Issuer and its Restricted Subsidiaries only make Investments
that are evidenced by unsubordinated promissory notes that bear a reasonable
rate of interest and are payable prior to the Stated Maturity of the Notes;
provided that such encumbrances and restrictions expressly allow the payment of
interest and principal on such promissory notes; (vii) solely of the type
referred to in clause (iii) or (iv) of the first paragraph of this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant that are contained in any stockholders' agreement, joint venture
agreement or similar agreement among owners of Common Stock of a Restricted
Subsidiary; provided that such restrictions consist solely of requirements that
transactions between such Restricted Subsidiaries and Affiliates thereof
(including the Issuer and its Restricted Subsidiaries) be on fair and reasonable
terms no less favorable
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to such Restricted Subsidiary than could be obtained in a comparable
arm's-length transaction with a Person that is not such an Affiliate; or (viii)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if the Board of Directors of the Issuer determines
that such encumbrance or restriction together with encumbrances and restrictions
of any other Indebtedness will not materially affect the Issuer's ability to
make interest or principal payments on the Notes; or (ix) contained in the
agreement pertaining to the Proposed ING Credit Facility, provided that the
terms thereof are not materially more restrictive than those set forth in the
offer letter from ING Barings dated July 24, 1997, including the Term Sheet
attached thereto. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Issuer or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Issuer or any of its Restricted Subsidiaries that secure Indebtedness of
the Issuer or any of its Restricted Subsidiaries.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
The Issuer will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Issuer or a Restricted
Subsidiary; (ii) issuances of director's qualifying shares or sales to non-U.S.
nationals of shares of Capital Stock of non-U.S. Restricted Subsidiaries, to the
extent required by applicable law; (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary, provided any Investment in such Person remaining after
giving effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant, if made on the date of
such issuance or sale; (iv) issuances or sales of Common Stock, either (x) the
Net Cash Proceeds of which are promptly applied pursuant to clause (A) or (B) of
the "Limitation on Asset Sales" covenant or (y) in the case of a sale for
consideration other than cash, in exchange for property or services having a
fair market value at least equal to the fair market value of the Common Stock
issued; and (v) issuances and sales of up to 6% of the Common Stock of each
Restricted Subsidiary in connection with employee benefit plans or arrangements.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Issuer will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Issuer which is pari passu with
or subordinate in right of payment to the Notes ("Guaranteed Indebtedness"),
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indentures providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Issuer or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to (x) any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, (y) any Guarantee by Restricted Subsidiaries to the extent any such
Restricted Subsidiary could itself Incur such Indebtedness being Guaranteed
(without duplication in the case of the same Indebtedness being Guaranteed by
one or more Restricted Subsidiaries) under the "Limitation on Indebtedness"
covenant; or (z) any Guarantee of Indebtedness under the Proposed ING Credit
Facility. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee, or (B) subordinated to the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Issuer, of all of the Issuer's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or
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transfer is not prohibited by the Indenture) or (ii) the release or discharge of
the Guarantee which resulted in the creation of such Subsidiary Guarantee,
except a discharge or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Issuer or with any
Affiliate of the Issuer or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Issuer or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Issuer or a Restricted Subsidiary
delivers to the applicable Trustee a written opinion of a nationally recognized
investment banking firm (or a subsidiary or affiliate thereof) in the United
States stating that the transaction is fair to the Issuer or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
the Issuer and any of its Wholly Owned Restricted Subsidiaries or solely between
Wholly Owned Restricted Subsidiaries; (iii) the payment of reasonable and
customary regular fees to directors of the Issuer who are not employees of the
Issuer; (iv) any Payments or other transactions pursuant to any tax-sharing
agreement between the Issuer and any other Person with which the Issuer files a
consolidated tax return or with which the Issuer is part of a consolidated group
for tax purposes; (v) transactions in the ordinary course of business of the
Company or any Restricted Subsidiary; provided that the aggregate amount of such
transactions do not exceed $2 million in any fiscal year; or (vi) any Restricted
Payments not prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction covered by the first paragraph of
this "Limitation on Transactions with Shareholders and Affiliates" covenant and
not covered by clauses (ii) through (iv) of this paragraph, the aggregate amount
of which exceeds $1 million in value, must be approved or determined to be fair
in the manner provided for in clause (i)(A) or (B) above.
Limitation on Liens
The Issuer will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the applicable Indenture to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the Notes or the
Note Guarantee, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Issuer or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Issuer or a Restricted Subsidiary
to secure Indebtedness owing to the Issuer or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) or clause (xi)
of the second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of the Issuer
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Permitted Liens; (vi) Liens securing
obligations not in excess of $2 million; (vii) Liens on any property or assets
of a Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted to be Incurred under the "Limitation on Indebtedness" covenant; or
(viii) Liens granted over any assets of the Issuer to secure the Proposed ING
Credit Facility, including without limitation cash held by the Issuer and any
Capital Stock held by the Issuer.
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Limitation on Sale-Leaseback Transactions
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any sale-leaseback transaction involving any
of its assets or properties whether now owned or hereafter acquired, whereby the
Issuer or a Restricted Subsidiary sells or transfers such assets or properties
and then or thereafter leases such assets or properties or any part thereof or
any other assets or properties which the Issuer or such Restricted Subsidiary,
as the case may be, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Issuer and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; (iv) the Issuer or such Restricted Subsidiary, within twelve
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below; or (v) it relates to the Proposed ING
Credit Facility.
Limitation on Asset Sales
The Issuer will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale unless (i) the consideration received by the Issuer or
such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the extent
that the Net Cash Proceeds received by the Issuer or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Issuer and its
subsidiaries have been filed pursuant to the "Commission Reports and Reports to
Holders" covenant), then the Issuer shall, or shall cause the relevant
Restricted Subsidiary to, (i) within twelve months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets,
(A) apply an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Issuer or any Restricted Subsidiary providing
a Subsidiary Guarantee pursuant to the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries" covenant described above or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the Issuer or
any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within twelve months after the date of such agreement),
in property or assets (other than current assets) of a nature or type or that
are used in a business (or in a company having property and assets of a nature
or type, or engaged in a business) similar or related to the nature or type of
the property and assets of, or the business of, the Issuer and its Restricted
Subsidiaries existing on the date of such investment and (ii) apply (no later
than the end of the twelve-month period referred to in clause (i)) such excess
Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided
in the following paragraph of this "Limitation on Asset Sales" covenant. The
amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such twelve-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, the Issuer
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes on the relevant Payment Date equal to the
Excess Proceeds on such date, at a purchase price equal to 101% of the principal
amount of the Notes, plus, in each case, accrued interest (if any) to the
Payment Date.
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Repurchase of Notes upon a Change of Control
The Issuer must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that the Issuer will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Issuer which might be outstanding at
the time). The above covenant requiring the Issuer to repurchase the Notes will,
unless consents are obtained, require the Issuer and its Subsidiaries to repay
or cause to be repaid all indebtedness then outstanding which by its terms would
prohibit such Note repurchase, either prior to or concurrently with such Note
repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Issuer is then required to file reports with the
Commission, the Issuer shall file with the Commission all such reports and other
information as it would be required to file with the Commission by Section 13(a)
or 15(d) under the Exchange Act if it were subject thereto. Upon request, the
Issuer shall supply the Trustee and each Holder or shall supply to the Trustee
for forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.
NOTICES
Notices regarding the Notes shall be, unless expressly provided otherwise,
given, if to registered Holders, in writing and mailed, first-class postage (or,
if first-class mail is unavailable, by airmail) prepaid, to each registered
Holder at such Holder's address as it appears in the Register, in each case not
later than the latest date, and not earlier than the earliest date, prescribed
under the Notes for the giving of such notice; or, if to unregistered Holders,
published in the following journals: (i) the Bundesanzeiger and one mandatory
nationwide newspaper (if practicable, the Borsen-Zeitung) in Frankfurt am Main
in the German language; (ii) a leading daily newspaper (if practicable, The Wall
Street Journal (Eastern Edition)) printed in the English language and of general
circulation in New York; (iii) a leading daily newspaper (if practicable, the
Financial Times (London Edition)) printed in the English language and of general
circulation in London; and (iv) a leading daily newspaper (if practicable, the
Luxemburger Wort) printed in the French language and of general circulation in
Luxembourg, in each case, once in each of three successive calendar weeks, the
first publication to be not later than the latest date, and not earlier than the
earliest date, prescribed under the Notes for the giving of such notice. Any
notice to unregistered Holders will become effective for all purposes on the
date of its publication in the Bundesanzeiger.
GOVERNING LAW
The Notes and the Indentures provide that the Notes and the Indentures will
be governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflict of laws, except as referred to
under "-- Substitution of Currency."
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in each
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note issued under such Indenture when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise; (b) default in the payment
of interest on any Note issued under such Indenture when the same becomes due
and payable, and such default continues for a period of 30 days; (c) defaults in
the performance or breach of the provisions of such Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the assets
of the Issuer or the failure to make or consummate an Offer to Purchase in
accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon a
Change of Control" covenant; (d) the Issuer defaults in the performance of or
breaches any other covenant or agreement of the Issuer in such Indenture or
under the Notes issued under such Indenture (other than a default specified in
clause (a), (b) or (c) above) and such default or breach
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continues for a period of 30 consecutive days after written notice by the
applicable Trustee or the Holders of 25% or more in aggregate principal amount
at maturity of the Notes issued under such Indenture; (e) there occurs with
respect to any issue or issues of Indebtedness of the Issuer or any Significant
Subsidiary having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Issuer or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in
the premises enters a decree or order for (A) relief in respect of the Issuer or
any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or any Significant Subsidiary or
for all or substantially all of the property and assets of the Issuer or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Issuer or any Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (h)
the Issuer or any Significant Subsidiary (A) commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or any Significant Subsidiary or for all or substantially
all of the property and assets of the Issuer or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Issuer) occurs and is
continuing under an Indenture, the applicable Trustee or the Holders of at least
25% in aggregate principal amount at maturity of the Notes then outstanding
under such Indenture, by written notice to the Issuer (and to the applicable
Trustee if such notice is given by the Holders), may, and such Trustee at the
request of such Holders shall, declare the principal amount of, premium, if any,
and accrued interest on the Notes under such Indenture to be immediately due and
payable. Upon a declaration of acceleration, such principal amount of, premium,
if any, and accrued interest shall be immediately due and payable. In the event
of a declaration of acceleration because an Event of Default set forth in clause
(e) above 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 clause (e) shall be remedied or cured by the Issuer
or the relevant Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (g) or (h) above occurs with
respect to the Issuer, the principal amount of, premium, if any, and accrued
interest on the Notes under such Indenture then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of at least a majority in
principal amount at maturity of the outstanding Notes under an Indenture by
written notice to the Issuer and to the Trustee may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if (i) all
existing Events of Default, other than the nonpayment of the principal of,
premium, if any, and interest on the Notes under such Indenture that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. For information as to the waiver of defaults, see
"-- Modification and Waiver."
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The Holders of at least a majority in aggregate principal amount at
maturity of the outstanding Notes under an Indenture may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
thereunder or exercising any trust or power conferred on such Trustee. However,
such Trustee may refuse to follow any direction that conflicts with law or the
applicable Indenture, that may involve such Trustee in personal liability, or
that such Trustee determines in good faith may be unduly prejudicial to the
rights of Holders of Notes thereunder not joining in the giving of such
direction and may take any other action it deems proper that is not inconsistent
with any such direction received from Holders of such Notes. A Holder may not
pursue any remedy with respect to an Indenture or the Notes issued thereunder
unless: (i) the Holder gives the applicable Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of outstanding Notes issued thereunder make a
written request to the applicable Trustee to pursue the remedy; (iii) such
Holder or Holders offer the applicable Trustee indemnity satisfactory to such
Trustee against any costs, liability or expense; (iv) such Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount at maturity of the outstanding Notes issued
thereunder do not give such Trustee a direction that is inconsistent with the
request. However, such limitations do not apply to the right of any Holder of a
Note to receive payment of the principal of, premium, if any, or interest on,
such Note or to bring suit for the enforcement of any such payment, on or after
the due date expressed in the Notes, which right shall not be impaired or
affected without the consent of the Holder.
The Indentures will require certain officers of the Issuer to certify, on
or before a date not more than 90 days after the end of each fiscal year of the
Issuer, that a review has been conducted of the activities of the Issuer and its
Restricted Subsidiaries and the Issuer's and its Restricted Subsidiaries'
performance under the Indentures and that the Issuer has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Issuer will also be obligated to notify the applicable Trustee of
any default or defaults in the performance of any covenants or agreements under
the Indentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Issuer unless: (i) the Issuer shall be the continuing Person,
or the Person (if other than the Issuer) formed by such consolidation or into
which the Issuer is merged or that acquired or leased such property and assets
of the Issuer shall be a corporation organized and validly existing under the
laws of the jurisdiction of incorporation of the Issuer immediately prior to
such transaction, the United States of America, the British Virgin Islands, the
Cayman Islands, the Netherlands Antilles, any EU Country or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed and
delivered to the applicable Trustee, all of the obligations of the Issuer on all
of the Notes issued under the applicable Indenture and under such Indenture;
provided that, with respect to any such transaction immediately subsequent to
which the continuing Person is incorporated in a jurisdiction other than the
United States or the jurisdiction in which such Person was incorporated
immediately prior to such transaction, (A) the Issuer delivers to the applicable
Trustee an Opinion of Counsel stating that the obligations of the continuing
Person under such Indenture are enforceable under the laws of the new
jurisdiction of its incorporation to the same extent as the obligations of the
Issuer under such Indenture immediately prior to such transaction; (B) the
continuing Person agrees in writing to submit to jurisdiction and appoints an
agent for the service of process, each under terms substantially similar to the
terms contained in such Indenture with respect to the Issuer; (C) the continuing
Person agrees in writing to pay "additional amounts" as provided under such
Indenture with respect to the Issuer except that such "additional amounts" shall
relate to any withholding tax whatsoever regardless of any change of law
(subject to exceptions substantially similar to those contained in such
Indenture and described under "-- Additional Amounts"); and (D) the Board of
Directors of the Issuer determines in good faith that such transaction will have
no material adverse effect on any Holder and a Board Resolution to that effect
is delivered to such Trustee; (ii) immediately after giving effect to such
transaction, no Default or Event of
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Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Issuer or any Person
becoming the successor obligor of the Notes issued under such Indenture shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Issuer immediately prior to such transaction; (iv) immediately
after giving effect to such transaction on a pro forma basis, the Issuer or any
Person becoming the successor obligor of the Notes issued under such Indenture
would have a Consolidated Leverage Ratio no higher (or, if negative, no lower)
than the Consolidated Leverage Ratio of the Issuer immediately prior to such
transaction; provided that, in connection with any such merger or consolidation,
no consideration (other than Common Stock in the surviving Person or the Issuer)
shall be issued or distributed to the stockholders of the Issuer; and (v) the
Issuer delivers to such Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv))
and Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clauses (iii) and (iv) above do not
apply if, in the good faith determination of the Board of Directors of the
Issuer, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state or jurisdiction of
incorporation of the Issuer; and provided further that any such transaction
shall not have as one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge
Each Indenture will provide that the Issuer will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes issued
thereunder on the 123rd day after the deposit referred to below, and the
provisions of such Indenture will no longer be in effect with respect to such
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of such Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Issuer has irrevocably deposited or caused to be
irrevocably deposited with the applicable Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest, premium, if any,
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to such Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all state and local taxes or
other charges and assessments in respect thereof payable by such Trustee, the
principal of, premium, if any, and accrued interest on such Notes on the Stated
Maturity of such principal or interest or upon earlier redemption in accordance
with the terms of such Indenture and such Notes, (B) the Issuer has delivered to
such Trustee either (i) a ruling based on relevant law and practice at the time
directed to such Trustee from the relevant tax authority to the effect that the
Holders will not recognize income, gain or loss for Bermuda income tax or other
tax purposes as a result of the Issuer's exercise, disregarding income tax on
any amounts that would have been received but for such exercise of its option
under this "Defeasance" provision and will be subject to income tax on the same
amount and in the same manner and at the same time as would have been the case
if such option had not been exercised or (ii) an Opinion of Counsel to the same
effect as the ruling described in clause (i) above; (C) the Issuer has delivered
to such Trustee (i) either (x) an Opinion of Counsel to the effect that Holders
will not recognize income, gain or loss for U.S. income tax or other tax
purposes as a result of the Issuer's exercise of its option under this
"Defeasance" provision and will be subject to income tax on the same amount and
in the same manner and at the same time as would have been the case if such
option had not been exercised, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling published by the Internal Revenue Service to
the same effect unless there has been a change in applicable federal income tax
law after the Closing Date such that a ruling is no longer required or (y) a
ruling directed to such Trustee received from the Internal Revenue Service to
the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of
Counsel to the effect that the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (D) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of
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Default, or event that after the giving of notice or lapse of time or both would
become a Default or an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Issuer or any of its Subsidiaries is a party or by which the Issuer
or any of its Subsidiaries is bound, (E) if at such time such Notes are listed
on a securities exchange, the Issuer his delivered to such Trustee an Opinion of
Counsel to the effect that such Notes will not be delisted as a result of the
Issuer's exercise of its option under this "Defeasance" provision, and (F) the
Issuer shall have delivered to such Trustee an Officer's Certificate and an
Opinion of Counsel, in each case stating that all the above conditions precedent
have been complied with.
Defeasance of Certain Covenants and Certain Events of Default
Each Indenture further will provide that the provisions of such Indenture
will no longer be in effect with respect to clauses (iii) and (iv) under
"Consolidation, Merger and Sale of Assets" and all the covenants described
herein under "Covenants," clauses (c) and (d) under "Events of Default" with
respect to such clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets" and such covenants and clauses (e) and (f) under "Events of Default"
shall be deemed not to be Events of Default, upon, among other things, the
deposit with the applicable Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes issued thereunder on the Stated Maturity of such payments in accordance
with the terms of such Indenture and such Notes, the satisfaction of the
provisions described in clauses (B)(ii), (C), (D) and (E) of the preceding
paragraph and the delivery by the Issuer to such Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not recognize
income, gain or loss for Bermuda or U.S. federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default and
will be subject to Bermuda and U.S. federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default
In the event the Issuer exercises its option to omit compliance with
certain covenants and provisions of an Indenture with respect to the Notes
issued thereunder as described in the immediately preceding paragraph and such
Notes are declared due and payable because of the occurrence of an Event of
Default that remains applicable, the amount of money and/or U.S. Government
Obligations on deposit with the applicable Trustee will be sufficient to pay
amounts due on such Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Notes at the time of the acceleration
resulting from such Event of Default. However, the Issuer will remain liable for
such payments.
MODIFICATION AND WAIVER
Modifications and amendments of an Indenture may be made by the Issuer and
the applicable Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount at maturity of the outstanding Notes
under such Indenture; provided, however, that no such modification or amendment
may, without the consent of each Holder affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Note, (ii)
reduce the principal amount of, or premium, if any, or interest on, any Note,
(iii) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Notes under such Indenture the consent of
whose Holders is necessary to modify or amend such Indenture, (vi) waive a
default in the payment of principal of, premium, if any, or interest on the
Notes, or (vii) reduce the percentage or aggregate principal amount at maturity
of outstanding Notes under such Indenture the consent of whose Holders is
necessary for waiver of compliance with certain provisions of such Indenture or
for waiver of certain defaults.
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NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
Each Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes under such Indenture or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Issuer in such Indenture or
in any of such Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of the Issuer or of any successor Person thereof.
Each Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEES
Each Indenture provides that, except during the continuance of a Default,
the applicable Trustee will not be liable except for the performance of such
duties as are specifically set forth in such Indenture. If an Event of Default
has occurred and is continuing, such Trustee will use the same degree of care
and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
Each Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the applicable Trustee, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. Such Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such conflict or resign.
ADDITIONAL AMOUNTS
In the event of any change in the laws of Bermuda or of any political
subdivision or taxing authority thereof or therein or any change in the
interpretation or administration thereof, the effect of which is to require the
withholding or deduction by the Issuer pursuant to the Notes of any amount for
taxes, the Issuer will pay, to the extent it may then lawfully do so, such
additional amounts ("Additional Amounts") as may be necessary in order that
every net payment of the principal of and interest on the Notes, after deduction
for withholding for or on account of any future tax, assessment or other
governmental charge, will not be less than the amount provided for in the Notes
to be then due and payable; provided, however, that the foregoing obligation to
pay Additional Amounts shall not apply in respect of:
(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 any political subdivision or taxing authority thereof 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 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 Issuer (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 limit the Issuer's
obligation to pay Additional Amounts if the completing and filing of the
information described in subclause (i) or the declaration or other claim
described in
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subclause (ii) 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 payment.
In the opinion of Conyers Dill & Pearman, Bermuda counsel for the Issuer,
under Bermuda law no withholding tax would be payable in Bermuda in respect of
any payment that may be required under the Notes.
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 Issuer will be obligated to pay
Additional Amounts with respect to such payment, the Issuer will deliver to the
applicable Trustee an Officer's 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. Whenever in an Indenture or in this
Prospectus there is mentioned, in any context, the payment of principal (and
premium, if any), redemption price, interest or any other amount payable under
or with respect to any Note, such mention shall be deemed to include mention of
the payment of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof. See
"-- Optional Redemption."
BOOK-ENTRY; DELIVERY AND FORM
The Dollar Notes will be initially issued in the form of one or more fully
registered Global Notes which will be deposited with, or on behalf of, DTC and
registered in the name of a nominee of DTC. Transfers of Dollar Notes between
participants in DTC will be effected in the ordinary way in accordance with
DTC's rules and will be settled in same-day funds. The DM Notes will be
represented by two permanent global certificates without interest coupons. One
of the two permanent certificates (the "DKV Global Certificate") will be kept in
custody by DKV, will be issued in bearer form and will represent the DM Notes
sold outside the United States to non-U.S. persons and held through financial
institutions that are account holders in DKV ("DKV Accountholders"). The DKV
Global Certificate will include the DM Notes which are held through Euroclear
and Cedel, each of which has an account with DKV. The other permanent DM Note
global certificate (the "DTC DM Note Global Certificate" and, together with the
DKV Global Certificate, the "DM Global Certificates") will be issued in
registered form in the name of Cede & Co., as nominee of DTC, and will represent
the DM Notes sold to investors and held through financial institutions that are
participants in DTC. Together, the Notes represented by the DKV Global
Certificate and the DTC DM Note Global Certificate, respectively, will equal the
aggregate principal amount of the DM Notes outstanding at any time. The amount
of DM Notes represented by each of the DKV Global Certificate and the DTC Global
Certificate is evidenced by the Register maintained for that purpose by the
Registrar. Definitive certificates representing individual Notes and interest
coupons shall not be issued.
DTC and Registered Global Notes
DTC has advised the Issuer and the Underwriters that it intends to follow
the procedures as described below:
DTC will act as securities depository for the registered Global Notes
(all Dollar Notes and the registered DM Notes). The registered Global Notes
will be issued as a fully registered security registered in the name of
Cede & Co. (DTC's nominee).
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve
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System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to DTC's system
is also available to others such as securities brokers and dealers, banks,
and trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The Rules applicable to DTC and its Participants are on
file with the Commission.
Purchases of registered Notes must be made by or through Direct
Participants, which will receive a credit for such Notes on the
Depositary's records. The ownership interest of each actual purchaser of
each registered Note ("Beneficial Owners") is in turn recorded on the
Direct and Indirect Participants' records. Transfers of ownership interest
in such Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in such
Notes, except in the event that use of the book-entry system for such Notes
is discontinued as described below.
Conveyance of registered Notes and other communications by DTC to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices for registered Global Notes shall be sent to Cede &
Co. If less than all of the registered Notes of a class are being redeemed,
DTC's practice is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
registered Notes. Under its usual procedures, DTC mails an Omnibus Proxy to
the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the registered Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium (if any), and interest payments on the registered
Notes will be made to DTC. DTC's practice is to credit Direct Participants'
accounts on the payment date in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not
receive payment on the payment date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
Participant and not of DTC, the Paying Agent or the Issuer, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, premium (if any) and interest to DTC is the
responsibility of Issuer or the Paying Agent, disbursement of such payments
to Direct Participants shall be the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners shall be the responsibility of
Direct and Indirect Participants.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer believes to be reliable, but the
Issuer takes no responsibility for the accuracy thereof.
So long as DTC or its nominee is the registered owner of the registered
Global Notes, DTC or its nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by the registered Global Notes for
all purposes under the Indentures. Owners of beneficial interests in such Global
Notes will not be entitled to have Notes represented by such Global Notes
registered in their names, will not
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receive or be entitled to receive physical delivery of Notes in definitive form
and will not be considered the owners or Holders thereof under the Indentures.
Accordingly, such person owning a beneficial interest in registered Global Notes
must rely on the procedures of DTC and, if such person is not a Participant,
those of the Participant through which such person owns its interests in order
to exercise any rights of a Holder under the Indentures or such Note.
The Indentures provide that DTC, as a Holder, may appoint agents and
otherwise authorize Participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a Holder
is entitled to give or take under the Indentures, including the right to sue for
payment of principal or interest pursuant to Section 316(b) of the Trust
Indenture Act of 1939, as amended. The Issuer understands that under existing
industry practices, when the Issuer requests any action of Holders or when a
Beneficial Owner desires to give or take any action which a Holder is entitled
to give or take under the Indentures, DTC generally will give or take such
action, or authorize the relevant Participants to give or take such action, and
such Participants would authorize Beneficial Owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners owning through them.
The Issuer has been informed by DTC that DTC will assist its Participants
and their customers (Beneficial Owners) in taking any action a Holder is
entitled to take under the Indentures or exercise any rights available to Cede &
Co., as the holder of record of the registered Notes, including the right to
demand acceleration upon an Event of Default or to institute suit for the
enforcement of payment or interest pursuant to Section 316(b) of the Trust
Indenture Act of 1939, as amended. DTC has advised the Issuer that it will act
with respect to such matters upon written instructions from a Participant to
whose account with DTC the relevant beneficial ownership in the registered Notes
is credited. The Issuer understands that a Participant will deliver such written
instructions to DTC upon itself receiving similar written instructions from
either Indirect Participants or Beneficial Owners, as the case may be. Under
Rule 6 of the rules and procedures filed by DTC with the Commission pursuant to
Section 17 of the Securities Exchange Act of 1934, as amended, Participants are
required to indemnify DTC against all liability DTC may sustain, without fault
on the part of DTC or its nominee, as a result of any action they may take
pursuant to the instructions of the Participant in exercising any such rights.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
the Global Notes.
Principal, premium, if any, and interest payments on Notes registered in
the name of or held by DTC or its nominee will be made to DTC or its nominee, as
the case may be, as the registered owner or the Holder of the registered Global
Notes representing such Notes. Neither the Issuer nor either Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the registered
Global Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
If DTC is at any time unwilling, unable or ineligible to continue as
depositary and a successor depositary is not appointed by the Issuer within 60
days or if an Event of Default under an Indenture has occurred and is
continuing, the Issuer will issue Notes under such Indenture in definitive
registered form, without coupons, in denominations of $1,000 principal amount at
maturity (or DM 1,000 principal amount at maturity, as applicable) and any
integral multiple thereof, in exchange for the registered Global Notes
representing such Notes. In addition, the Issuer may at any time and in its sole
discretion determine not to have any Notes in registered form represented by the
registered Global Notes and, in such event, will issue Notes in definitive
registered form in exchange for the registered Global Notes representing such
Notes. In any such instance, an owner of a beneficial interest in a registered
Global Note will be entitled to physical delivery in definitive form of
registered Notes represented by such registered Global Notes equal in principal
amount at maturity to such beneficial interest and to have such Notes registered
in its name. Upon the exchange of the registered Global Notes for Notes in
definitive form, the registered Global Notes will be cancelled by the applicable
Trustee.
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DKV and DM Notes
Transfers of DM Notes will be limited to transfers of book-entry interests
between and within DKV and DTC. Transfers of DM Notes between DKV Accountholders
on the one hand and DTC Participants on the other hand shall be effected by an
increase or a reduction in the aggregate amount of DM Notes represented by the
DKV Global Certificate and a corresponding reduction or increase in the
aggregate amount of DM Notes represented by the DTC DM Note Global Certificate.
Owners of legal co-ownership interests in the DKV Global Certificate or of
beneficial interests in the DTC DM Note Global Certificate will not be entitled
to have DM Notes registered in their names, and will not receive or be entitled
to receive physical delivery of definitive certificates representing individual
DM Notes.
The Company has appointed Bankers Trust Company as registrar (the
"Registrar") for all Notes and as paying agent in respect of the DM Notes
represented by the DTC DM Note Global Certificate (the "U.S. Paying Agent") and
Bankers Trust International PLC (Frankfurt Branch) as paying agent for the DM
Notes represented by the DKV Global Certificate (the "DM Paying Agent", together
with the U.S. Paying Agent, the "Paying Agents"). Bankers Trust Company, as the
Registrar, provides the link between DTC and DKV. The Issuer shall ensure that
for as long as any DM Notes shall be outstanding there shall always be a
Registrar, a U.S. paying agent and a DM paying agent to perform the functions
assigned to any of them in the DM Note Indenture.
Payment of DM Notes
Payment of principal of and interest on the DM Notes represented by the
Global Certificates will be made in Deutsche Marks through the DM Paying Agent
to DKV and to Cede & Co., the nominee for DTC, as the registered Holder of the
DTC DM Note Global Certificate.
Any person holding beneficial interests in the DTC DM Note Global
Certificate (a "DTC Note Holder") shall receive payments of principal and
interest in respect of the DM Notes in U.S. dollars, unless such DTC Note Holder
elects to receive payments in Deutsche Marks in accordance with the procedures
set forth below. To the extent that the DTC Note Holders shall not have made
such election in respect of any payment of principal or interest, the aggregate
amount designated for all such DTC Note Holders in respect of such payment (the
"DM Conversion Amount") shall be credited to the U.S. Paying Agent's account
with the Paying Agent and converted by the U.S. Paying Agent into U.S. dollars
and paid by wire transfer of same-day funds to the registered holder of the DTC
DM Note Global Certificate for payment through DTC's settlement system to the
relevant DTC Participants. All costs of any such conversion and wire transfer
shall be deducted from such payments. Any such conversion shall be based on
Bankers Trust Company's bid quotation, at or prior to 11:00 a.m. New York time,
on the second New York Business Day (as defined below) preceding the relevant
payment date, for the purchase by the U.S. Paying Agent of the DM Conversion
Amount of U.S. dollars for settlement on such payment date. If such bid
quotation is not available for any reason, the U.S. Paying Agent shall endeavor
to obtain a bid quotation from a leading foreign exchange bank in New York City
selected by the U.S. Paying Agent for such purpose. If no bid quotation from a
leading foreign exchange bank is available, payment of the DM Conversion Amount
will be made in Deutsche Marks to the account or accounts specified by DTC to
the U.S. Paying Agent.
In addition to acting in its capacity as U.S. Paying Agent, Bankers Trust
Company may act as a foreign exchange dealer for purposes of converting Deutsche
Marks to U.S. dollars as described in the paragraph above and, when acting as a
foreign exchange dealer, it will derive profits from such activities in addition
to the fees earned by it for its services as Trustee, Registrar and U.S. Paying
Agent. Each such conversion will be made on such terms, conditions, and charges
not inconsistent with the terms of the DM Notes as Bankers Trust Company may
from time to time establish in accordance with its regular foreign exchange
practices, and subject to applicable U.S. law and regulations.
A DTC Note Holder may elect to receive payment of principal and interest
with respect to the DM Notes in Deutsche Marks by causing DTC through the
relevant DTC Participant to notify the U.S. Paying
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<PAGE> 94
Agent by the time specified below of (i) such DTC Note Holder's election to
receive all or a portion of such payment in Deutsche Marks and (ii) wire
transfer instructions to a Deutsche Mark account in the Federal Republic of
Germany. Such election in respect of any payment must be made by the DTC Note
Holder at the time and in the manner required by the DTC procedures applicable
from time to time and shall, in accordance with such procedures, be irrevocable
and shall relate only to such payment. DTC notifications of such election, wire
transfer instructions and the amount payable in Deutsche Marks must be received
by the U.S. Paying Agent prior to 5:00 p.m. New York time on the fifth New York
Business Day following the relevant Record Date in the case of interest, and
prior to 5:00 p.m. New York time on the tenth day prior to the payment date for
the payment of principal. Any payments in Deutsche Marks shall be made by wire
transfer of same-day funds to Deutsche Mark accounts designated by DTC. The term
"New York Business Day" shall mean any day other than a Saturday or Sunday or a
day on which banking institutions in New York City are authorized or required by
law or executive order to close.
Payments by DTC Participants and Indirect DTC Participants (as defined
herein) to owners of beneficial interests in the DTC Global Certificate will be
governed by standing instructions and customary practices, as is now the case
with securities held by the accounts of customers registered in "street name",
and will be the responsibility of the DTC Participants or Indirect DTC
Participants. Neither the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records of DTC relating to or
payments made by DTC on account of beneficial interests in the DTC DM Note
Global Certificate or for maintaining, supervising or reviewing any records of
DTC relating to such beneficial interests. Substantially similar principles will
apply with regard to the DKV Global Certificate and payments to holders of
interests therein.
DKV
DKV is incorporated under the laws of Germany and acts as a specialized
depositary and clearing organization. DKV is subject to regulations and
supervision by the German Banking Supervisory Authority. DKV holds securities
for DKV Accountholders and facilitates the clearance and settlement of
securities transactions between its DKV Accountholders through electronic
book-entry changes in securities accounts with simultaneous payment in Deutsche
Marks in same-day funds. Thus, the need for physical delivery of certificates is
eliminated. DKV provides to the DKV Accountholders, among other things, services
for safekeeping, administration, clearance and settlement of domestic German and
internationally traded securities and securities lending and borrowing. DKV
Accountholders include banking institutions located in Germany, including German
branches of non-German financial institutions, securities brokers or dealers
admitted to a German Stock Exchange that meet certain additional requirements,
certain foreign clearing institutions and, subject to certain requirements,
other credit institutions within the European Union. Indirect access to DKV is
available to others such as securities brokers and dealers, banks, trust
companies, clearing corporations and others, including individuals, that clear
through or maintain custodial relationships with DKV Accountholders either
directly or indirectly.
CONSENT TO JURISDICTION AND SERVICE
The Issuer will appoint Corporation Service Company as its agent for
service of process in any suit, action or proceeding with respect to the
Indentures or the Notes and for actions brought under federal or state
securities laws brought in any federal or state court located in the City of New
York and will agree to submit to such jurisdiction.
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<PAGE> 95
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
"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 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. Other than the tax convention between
Bermuda and the United States which relates to the taxation of insurance
enterprises and to mutual assistance in tax matters, there is no reciprocal tax
treaty 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.
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 persons who are not United States Investors.
Non-United States Investors 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
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<PAGE> 96
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.
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, or, if sooner, there is
net interest income in a subsequent year with respect to the Note and the holder
elects to deduct the deferred interest to the extent of such net interest
income.
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
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<PAGE> 97
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. 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.
Receipt of Deutsche Mark Payments Under DM Notes
Persons electing to receive payments in respect of the DM Notes in Deutsche
Marks may be subject to additional U.S. federal income tax consequences as a
result of such election and are advised to consult their tax advisers in such
regard.
United States Information Reporting and Backup Withholding
Under current United States federal income tax law, generally payments of
interest 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 to a holder of Notes (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 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 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.
The payment of proceeds of the disposition of Notes 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. However, information reporting (but not
backup withholding) may apply to such a holder who sells a beneficial interest
in Notes 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.
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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.
GERMAN TAX CONSIDERATIONS
The following discussion describes certain tax matters arising under German
tax law with respect to the Notes. The discussion does not purport to be a
comprehensive description of all of the tax considerations which may be relevant
to a decision to purchase Notes. The discussion is based on the tax laws in
Germany in effect on the date of this Offering Memorandum, and may be subject to
change during the life of the Notes. Due to its summary character the discussion
does not address aspects of German taxation other than withholding tax laws and
regulations, and does not consider any specific facts, circumstances or tax
exemptions that may apply to a particular purchaser. Any person who is in doubt
as to his or her tax position is urged to consult his or her tax advisor prior
to purchasing Notes.
Interest payments in respect of Notes held through a bank in Germany to
persons who are tax residents of Germany (or non-residents if the interest
income is effectively connected with a German trade or business or is otherwise
considered income from German sources) are subject to German withholding tax
(Zinsabschlagsteuer) at an aggregate rate of 32.25% (consisting of 30%
withholding tax and a 7.50% surtax calculated on the basis of the 30%
withholding tax). Interest payments by a bank in Germany upon presentation of
Notes for payment over-the-counter (Tafelgeschafte) are subject to withholding
tax at an aggregate rate of 37.625% (consisting of 35% withholding tax and a
7.50% surtax calculated on the basis of the 35% withholding tax) regardless of
whether the recipient is a tax resident of Germany.
The tax also applies to the proceeds of the sale of Notes in Germany to the
extent that such proceeds reflect the interest accrued since the last interest
payment date up to the time of the sale of the Notes.
The tax withheld from tax residents (and non-residents that are subject to
German income or corporate taxation in Germany in respect of the Notes) will
later be credited as a prepayment for purposes of the German income or corporate
tax assessment and be repaid in case of overpayment. Non-residents that are not
subject to German income or corporate taxation in respect of the Notes may be
entitled to a refund of any withholding tax pursuant to applicable double
taxation treaties.
Natural persons who are tax residents of Germany may claim a tax-allowance
for income derived from capital investments (Freibetrag) of DM 6,100 (DM 12,200
in the case of married couples filing joint returns). Up to such amounts, a bank
in Germany can pay interest without deduction of the withholding tax if the bank
has received an exemption instruction (Freistellungsauftrag) to that effect from
such persons.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Schroder & Co. Inc. are serving as
representatives (the "Representatives"), have agreed to purchase, and the
Company has agreed to sell to them, the respective principal amounts of Notes
set forth opposite the names of such Underwriters below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF DOLLAR NOTES OF DM NOTES
---------------- ----------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated(1)................. $ DM
Merrill Lynch, Pierce, Fenner & Smith Incorporated...
Schroder & Co. Inc...................................
---------------- ----------------
Total...................................... $ DM
============= =============
</TABLE>
- ---------------
(1) The offering of the DM Notes outside the United States is lead managed by
Morgan Stanley Bank AG, an affiliate of Morgan Stanley & Co. Incorporated.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
Notes offered hereby if any such Notes are taken.
The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the initial price to the public of the Notes. Any Underwriter may allow,
and such dealers may reallow, a concession not in excess of % of the initial
price to the public of the Notes to certain other dealers.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Application has been made to list the Notes on the Luxembourg Stock
Exchange and the Company has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market-making may be discontinued at any time without
notice, at the sole discretion of the Underwriters. Accordingly, no assurance
can be given as to the liquidity of, or trading markets for, the Notes. See
"Risk Factors -- Absence of Public Market for the Notes."
The Notes are offered under the "Euro-Securities Exemption" pursuant to
sec. 4(1) No. 1 and sec. 4(2) of the Securities Sales Prospectus Act of Germany
(Wertpapier-Verkaufsprospektgesetz) of December 13, 1990, as amended (the
"Securities Sales Prospectus Act"). Each Underwriter is aware of the fact that
no sales prospectus (Wertpapier-Verkaufsprospekt) in Germany has been or will be
published and each Underwriter will comply with the Securities Sales Prospectus
Act and the restrictions applying to the offer and distribution of
Euro-Securities. In particular, each Underwriter undertakes not to engage in
public advertisements (offentliche Werbung) in Germany with respect to the
Notes.
In order to facilitate the Offering of the Notes, Morgan Stanley & Co.
Incorporated on behalf of the Underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the Notes. Specifically,
Morgan Stanley & Co. Incorporated on behalf of the Underwriters may overallot in
connection with the Offering, creating a short position in the Notes for their
own account. In addition, to cover overallotments or to stabilize the price of
the Notes, Morgan Stanley & Co. Incorporated on behalf of the Underwriters may
bid for, and purchase the Notes in the open market. Finally, the Underwriters
may reclaim selling concessions allowed to an Underwriter or a dealer for
distribution of the Notes in the Offering, if the Underwriters repurchase
previously distributed Notes in transactions to cover syndicate short positions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the
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Notes above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
LEGAL MATTERS
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 and Conyers, Dill & Pearman, Bermuda counsel for the Company. Certain
legal matters will be passed upon for the Underwriters by Shearman & Sterling.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1995 and 1996 and for the three years ended December 31, 1996 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 (the "Exchange Act"), 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, D.C. 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, D.C. 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, D.C. 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).
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.
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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 Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed pursuant to Section 13 of the Exchange Act.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, filed pursuant to Section 13 of the Exchange Act.
4. All reports and other documents filed by the Company pursuant to
Section 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 Company at 18 D'Arblay
Street, London W1V 3FP England, Attn: Legal Department, telephone number
44-171-292-7900.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ANNUAL FINANCIAL STATEMENTS
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 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
INTERIM FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1997................................... F-30
Consolidated Statements of Operations for the six months ended June 30, 1996 and
1997............................................................................ F-32
Consolidated Statement of Shareholders' Equity (Deficit) for the six months ended
June 30, 1997................................................................... F-33
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and
1997............................................................................ F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-35
</TABLE>
F-1
<PAGE> 103
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 (except for the matters
discussed in Note 16.c, as to which the
date is May 27, 1997)
F-2
<PAGE> 104
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
($000S)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
NOTE 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> 105
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
($000S)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
NOTE 1995 1996
---- -------- --------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
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> 106
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> 107
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
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> 108
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 and 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 and 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 and 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> 109
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.
F-8
<PAGE> 110
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND BUSINESS -- (CONTINUED)
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 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.
F-9
<PAGE> 111
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-10
<PAGE> 112
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FINANCING OF OPERATING AND CAPITAL NEEDS -- (CONTINUED)
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.
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
F-11
<PAGE> 113
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
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> 114
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 these fair values. When
quoted
F-13
<PAGE> 115
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
F-14
<PAGE> 116
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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>
- ---------------
(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.
F-15
<PAGE> 117
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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
------ ------- -------
YEARS $000 $000
<S> <C> <C> <C>
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> 118
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- -----
$000 $000
<S> <C> <C>
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
----- ------ ------
$000 $000 $000
<S> <C> <C> <C>
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> 119
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME AND CAPITAL TAXES PAYABLE -- (CONTINUED)
Deferred income tax assets relate to the following timing differences:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
----- ------
$000 $000
<S> <C> <C>
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
----- -----
$000 $000
<S> <C> <C>
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 price to the
F-18
<PAGE> 120
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDER LOAN -- (CONTINUED)
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> 121
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Kc 300,000,000 ($10,977,000) which was fully utilized
at December 31, 1994. Principal payments of Kc 60,000,000 ($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 Kc 250 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> 122
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 consistent with the fair
F-21
<PAGE> 123
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTION PLAN -- (CONTINUED)
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 television 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.
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.
F-22
<PAGE> 124
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
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.
F-23
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CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
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.
F-24
<PAGE> 126
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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 realized 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 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
F-25
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CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
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,
F-26
<PAGE> 128
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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 Kc 79,000,000
($2,970,000). In 1996, such loans eliminate in consolidation.
F-27
<PAGE> 129
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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 9). 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)
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<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> 130
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
a. 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.
b. Stock Options
Since December 31, 1996, 10,335 stock options for Class A Common Stock were
exercised at prices of $14.00 -- $20.00.
c. Discontinued Funding of PULS
On May 13, 1997, the Company decided to discontinue its funding of PULS
after concluding that the Company's shareholders would be better served using
the Company's financial and management resources in other opportunities in
Central and Eastern Europe. As a result, the Company has written down its
investments in Germany by $20,707,000 effective March 31, 1997 to reflect the
impairment in value arising out of this decision. On May 27, 1997, PULS
initiated bankruptcy proceedings and is not considered to be a going concern.
F-29
<PAGE> 131
CENTRAL EUROPEAN MEDIA ENTERPRISES, LTD.
CONSOLIDATED BALANCE SHEETS
($000S)
<TABLE>
<CAPTION>
JUNE 30,
1997
-------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 16,949
Investments in marketable securities.......................................... 2,880
Restricted cash............................................................... 1,814
Accounts receivable (net of allowances of $3,291)............................. 31,117
Program rights costs.......................................................... 13,529
Value-added tax recoverable................................................... 445
Amounts due from unconsolidated affiliates.................................... 6,942
Advances to affiliates........................................................ 7,108
Other short-term assets....................................................... 1,241
Prepaid expenses.............................................................. 6,014
--------
Total current assets.................................................. 88,039
Investments in unconsolidated affiliates...................................... 56,555
Investments................................................................... 15,450
Loans to affiliates........................................................... 19,035
Property, plant and equipment (net of depreciation of $25,670)................ 55,622
Program rights costs.......................................................... 14,369
Broadcast license costs and other intangibles (net of amortization of
$1,973).................................................................... 2,771
License acquisition costs (net of amortization of $1,254)..................... 3,523
Goodwill...................................................................... 42,982
Organization costs (net of amortization of $1,115)............................ 701
Development costs (net of allowance of $1,236)................................ 2,822
Deferred taxes................................................................ 1,160
Other assets.................................................................. 490
--------
Total assets.......................................................... $ 303,519
========
</TABLE>
F-30
<PAGE> 132
CENTRAL EUROPEAN MEDIA ENTERPRISES, LTD.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
($000S)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 22,955
Accrued liabilities............................................................ 16,839
Duties and other taxes payable................................................. 6,865
Income taxes payable........................................................... 1,941
Current portion of obligations under capital leases............................ 67
Current portion of credit facilities........................................... 8,111
Dividends payable.............................................................. 2,153
Investments payable............................................................ 7,730
Advances from affiliates....................................................... 1,137
--------
Total current liabilities.............................................. 67,798
Deferred income taxes.......................................................... 1,224
Long-term portion of obligations under capital leases.......................... 39
Long-term portion of credit facilities......................................... 30,333
Investments payable............................................................ --
Other liabilities.............................................................. 19
Minority interest in consolidated subsidiaries................................. 3,547
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: 100,000,000 shares at June
30, 1997 and 30,000,000 shares at December 31, 1996; issued and outstanding:
16,732,178 shares at June 30, 1997.......................................... 167
Class B Common Stock, $0.01 par value: authorized: 15,000,000 shares; issued
and outstanding: 7,149,475 shares at June 30, 1997.......................... 72
Additional paid-in capital..................................................... 330,644
Accumulated deficit............................................................ (119,824)
Cumulative Currency Translation Adjustment..................................... (10,500)
--------
Total shareholders' equity..................................................... 200,559
--------
Total liabilities and shareholders' equity..................................... $ 303,519
========
</TABLE>
F-31
<PAGE> 133
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Gross revenues......................................................... $ 76,935 $ 90,915
Discounts and agency commissions....................................... (15,130) (20,281)
------- --------
Net Revenues........................................................... 61,805 70,634
Station Expenses:
Other operating costs and expenses................................... 24,423 27,949
Amortization of programming rights................................... 10,269 9,891
Depreciation of station fixed assets and other intangibles........... 6,109 7,500
------- --------
Total station operating costs and expenses........................... 40,801 45,340
Selling, general and administrative expenses......................... 8,735 10,834
Corporate Expenses:
Corporate operating costs and development expenses................... 6,760 9,441
Amortization of goodwill and allowance for development costs......... 413 4,595
------- --------
7,173 14,036
Operating income....................................................... 5,096 424
Equity in loss of unconsolidated affiliates (Note 3)................... (5,936) (10,103)
Loss on impairment of investments in unconsolidated affiliates (Note
3)................................................................... -- (20,707)
Interest and other income.............................................. 1,079 2,616
Interest expense....................................................... (1,532) (3,287)
Foreign currency exchange loss......................................... (1,630) (4,586)
------- --------
Loss before provision for income taxes................................. (2,923) (35,643)
Provision for income taxes............................................. (8,313) (6,833)
------- --------
Loss before minority interest.......................................... (11,236) (42,476)
Minority interest in (income)/loss of unconsolidated subsidiaries...... (1,144) 656
------- --------
Net loss............................................................... $(12,380) $(41,820)
======= ========
PER SHARE DATA
Net loss per share (Note 2)............................................ $ (0.67) $ (1.75)
======= ========
Weighted average number of common shares outstanding (000s)............ 18,447 23,863
======= ========
</TABLE>
F-32
<PAGE> 134
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
($000S)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS CLASS CUMULATIVE
A B ADDITIONAL CURRENCY
COMMON COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL DEFICIT(1) ADJUSTMENT TOTAL
------ ------ ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996................... $167 $ 72 $ 330,315 $ (78,004) $ (3,230) $249,320
Capital contributed by Shareholders........ -- -- 329 -- -- 329
Cumulative Currency Translation
Adjustment.............................. -- -- -- -- (7,270) (7,270)
Net loss................................... -- -- -- (41,820) -- (41,820)
--- -------- --------- ------- --------
--
BALANCE, June 30, 1997....................... $167 $ 330,644 $(119,824) $(10,500) $200,559
$ 72
=== ======== ========= ======= ========
==
</TABLE>
- ---------------
(1) Of the accumulated deficit of $119,824 at June 30, 1997, $81,058 represents
accumulated losses in unconsolidated affiliates.
F-33
<PAGE> 135
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
($000S)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss......................................................................... $(12,380) $(41,820)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Equity in loss of unconsolidated affiliates.................................... 5,936 10,103
Loss on impairment of investments in unconsolidated affiliates................. -- 20,707
Depreciation and amortization.................................................. 16,862 22,501
Minority interest in income/(loss) of consolidated subsidiaries................ 1,144 (656)
Valuation allowance for development costs...................................... 413 240
Changes in assets and liabilities:
Accounts receivable............................................................ (3,675) 1,218
Program rights paid............................................................ (13,787) (11,442)
Value-added tax recoverable.................................................... 458 (263)
Dividends paid to minority shareholders........................................ (1,396) (1,650)
Advances to affiliates......................................................... (2,899) (8,183)
Production costs............................................................... -- (100)
Prepaid expenses............................................................... (545) (357)
Other assets................................................................... (127) (260)
Accounts payable............................................................... 1,558 841
Accrued liabilities............................................................ 4,159 543
Other short-term liabilities................................................... -- (242)
Income and other taxes payable................................................. 8,347 (3,895)
-------- --------
Net cash provided by (used in) operating activities..................... 4,068 (12,715)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated affiliates....................................... (9,444) (10,054)
Other investments.............................................................. -- (15,097)
Investments in marketable securities........................................... 6,300 16
Restricted cash................................................................ 2,524 935
Acquisition of fixed assets.................................................... (10,670) (5,133)
Acquisition of minority shareholder's interest................................. -- (1,676)
Purchase of business........................................................... (2,962)
Payments for broadcast license costs, other assets and intangibles............. -- (464)
Development costs.............................................................. (14,349) (1,409)
-------- --------
Net cash used in investing activities................................... (28,601) (32,882)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities.............................................................. (2,108) (7,656)
Payments under capital leases.................................................. (776) (809)
Loans and advances to affiliates............................................... (731) (6,569)
Capital contributed by shareholders............................................ 789 329
-------- --------
Net cash used in financing activities................................... (2,826) (14,705)
-------- --------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH..................................... (503) (1,256)
-------- --------
Net decrease in cash and cash equivalents...................................... (27,862) (61,558)
CASH AND CASH EQUIVALENTS, beginning of period................................... 53,210 78,507
-------- --------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 25,348 $ 16,949
======== ========
</TABLE>
F-34
<PAGE> 136
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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 and affiliates are collectively referred to as the "Company"),
invests in, develops 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, the Company owns a 93.2% economic interest and has
91.2% of the voting power in Ceska Nezavisla Televizni Spolecnost s.r.o.
("CNTS"), which operates Nova TV, the leading private national television
station in the Czech Republic. As of June 30, 1997 CET 21 s.r.o. ("CET 21") and
certain of its partners owned 6.8% of CNTS. On August 11, 1997, the Company
purchased Nova Consulting a.s. ("NC"), which owns a 5.8% participation interest
in CNTS, from certain of the partners of CET 21 (Note 4). Ceska Sporitelna Bank
("CS") has a 2% voting interest in CNTS.
In 1995, in the Czech Republic, the Company entered into loan ("Radio Alfa
Loan") and consulting agreements with Radio Alfa a.s. ("Radio Alfa"), one of two
private Czech Republic national radio broadcasters. During December 1996, the
Company purchased a 62% ownership interest from Radio Alfa's other shareholders
for a purchase price of Kc 37,500,000 ($1,372,000). 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 62% interest, would
give the Company an 83.7% interest in Radio Alfa.
In Romania, the Company and two local partners, Adrian Sarbu and Ion
Tiriac, operate PRO TV, a commercial television network, through Media Pro
International S.A. ("Media Pro International"). The Company owns a 77.5% equity
interest in Media Pro International, although Mr. Tiriac and Mr. Sarbu hold
options which, if exercised, could reduce the Company's equity interest in Media
Pro International to not less than 66%. Mr. Tiriac has informed the Company that
he intends to exercise such option. The Company owns 49% 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 comprising the PRO TV network. In
September 1996, the Company acquired a 95% equity interest in Unimedia SRL
("Unimedia"), which owns a 10% equity interest in a consortium, MobilRom, which
obtained one of two GSM licenses in Romania in December 1996. Mr. Sarbu owns the
remaining 5.0% of Unimedia.
In Slovenia, the Company operates POP TV, together with MMTV d.o.o.
Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija
Plus d.o.o. ("Pro Plus"). POP TV providesprogramming to, and sells advertising
for, MMTV, Tele 59 and affiliates TV Robin and Euro 3. In March 1997, the
Company purchased a substantial portion of MMTV's interest in Pro Plus for an
aggregate price of approximately $5,000,000. After giving effect to this
purchase, the Company owns 78% of the equity of Pro Plus, but has an effective
economic interest of 85.3% as a result of a 33% economic interest in MMTV and a
33% economic interest in Tele 59. Tele 59 owns a 21% equity interest in Pro
Plus, and the remaining 1% equity interest in Pro Plus is owned by MMTV.
In the Slovak Republic, the Company owns an 80% non-controlling economic
interest and a 49% voting interest in Slovenska Televizna Spolecnost s.r.o.
("STS"), which launched Markiza TV as a national television station on August
31, 1996.
In Poland, the Company, together with the Polish media group ITI, formed
TVN Sp.zo.o. ("TVN"). ITI owns 67% of the equity in TVN and the remaining 33% is
owned by the Company. In February 1997, TVN was awarded television broadcast
licenses for northern Poland and cities of Warsaw and Lodz. TVN also owns a
76.3% (increased from 49% during the second quarter of 1997) interest in
Telewizja Wisla Sp.zo.o. ("TV Wisla"), which operates a regional television
station in southern Poland. The Company owns a 50% direct
F-35
<PAGE> 137
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
interest and a 5% indirect interest in Federacja Sp.zo.o ("Federation"), through
which the Company intends to operate a Polish television broadcast network, the
TVN Network, commencing in the fourth quarter of 1997.
In Ukraine, the Company owns a 50% interest in a group of companies
(collectively, the "Studio 1+1 Group"), which has the right to broadcast
programming and sell advertising on Ukrainian National Channel 2 ("UT-2")
through 2006.
The Company owns 24.9% of the equity of 2002 Tanacsado es Szolgaltato
Korlatolt Felelosegu Tarsasag ("2002 Kft."), a broadcasting company in Hungary.
The Company wholly owns Videovox Studio Limited Liability Company, a Hungarian
dubbing and production company ("Videovox"). In January 1997, the Hungarian
Television Commission announced tender procedures for the award of two national
television broadcast licenses. The Company formed a consortium, MKTV Rt. ("IRISZ
TV"), which submitted an application for these licenses. On June 30, 1997, the
Hungarian Television Commission announced the award of the licenses to other
consortia. On July 4, 1997, IRISZ TV filed a complaint in the Budapest Capital
Court against the Hungarian Television Commission and the other consortia
challenging the license awards. See "Other Information -- Legal Proceedings."
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 Nuremberg, Germany, NMF Neue Medien Franken GmbH and Co., K.G.
("NMF"). The Company has a 49% equity interest, and a 50% economic interest in
Sachsen Funk und Fernsehen GmbH ("SFF") which owns a 33.33% equity interest in
Sachsen Fernsehen Betriebs KG, which operates regional television stations in
Leipzig and Dresden, Germany. On May 13, 1997, the Company announced its
decision to discontinue funding of PULS, a regional television station operating
in the Berlin-Brandenburg area of Germany in which the Company has a 58% non-
controlling interest. On May 27, 1997, PULS initiated a bankruptcy proceeding in
the Bankruptcy Court of Berlin-Charlottenburg.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("GAAP"). In the opinion
of management, these consolidated financial statements include all adjustments
necessary to fairly state the Company's financial position and results of
operations. The results for the six months ended June 30, 1997 are not
necessarily indicative of the results expected for the year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company's wholly owned subsidiaries and the accounts of CNTS, PRO TV, POP
TV, Videovox (wholly owned since April 1997) and Radio Alfa (the "Consolidated
Affiliates") as consolidated entities and reflect the interests of the minority
owners of CNTS, PRO TV and POP TV and Radio Alfa for the six months ended June
30, 1997. Videovox was acquired on May 1, 1996 and a controlling interest in
Radio Alfa was acquired on December 26, 1996. As a result, CNTS, PRO TV, POP TV
and Videovox were the only consolidated entities for the six months ended June
30, 1996. The results of the Company's operating stations, Markiza TV, FFF, SFF,
Studio 1+1, TVN and PULS (for the first quarter of 1997 only) (the
"Unconsolidated Affiliates") in which the Company has, or during the six months
ended June 30, 1997 had, minority or non-controlling ownership interests, are
included in the accompanying consolidated financial statements as equity in loss
or income of unconsolidated affiliates using the equity method. PULS, a regional
station in the Berlin-Brandenburg area of Germany, declared bankruptcy in May
1997. The Company records other investments at the lower of cost and market
value.
F-36
<PAGE> 138
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
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 period ended June 30, 1997. 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.
Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("SFAS 128"). 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.
Reclassifications
Certain reclassifications were made to prior period amounts to conform to
current period classifications.
3. SUMMARY FINANCIAL INFORMATION FOR UNCONSOLIDATED AFFILIATES
<TABLE>
<CAPTION>
AS OF
--------------------------------------
DECEMBER 31,
JUNE 30, 1997 1996
----------------------- ------------
($000S) MARKIZA TV STUDIO 1+1 MARKIZA TV
---------------------------------------------------- ---------- ---------- ------------
GROUP
--------------------------------------
($000S) ($000S) ($000S)
<S> <C> <C> <C>
Current assets...................................... 14,691 3,007 10,896
Non-current assets.................................. 25,261 21,508 28,783
Current liabilities................................. (8,470) (2,993) (6,635)
Non-current liabilities............................. (9,998) (3,000) (9,222)
------ ------ ------
Net assets.......................................... 21,484 18,522 23,822
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED,
JUNE 30, 1997
-----------------------
($000S) MARKIZA TV STUDIO 1+1
--------------------------------------------------------------- ---------- ----------
($000S) ($000S)
<S> <C> <C>
Net Revenues................................................... 13,829 6,977
Operating Loss................................................. (443) (1,493)
Net Loss....................................................... (1,288) (1,659)
</TABLE>
The Company's share of losses in Unconsolidated Affiliates (including
amortization of goodwill, with the exception of SFF) for the six months ended
June 30, 1997 was $10,103,000, including $2,843,000 in PULS, $1,439,000 in FFF,
$254,000 in SFF, $1,303,000 in Markiza TV, $2,272,000 in TVN and $1,992,000 in
Studio 1+1 Group. On May 13, 1997, the Company announced its decision to
discontinue funding of PULS. As a
F-37
<PAGE> 139
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
3. SUMMARY FINANCIAL INFORMATION FOR MARKIZA TV AND STUDIO 1+1 -- (CONTINUED)
result, the Company has written down its investments in Germany (including PULS,
FFF and SFF) by $20,707,000 and eliminated the carrying value of these
investments. This write-down, together with losses incurred by the German
operations during the six months ended June 30, 1997, has resulted in a total
charge of $25,243,000 in the Company's Consolidated Statements of Operations. On
May 27, 1997, PULS initiated a bankruptcy proceeding. Under bankruptcy rules in
Germany, the Company no longer has access to the accounting records of PULS and,
as a result, no financial information for PULS has been provided above. To
finance developments, PULS received investment grants in an aggregate amount of
DM8,544,000 ($4,910,000) from a German public bank in 1993. These grants were
guaranteed by a wholly owned subsidiary of the Company. As a result of the
bankruptcy proceedings initiated by PULS, no assurance can be given that the
bank will not seek repayment of all or part of the investment grants from the
guarantor. No provision has been made in respect of this matter, as management
believes that the repayment of any part of these grants is remote and the
maximum exposure is limited to the German assets, which have been fully provided
for.
4. SUBSEQUENT EVENTS
On August 11, 1997, the Company purchased Nova Consulting a.s. ("NC") from
certain of the partners of CET 21 for a purchase price of $28,537,500 to be paid
on an installment basis through February 15, 2000, subject to adjustment as
described below. NC owns an additional 5.8% interest in CNTS. A portion of the
payments are indexed based upon the performance of the Company's Class A Common
Stock. The Company intends to seek to sell a minority interest in CNTS to one or
more strategic Czech investors or in a public offering in the Czech Republic.
F-38
<PAGE> 140
[Inside back Prospectus cover page]
[PHOTOS OF CME'S NEWS OPERATIONS, LOCAL PROGRAMMING AND POPULAR AMERICAN FILM]
<PAGE> 141
[Back Prospectus Cover Page]
[CME Logo]
<PAGE> 142
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
Luxembourg Stock Exchange listing fees.................................... 9,000
Miscellaneous............................................................. 162,564
--------
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
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
4.1 -- Specimen Notes
4.2 -- Forms of Indentures
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)
24.1 -- Power of Attorney (included at page II-4)*
25.1 -- Statement of Eligibility of Trustee*
</TABLE>
- ------------------------------
* Previously filed.
II-1
<PAGE> 143
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> 144
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 (except for the
matters discussed in Note 16.c, as to which the date is May 27, 1997), and to
the incorporation by reference in this registration statement of our reports
dated 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
August 14, 1997
II-3
<PAGE> 145
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 Amendment No. 3 to
the Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in London, England, on August 14, 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 Amendment
No. 3 to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
* Chairman of the Board of August 14, 1997
- --------------------------------------------- Directors
Ronald S. Lauder
* President, Chief Executive August 14, 1997
- --------------------------------------------- Officer and Director
Leonard M. Fertig (Principal Executive
Officer)
/s/ JOHN A. SCHWALLIE Vice President -- Finance and August 14, 1997
- --------------------------------------------- Chief Financial Officer
John A. Schwallie (Principal Accounting and
Principal Financial Officer)
* Vice President, Secretary and August 14, 1997
- --------------------------------------------- Director
Nicolas G. Trollope
* Director and Authorized U.S. August 14, 1997
- --------------------------------------------- Representative
Andrew Gaspar
* Director August 14, 1997
- ---------------------------------------------
Herbert S. Schlosser
* Director August 14, 1997
- ---------------------------------------------
Robert A. Rayne
* /s/ JOHN A. SCHWALLIE
- ---------------------------------------------
John A. Schwallie
Attorney-in-fact
</TABLE>
II-4
<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
4.1 -- Specimen Notes
4.2 -- Forms of Indentures
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)
24.1 -- Power of Attorney (included at page II-4)*
25.1 -- Statement of Eligibility of Trustee*
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
Exh. 1.1
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
UNDERWRITING AGREEMENT
$100,000,000 Aggregate Principal Amount of
% Notes due 2004
DM100,000,000 Aggregate Principal Amount of
% Notes due 2004
August , 1997
<PAGE> 2
August ,1997
Morgan Stanley & Co.
Incorporated
Morgan Stanley Bank AG
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Schroder Wertheim & Co. Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs:
Central European Media Enterprises Ltd., a Bermuda corporation
(the "Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") $100,000,000 principal amount of its %
Notes due 2004 (the "Dollar Securities") to be issued pursuant to the provisions
of an Indenture dated as of August , 1997 (the "Dollar Indenture") between the
Company and Bankers Trust Company, as Trustee (the "Trustee") and DM100,000,000
principal amount of its % Notes due 2004 (the "DM Securities", and together
with the Dollar Securities, the "Securities" issued pursuant to the provisions
of an Indenture dated as of August , 1997 (the "DM Indenture", and together
with the Dollar Indenture, the "Indentures") between the Company and the
Trustee. Morgan Stanley Bank AG is acting as lead manager with respect to the
issue and sale by the Company of DM Securities outside the United States.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a prospectus,
relating to the Securities. The registration statement as amended at the time it
becomes effective, including the exhibits thereto, the documents incorporated by
reference therein and the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Original Registration Statement;" any registration statement
filed pursuant to Rule 462(b) under the Securities Act is hereinafter referred
to as the "Rule 462(b) Registration Statement," the Original Registration
Statement and any Rule 462(b) Registration Statement are hereinafter referred to
collectively as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Securities, including the documents incorporated by
reference therein, is hereinafter referred to as the "Prospectus."
I.
The Company represents and warrants to each of the
Underwriters that:
(a) The Original Registration Statement has become effective
and, if the Company has elected to rely upon Rule 462(b) under the
Securities Act, the Rule 462(b) Registration Statement shall have
become effective no later than the earlier of (i) 10:00 p.m. New York
City time on the date hereof and (ii) the time confirmations
<PAGE> 3
2
are sent or given, as specified by Rule 462(b) under the Securities
Act; no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any 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, (ii) the documents incorporated by
reference in the Registration Statement and the Prospectus at the time
they were or hereafter are filed with the Commission complied and will
comply in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended and the applicable rules and
regulations of the Commission thereunder, (iii) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except that the representations and warranties
set forth in this paragraph I(b) do not apply (A) to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein or
(B) to that part of the Registration Statement that constitutes the
Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), of the
Trustee.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole. 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.
(d) Each subsidiary of the Company has been duly incorporated
or organized, is validly existing as a corporation or other Legal
Entity in good standing under the laws of the jurisdiction of its
incorporation or organization, has the corporate power and authority to
own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
<PAGE> 4
3
(e) 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 do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries, 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 not
material and do not interfere with the use made and proposed to be made
of such real property and buildings by the Company and its
subsidiaries.
(f) Each license pursuant to which the Company and its
subsidiaries conducts its broadcast operations ("License") has been
duly and validly issued to the Legal Entity specified in the Prospectus
as holding such License pursuant to the licensing procedures of the
jurisdictions 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, the television 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. To the best of the Company's knowledge, (i) no
application, action or proceeding is pending for the modification of
any License except as disclosed in the Prospectus, (ii) no application,
action or proceeding is pending or threatened that may result in the
revocation, modification, nonrenewal 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, nonrenewal or suspension of any License, or the
imposition of any administrative sanction.
(g) The Company and each of its subsidiaries own or have
licensed to them, or otherwise have the benefit or use under the
authority of the owners or licensees thereof, all material patents,
patent rights, inventions, trademarks, service marks, tradenames and
copyrights (in each case, registered or not) which the Company
reasonably believes are necessary for the conduct of the business of
the Company and each of its subsidiaries substantially in the manner in
which it is being conducted, except in each case as otherwise described
in the Prospectus or where the failure to own or hold such a license or
otherwise have the benefit or use of such rights would not reasonably
be expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and, except as described in the
Prospectus, there are no unresolved actions asserting, nor is the
Company aware of any unresolved actions asserting, nor is the Company
aware of any unresolved assertions that the Company or any of its
subsidiaries infringed the patents, patent rights, inventions,
trademarks, service marks, tradenames or copyrights or others, other
than such actions or assertions which, if determined adversely to the
Company any of its subsidiaries, would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
<PAGE> 5
4
In addition, the Company and its subsidiaries have rights
under appropriate binding agreements to broadcast the programming they
currently broadcast and have scheduled to broadcast. To the best of the
Company's knowledge, broadcasting of those 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.
(h) This Agreement has been duly authorized, executed and
delivered by the Company.
(i) Each of the Dollar Indenture and the DM Indenture has been
duly qualified under the Trust Indenture Act and has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(j) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indentures and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, will be entitled to the
benefits of the Indentures, and will be valid and binding obligations
of the Company, enforceable in accordance with their terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency
or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(k) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indentures and the Securities will not contravene any provision of
applicable law or the Memorandum of Association or bye-laws or similar
corporate governance document of the Company or any of its subsidiaries
or any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the
Indentures or the Securities, except such as may be required by the
Bermuda Monetary Authority and securities or Blue Sky laws of the
various states in connection with the offer and sale of the Securities.
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
<PAGE> 6
5
(m) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(n) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 or Rule 462 under the Securities
Act, complied when so filed in all material respects with the
Securities Act and the rules and regulations of the Commission
thereunder.
(o) 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 business; 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.
(p) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
(q) Neither the Company and 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;
(r) The consolidated financial statements of the Company and
the financial statements of IA TV Beteiligungsgesellschaft GmbH & Co.
Betriebs KG ("PULS"); Franken Funk & Fernsehen GmbH ("FFF") Sachsen
Funk und Fernsehen GmbH ("SFF"), Slovenska Televizna Spalocnost s.r.o.
("STS") and TVN Sp.zo.o ("TVN") 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
<PAGE> 7
6
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.
Each of the Underwriters represents, warrants, and agrees with
respect to offers and sales outside the United States that:
(a) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Securities, or possession or distribution of the Prospectus or any
other offering or publicity material relating to the Securities, in any
country or jurisdiction other than the United States where action for
that purpose is required;
(b) it has complied with the Securities Sales Prospectus Act
of the Federal Republic of Germany (Wertpapier-Verkaufsprospekt) of
December 13, 1990, as amended, and the restrictions applying to the
offer and distribution of Euro-securities and it has not engaged in
public advertisements (offentliche Werbung) in Germany with respect to
the Securities.
II.
The Company hereby agrees to sell to the several Underwriters,
and the Underwriters, upon the basis of the representations and warranties
herein contained, but subject to the conditions hereinafter stated, agree,
severally and not jointly, to purchase from the Company the respective principal
amounts of Securities set forth in Schedule I hereto opposite their names at %
of their principal amount (the "purchase price") plus accrued interest, if any,
from the Closing Date (as defined below) to the date of payment and delivery.
III.
The Company is advised by you that the Underwriters propose to
make a public offering of their respective portions of the Securities as soon
after the Original Registration Statement and this Agreement have become
effective as in your judgment is advisable. The Company is further advised by
you that the Securities are to be offered to the public initially at % of their
principal amount (the "public offering price") plus accrued interest, if any,
and to certain dealers selected by you at a price that represents a concession
not in excess of % of their principal amount under the public offering price,
and that any Underwriter may allow, and such dealers may reallow, a concession,
not in excess of % of their principal amount, to any Underwriter or to certain
other dealers.
<PAGE> 8
7
IV.
Payment for the Securities shall be made by wire transfer or
other immediately available funds at a closing to be held at the offices of
Shearman & Sterling, 199 Bishopsgate, London, England at 10:00 A.M., New York
City time, on August , 1997, or at such other time on the same or such other
date, not later than August , 1997, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
Payment for the Securities shall be made against delivery to
you for the respective accounts of the several Underwriters of the Securities
registered in such names and in such denominations as you shall request in
writing not later than two full business days prior to the date of delivery,
with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriters duly paid.
V.
The obligations of the Company and the several obligations of
the Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are
subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date,
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations, of the Company and its subsidiaries, taken as a
whole, from that set forth in the Registration Statement,
that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Securities
on the terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in clause (a)(i) above and to
the effect that the representations and
<PAGE> 9
8
warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with
all of the agreements in all material respects and satisfied all of the
conditions on its part to be performed or satisfied on or before the
Closing Date.
(c) No stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before, or to the knowledge of the Company or
the Underwriters, threatened by the Commission.
The officer signing and delivering such certificate may rely
upon the best of his knowledge as to proceedings threatened.
(d) You shall have received on the Closing Date an opinion of
Conyers, Dill & Pearman, Bermuda counsel for the Company, dated the
Closing Date in form and substance satisfactory to you, to the effect
that:
(i) each of the Company and International Media
Services Ltd. has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) this Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable in accordance
with its terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) the availability of
equitable remedies may be limited by equitable principles of
general applicability;
(iii) each of the Dollar Indenture and the DM
Indenture has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms except as
(a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(iv) the Securities have been duly authorized and,
when executed and authenticated in accordance with the
provisions of the Indentures and delivered to and paid for by
the Underwriters in accordance with the terms of
<PAGE> 10
9
this Agreement, will be entitled to the benefits of the
Indentures and will be valid and binding obligations of the
Company, enforceable in accordance with their terms except as
(a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this
Agreement, the Securities and the Indentures will not
contravene any provision of applicable law or the Memorandum
of Association or bye-laws of the Company or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, the
Securities and the Indentures, except such as may be required
by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities;
(vi) the statements (1) in the Prospectus under the
captions "Risk Factors -- Enforcement of Civil Liabilities and
Judgments," "Certain Tax Considerations -- Bermuda" and
"Management -- Executive Officers and Directors" and (2) in
the Registration Statement under Item 15, in each case insofar
as such statements constitute summaries of the matters of
Bermuda law and regulation or legal conclusions with respect
thereto, documents and proceedings referred to therein, fairly
present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the
matters referred to therein;
(vii) after due inquiry, such counsel does not know
of any legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or of any
statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not
described or filed as required;
(viii) 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; and
<PAGE> 11
10
(ix) 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 with regard to any
suit, action or proceeding with respect to this Agreement and
for actions brought under U.S. state or federal securities
laws, 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.
(e) You shall have received on the Closing Date an opinion of
Rosenman & Colin LLP, U.S. counsel for the Company, in the 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 subsidiaries") has been duly incorporated or duly
organized as a partnership or other Legal Entity, is validly
existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the
power under such laws to own its property and conduct its
business as described in the Prospectus;
(ii) the statements under the captions "Description
of Notes," "Certain Tax Considerations -- United States
Federal Income Taxation," and "Underwriting" (except for the
last paragraph thereof) in the Prospectus, insofar as such
statements constitute a summary of legal matters, documents or
proceedings referred to therein, are accurate in all material
respects and fairly summarize the matters referred to therein;
(iii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement, the Securities and the Indentures will not
contravene any provision of applicable U.S. law or, to the
best of such counsel's knowledge, any agreement governed by
U.S. law or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any U.S.
governmental body, agency or court having jurisdiction over
the Company or any subsidiary;
(iv) assuming due authorization, execution and
delivery by the parties thereto, each of the Dollar Indenture
and the DM Indenture is a valid and binding agreement of the
Company, enforceable in accordance with its terms except as
(a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
<PAGE> 12
11
(v) 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 Section IX hereof;
(vi) the Securities, when executed and authenticated
in accordance with the provisions of the Indentures and
delivered to and paid for by the Underwriters in accordance
with the terms of this Agreement, will be entitled to the
benefits of the Indentures and will be valid and binding
obligations of the Company, enforceable in accordance with
their terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) rights of acceleration and
the availability of equitable remedies may be limited by
equitable principles of general applicability;
(vii) the execution, delivery and performance of this
Agreement, the Securities and the Indentures by the Company,
compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and sales
of the Securities) will not require any consent, approval
authorization or order of or qualification with any U.S.
court, regulatory body, administrative agency or other
governmental body (except such as may be required under the
Securities 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 or their respective
properties, 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;
(viii) the Registration Statement has become
effective, any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) under the
Securities Act, has been made in the manner and within the
time period required by Rule 424 under the Securities 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;
(ix) each of the Dollar Indenture and the DM
Indenture has been duly qualified under the Trust Indenture
Act;
(x) the Company is not an "investment company" or
entity "controlled" by an "investment company" as such terms
are defined in the Investment Act of 1940, as amended;
<PAGE> 13
12
(xi) such counsel has read all material contracts (or
English translations thereof) referred to in the Registration
Statement and the Prospectus and such contracts are fairly
summarized as disclosed therein, conform in all material
respects to the descriptions thereof contained therein, and,
to the extent required by the Securities Act and the rules
thereunder, are filed or incorporated by reference as exhibits
thereto, and such counsel does not know of any contracts or
other documents required to be so summarized or disclosed, or
so filed or incorporated by reference, which have not been so
summarized or disclosed, or so filed or incorporated by
reference and there are no U.S. statutes or regulations or
pending or threatened legal governmental proceedings required
to be disclosed in the Prospectus which have not been
disclosed as required, and to the best of such counsel's
knowledge, each of such contracts is in full force and effect;
(xii) such counsel does not know of any litigation or
any U.S. governmental proceeding pending of threatened against
the Company or any subsidiary which would affect the subject
matter of this Agreement, the Securities or the Indentures, or
is required to be disclosed in the Prospectus which is not
disclosed and correctly summarized therein; and
(xiii) such counsel (1) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules included therein as to which such
counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (2) no facts have
come to the attention of such counsel which lead such counsel
to believe that (except for financial statements and schedules
as to which such counsel need not express any belief and
except for that part of the Registration Statement that
constitutes the Form T-1 heretofore referred to) 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 or necessary to
make the statements therein not misleading and (3) no facts
have come to the attention of such counsel which lead such
counsel to believe that (except for financial statements and
schedules as to which such counsel need not express any
belief) the Prospectus as of the Closing Date contains any
untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(f) You shall have received on the Closing Date an opinion of
Baker & McKenzie, special Netherlands counsel to the Company, in the
form and substance satisfactory to you, to the effect that:
(i) each of CME Media Enterprises B.V. ("CME BV"),
Central European Media Enterprises N.V., CME Czech Republic
B.V., CME Slovenia B.V., CME Hungary B.V., CME Poland B.V.,
CME Romania B.V., and
<PAGE> 14
13
CME Slovakia B.V. (collectively, the "Dutch and Antilles
Subsidiaries") have each been duly incorporated or duly
organized as a partnership or other Legal Entity under the
laws of the jurisdiction of its incorporation or organization;
(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 have been
validly created, allotted and issued, and the Company is the
registered holder of the percentage of the issued share
capital or other interest of the Dutch and Netherlands
Antilles Subsidiaries; and
(iii) such counsel does not know of any litigation or
any governmental proceeding pending of 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, the Securities or the Indentures or
is required to be disclosed in the Prospectus which is not
disclosed and correctly summarized therein.
(g) You shall have received on the Closing Date an opinion of
Radvan & Co., Czech counsel to the Company, in the form and substance
satisfactory to you, to the effect that:
(i) each of Ceska Nevavisla Televizai Spolecnost
s.r.o. ("Nova TV"), CET 21 spol s.r.o. ("CET 21"), Kaskol
s.r.o. ("Kaskol") and Radio Alfa a.s. ("Radio Alfa", and
together with Nova TV, CET 21 and Kaskol the "Czech
Subsidiaries") has been duly incorporated or duly organized as
a partnership or other Legal Entity under the laws of the
Czech Republic;
(ii) each of the Czech 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) all of the issued shares or other interests in
the capital of each of the Czech Subsidiaries which have been
issued or granted to CME BV have been validly created,
allotted and issued, and the Company is the direct or indirect
registered holder of the percentage of the issued share
capital or other interest 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. ("CS") and CET 21, the Loan Agreement
dated August 1, 1996 and the Transfer Agreement dated July 17,
1996 relating to the transfer of 22% of the Participation
Interest in Nova TV between CME BV and CS, the Loan Agreement,
Transfer Agreements and Trusteeship Agreement between CME BV
and Dr. Zelezny regarding the transfer of Participation
Interests in CET 21 and in Nova TV, each dated August 1, 1996;
and all other agreements
<PAGE> 15
14
relating to the rights and obligations of the Company or any
subsidiary with respect to Nova TV (collectively, the "Nova
Constituent Documents") are valid and binding agreements and
are enforceable in accordance with their terms;
(v) the Consultancy Agreement dated February 9, 1995,
by and between CME BV and Radio Alfa; the Loan Agreement dated
February 9, 1995 between CME BV and Radio Alfa, as
supplemented by the several Supplemental Loan Agreements; the
Share Purchase Agreement dated November 15, 1996 between CME
BV and IDOS Praha, Spol s.r.o.; the Share Purchase Agreement
dated December 3, 1996 between CME BV and Releas a.s.; the
Share Purchase Agreement dated December 12, 1996 between CME
BV and CS and all other agreements relating to the rights and
obligations of the Company or any subsidiary with respect to
Radio Alfa created (collectively, the "Radio Alfa Documents,"
and together with the Nova Constituent Documents, the "Czech
Constituent Documents") are valid and binding agreements and
are enforceable in accordance with their terms;
(vi) the execution and delivery by the Company of,
and the performance by the Company of its obligations under
this Agreement, the Securities and the Indentures (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 any
of the Czech Subsidiaries;
(viii) each of CET 21 and Kaskol has been issued with
the Licenses required by it under applicable Czech law for the
purposes of carrying on broadcast operations as described in
the Prospectus (the "Czech Licenses"); there are no orders
outstanding which have been made against any such Czech
Subsidiary; no application, action or proceeding is or will be
pending for the modification of the Czech Licenses; 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 such counsel are not aware of any breaches of
the terms of the Czech Licenses (except as disclosed in the
Prospectus) which would lead any regulatory agency to take any
action under their respective powers in relation thereto;
(ix) the statements in the Prospectus under the
captions "The Company", "Business -- Operating Environment --
Czech Republic," and "Business -- Operations in the Czech
Republic: Nova TV" and
<PAGE> 16
15
"Business--Operations in the Czech Republic: Radio Alfa,"
insofar as such statements constitute a summary of Czech legal
matters referred to therein and insofar as they purport to
describe the legal effect of the Czech Constituent Documents,
fairly describe such legal matters and such legal effect; and
(x) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in the Czech
Republic against the Company or any Subsidiary which would
affect the subject matter of this Agreement, the Securities or
the Indentures or is required to be disclosed in the
Prospectus which is not disclosed and correctly summarized
therein.
(h) You shall have received on the Closing Date an opinion of
Liana Petrovici, special Romanian counsel to the Company, in the form
and substance satisfactory to you, to the effect that:
(i) each of Media Pro International s.a. ("MPI"), PRO
TV, SRL and Unimedia SRL (collectively, the "Romanian
Subsidiaries") has been duly incorporated or duly organized as
a partnership or other Legal Entity under the laws of Romania;
(ii) each of the Romanian Subsidiaries and Media Pro
SRL 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) all of the issued shares or other interests in
the capital of each of the Romanian Subsidiaries which have
been issued or granted to CME BV and its subsidiaries have
been validly created, allotted and issued, and the Company is
the direct or indirect registered holder of the percentage of
the issued share capital or other interest of such Romanian
Subsidiary disclosed in the Prospectus;
(iv) the Cooperation Agreement among CME BV, Adrian
Sarbu and Ion Tiriac dated August 4, 1995 (the "Romanian
Agreement"); the Exclusive Operating Agreement among MPI,
Media Pro SRL and PRO TV SLR dated March 12, 1996; the
Assignment of Shares Agreement dated September 25, 1996
between, inter alia, MPI and CME B.V.; and all other
agreements relating to the rights and obligations of the
Company or its subsidiaries with respect to PRO TV
(collectively, the "Romanian Constituent Documents") are valid
and binding agreements and are enforceable in accordance with
their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (a) will not
require any consent, approval, authorization or other order of
any Romanian court, regulatory body or other
<PAGE> 17
16
Romanian governmental body to be obtained and (b) will not
violate any Romanian law or regulation;
(vi) there are no winding up petitions against any of
the Romanian Subsidiaries;
(vii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Romania," and "Business -- Operations in Romania" insofar as
such statements constitute a summary of Romanian legal matters
referred to therein and insofar as they purport to describe
the legal effect of the Romanian Constituent Documents, fairly
describe such legal matters and such legal effect;
(viii) each of the PRO TV SRL and Media Pro SRL has
been issued with the Licenses required by it under applicable
Romanian law for the purposes of carrying on broadcast
operations as described in the Prospectus (the "Romanian
Licenses"); there are no orders outstanding which have been
made against any such Romanian Subsidiary; no application,
action or proceeding is or will be pending for the
modification of the Romanian Licenses; 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 such counsel are not aware of any breaches of the terms of
the Romanian Licenses (except as disclosed in the Prospectus)
which would lead any regulatory agency to take any action
under their respective powers in relation thereto; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in Romania
against the Company or any subsidiary which would affect the
subject matter of this Agreement, the Securities or the
Indentures or is required to be disclosed in the Prospectus
which is not disclosed and correctly summarized therein.
(i) You shall have received on the Closing Date an opinion of
Jadek & Pensa, special Slovenian counsel to the Company, in the form
and substance satisfactory to you, to the effect that:
(i) each of MMTV d.o.o. Ljubljana ("MMTV"), Tele 59
d.o.o. Maribor ("Tele 59") and Prodvkcija Plus d.o.o. ("Pro
Plus") (collectively, the "Slovenian Subsidiaries") has been
duly incorporated or duly organized as a partnership or other
Legal Entity under the laws of Slovenia;
<PAGE> 18
17
(ii) each of the Slovenian 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) all of the issued shares or other interests in
the capital of each of the Slovenian Subsidiaries which have
been issued or granted to the Company have been validly
created, allotted and issued, and the Company is the
registered holder of the percentage of the issued share
capital or other interest of such Slovenian Subsidiary
disclosed in the Prospectus;
(iv) the Partnership Agreement among CME BV, MMTV 1
d.o.o. Ljubljana and Tele 59 dated February 10, 1995, the
Share Purchase Agreement among CME BV, Zdenka Meglic, Zargova
70 Ljublana dated April 8, 1995, the Partnership Agreement
between CME BV and Tele 59 dated December 15, 1995; the
Partnership Agreement between CME BV and Zdenka Meglic dated
December 15, 1995; the contract on the establishment of MMTC
between CME BV, MMTV, Zdenka Meglic and Maijari Meglic dated
March 27, 1997 and all other agreements relating to the rights
and obligations of the Company or its subsidiaries in respect
of the POP TV network, (collectively, the "Slovenian
Constituent Documents") are valid and binding agreements and
are enforceable in accordance with their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (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) there are no winding up petitions against any of
the Slovenian Subsidiaries;
(vii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Slovenia," and "Business -- Operations in Slovenia" insofar as
such statements constitute a summary of Slovenian legal
matters referred to therein and insofar as they purport to
describe the legal effect of the Slovenian Constituent
Documents, fairly describe such legal matters and such legal
effect;
(viii) each of Tele 59 and MMTV has been issued with
the Licenses required by it under applicable Slovenian law for
the purposes of carrying on broadcast operations as described
in the Prospectus (the "Slovenian Licenses"); there are no
orders outstanding which have been made against any such
Slovenian Subsidiary; no application, action or proceeding is
or will be pending for the modification of the Slovenian
Licenses; no application, action or proceeding is or will be
pending or threatened that may result in the
<PAGE> 19
18
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 such counsel are not aware of any
breaches of the terms of the Slovenian Licenses, (except as
disclosed in the Prospectus) which would lead any regulatory
agency to take any action under their respective powers in
relation thereto; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in Slovenia
against the Company or any subsidiary which would affect the
subject matter of this Agreement, the Securities or the
Indentures or is required to be disclosed in the Prospectus
which is not disclosed and correctly summarized therein.
(j) You shall have received on the Closing Date an opinion of
Radvan & Co., special Slovak Republic counsel to the Company, in the
form and substance satisfactory to you, to the effect that:
(i) each of STS and Markiza-Slovakia s.r.o.
("Markiza", and together with STS, the "Slovak Subsidiaries")
has been duly incorporated or duly organized as a partnership
or other Legal Entity under the laws of the Slovak Republic;
(ii) each of the Slovak 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) all of the issued shares or other interests in
the capital of each of the Slovak Subsidiaries which have been
issued or granted to the Company have been validly created,
allotted and issued, and the Company is the registered holder
of the percentage of the issued share capital or other
interest of such Slovak Subsidiary disclosed in the
Prospectus;
(iv) the Participants' Agreement between CME BV and
Markiza dated September 28, 1995, the Memorandum and Articles
of Association of STS, the agreement between CME BV and
Markiza dated October 1, 1995 regarding CME BV's
contributions; the Mandate Agreement between Markiza and STS
dated July , 1996 and all other agreements relating to the
rights and obligations of the Company, or its subsidiaries in
respect of STS (collectively, the "Slovak Constituent
Documents") are valid and binding agreements and are
enforceable in accordance with their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (a) will not
require any consent, approval,
<PAGE> 20
19
authorization or other order of any Slovak court, regulatory
body or other Slovak governmental body to be obtained and (b)
will not violate any Slovak law or regulation;
(vi) there are no winding up petitions against any of
the Slovak Subsidiaries;
(vii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Slovak Republic," and "Business -- Operations in Slovak
Republic" insofar as such statements constitute a summary of
Slovak legal matters referred to therein and insofar as they
purport to describe the legal effect of the Slovak Constituent
Documents, fairly describe such legal matters and such legal
effect;
(viii) Markiza has been issued with the License
required by it under applicable Slovak law for the purposes of
carrying on broadcast operations as described in the
Prospectus (the "Slovak License") and STS has acquired from
Markiza the exclusive right to use the License; there are no
orders outstanding which have been made against STS or
Markiza; no application, action or proceeding is or will be
pending for the modification of the Slovak License; no
application, action or proceeding is or will be 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; and such counsel are not aware of any breaches of
the terms of the Slovak License (except as disclosed in the
Prospectus) which would lead any regulatory body to take any
action under their respective powers in relation thereto; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in the
Slovak Republic against the Company or any subsidiary which
would affect the subject matter of this Agreement, the
Securities or the Indentures or is required to be disclosed in
the Prospectus which is not disclosed and correctly summarized
therein.
(k) You shall have received on the Closing Date an opinion of
Vasil Kisil and Partners, special Ukraine counsel to the Company, in
the form and substance satisfactory to you, to the effect that:
(i) each of Intermedia Ukraine, Prioritet Ukraine and
Broadcast Company "Studio 1+1" (collectively, the "Ukraine
Subsidiaries") has been duly incorporated or duly organized as
a partnership or other Legal Entity under the laws of the
Ukraine;
<PAGE> 21
20
(ii) each of the Ukraine 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) all of the issued shares or other interests in
the capital of each of the Ukraine Subsidiaries which have
been issued or granted to the Company have been validly
created, allotted and issued, and the Company is the
registered holder of the percentage of the issued share
capital or other interest of each such Ukraine Subsidiary
disclosed in the Prospectus;
(iv) the Acquisitions, Cooperation and Investment
Agreement among, inter alia, CME BV, Innova Film GmbH and
Studio 1+1 dated September 30, 1996 (the "Cooperation
Agreement"); the Amended and Restated Foundation Agreement of
Studio 1+1 between Enterprise Intermedia and Alexander
Rodnianskii dated January 23, 1997, the Deed dated October 25,
1996 among CME BV, Boris Fuchsmann, Alexander Rodnianskii and
Innova Film GmbH, the contract for International Cooperation
dated between Studio 1+1 and Innova Film GmbH, the Marketing,
Advertising and Sales Agreement dated January 23, 1997 between
Innova Film GmbH and International Media Services Ltd.
("IMS"), the By-laws of IMS; the Shareholders' Agreement dated
January 24, 1997 among International Teleservices Ltd., CME
Ukraine GmbH and Boris Fuchsmann; and all other agreements
relating to the rights and obligations of the Company or its
subsidiaries in respect of Studio 1+1 (collectively, the
"Ukraine Constituent Documents") are valid and binding
agreements and are enforceable in accordance with their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (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;
(vi) there are no winding up petitions against any of
the Ukraine Subsidiaries;
(vii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Ukraine," and "Business -- Operations in Ukraine" insofar as
such statements constitute a summary of Ukraine legal matters
referred to therein and insofar as they purport to describe
the legal effect of the Ukraine Constituent Documents, fairly
describe such legal matters and such legal effect;
(viii) Broadcast Company "Studio 1+1" has been issued
with the Licenses required by it under applicable Ukraine law
for the purposes of carrying on television broadcast
operations as described in the Prospectus (the
<PAGE> 22
21
"Ukraine Licenses"); there are no orders outstanding which
have been made against any such Ukraine Subsidiary; no
application, action or proceeding is or will be pending for
the modification of the Ukraine Licenses; no application,
action or proceeding is or will be pending or threatened that
may result in the revocation, modification, nonrenewal or
suspension of Ukraine 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 Ukraine
Licenses, or the imposition of any administrative sanction;
and such counsel are not aware of any breaches of the terms of
the Ukraine Licenses (except as disclosed in the Registration
Statement) which would lead any regulatory agency to take any
action under their respective powers in relation thereto; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending or threatened in the
Ukraine against the Company or any subsidiary which would
affect the subject matter of this Agreement, the Securities or
the Indentures or is required to be disclosed in the
Prospectus which is not disclosed and correctly summarized
therein.
(l) You shall have received on the Closing Date an opinion of
Altheimer & Gray, special Polish counsel to the Company, in the form
and substance satisfactory to you, to the effect that:
(i) each of Federacja sp. z.o.o. ("Federation"), TVN
and Telewizja Wisla Sp. z.o.o. ("TV Wisla"), (collectively,
the "Polish Subsidiaries") has been duly incorporated or duly
organized as a partnership or other Legal Entity under the
laws of Poland;
(ii) each of the Polish 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) all of the issued shares or other interests in
the capital of each of the Polish Subsidiaries which have been
issued or granted to the Company have been validly created,
allotted and issued, and the Company is the direct or indirect
registered holder of the percentage of the issued share
capital or other interest of each such Polish Subsidiary
disclosed in the Prospectus;
(iv) the Shareholders Agreement and the Stock
Purchase Agreement between International Trading and
Investments Holdings S.A. ("ITI Holdings") and CME BV dated
May 25, 1995; the Share Sale Agreement between TVN and Realbud
Sp.z.o.o. dated October 30, 1996; the Shareholders Agreement
between TVN and Ambresa Ltd. dated December 30, 1996; the
Investment Agreement and Shareholders Agreement dated August
1, 1997 between ITI Holdings and CME BV relating to the
formation of Federation and all other agreements relating to
the rights and obligations of the Company or any
<PAGE> 23
22
subsidiary with respect to TV Wisla or Federation
(collectively, the "Polish Constituent Documents") are valid
and binding agreements and are enforceable in accordance with
their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (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) there are no winding up petitions against any of
the Polish Subsidiaries;
(vii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Poland," and "Business -- Operations in Poland," insofar as
such statements constitute a summary of Polish legal matters
referred to therein and insofar as they purport to describe
the legal effect of the Polish Constituent Documents, fairly
describe such legal matters and such legal effect;
(viii) each of TVN and TV Wisla have been issued with
the Licenses required by it under applicable Polish law for
the purposes of carrying on broadcast operations as described
in the Prospectus (the "Polish Licenses"); there are no orders
outstanding which have been made against any such Polish
Subsidiary; no application, action or proceeding is or will be
pending for the modification of the Polish Licenses; no
application, action or proceeding is or will be pending or
threatened that may result in the revocation, modification,
nonrenewal or suspension of the Polish 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
Polish Licenses, or the imposition of any administrative
sanction; and such counsel are not aware of any breaches of
the terms of the Polish Licenses (except as disclosed in the
Prospectus) which would lead any regulatory agency to take any
action under their respective powers in relation thereto; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in Poland
against the Company or any subsidiary which would affect the
subject matter of this Agreement, the Securities or the
Indentures or is required to be disclosed in the Prospectus
which is not disclosed and correctly summarized therein.
(m) You shall have received on the Closing Date an opinion of
Doser Ameretter Noack, special German counsel for the Company, in the
form and substance satisfactory to you, to the effect that:
<PAGE> 24
23
(i) each of the subsidiaries listed on Schedule I to
such counsel's opinion (which Schedule shall set forth all of
the German subsidiaries) (collectively, the "German
Subsidiaries") has been duly incorporated or duly organized as
a partnership or other Legal Entity under German law;
(ii) each of the German Subsidiaries, other than PULS
TV, 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) all of the issued shares or other interest in
the capital of each of the German Subsidiaries which have been
issued or granted to CME BV have been validly created,
allotted and issued, and the Company is the direct or indirect
registered holder of the percentage of the issued share
capital or other interest of such German Subsidiaries
disclosed in the Prospectus;
(iv) 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 Medien Beteiligungen GmbH & Co. Media Enterprises KG and
SFF (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 Nuremberg
Partnership Agreement and the Leipzig and Dresden Agreement
(collectively, the "German Constituent Documents") are valid
and binding agreements and are enforceable in accordance with
their terms;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under this
Agreement, the Securities and the Indentures (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;
(vi) except as disclosed in the Prospectus, there are
no winding up petitions against any of the German
Subsidiaries;
(vii) each of the German Subsidiaries have been
issued with 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"); there are
no orders outstanding which have been made against any such
German Subsidiaries; except for the License held by PULS TV,
no application, action or proceeding is or will be pending for
the modification of the German Licenses; no application,
action or proceeding is or will be pending or threatened that
may result in the revocation, modification, nonrenewal or
<PAGE> 25
24
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 in the Prospectus) which
would lead any regulatory agency to take any action under
their respective powers in relation thereto;
(viii) the statements in the Prospectus under the
captions "The Company," "Business -- Operating Environment --
Germany," and "Business -- Operations in Germany: the German
Stations" insofar as such statements constitute a summary of
German legal matters referred to therein and insofar as they
purport to describe the legal effect of the German Constituent
Documents, fairly describe such legal matters and such legal
effect; and
(ix) such counsel does not know of any litigation or
any governmental proceeding pending of threatened in Germany
against the Company or any Subsidiary which would affect the
subject matter of this Agreement, the Securities or the
Indentures, or is required to be disclosed in the Prospectus
which is not disclosed and correctly summarized therein.
(n) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraphs (ii), (iv),
(v), (vi) and (xiii) of paragraph (e) above,
The opinions of counsel described in paragraphs (d), (e), (f),
(g), (h), (i), (j), (k) and (l) above shall be rendered to you at the
request of the Company and shall so state therein.
(o) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to you, from
Arthur Andersen & Co., independent public accountants for the Company,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
VI.
In further consideration of the agreements of the Underwriters
herein contained, the Company covenants as follows:
(a) To furnish to you, without charge, four signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto)
<PAGE> 26
25
and, during the period mentioned in paragraph (c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object.
(c) If, during such period after the first date of the public
offering of the Securities as in the opinion of your counsel the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist
as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of your counsel, it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to
the Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Securities may have been sold by you
on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request and to pay all expenses (including fees and
disbursements of counsel) in connection with such qualification and in
connection with (i) the determination of the eligibility of the
Securities for investment under the laws of such jurisdictions as you
may designate and (ii) any review of the offering of the Securities by
the National Association of Securities Dealers, Inc.
(e) To use its best efforts to have the Securities admitted to
the official list of the Luxembourg Stock Exchange.
(f) If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act no later than the earlier of (i) 10:00 p.m. New York
City time on the date hereof and (ii) the time confirmations are sent
or given, as specified by Rule 462(b)(2) under the Securities Act, and
shall pay the applicable fees in accordance with Rule 111 under the
Securities Act.
(g) To make generally available to the Company's security
holders and to you not later than 60 days after the end of the
twelve-month period beginning at the end of the Company's fiscal
quarter during which the effective date of the Original
<PAGE> 27
26
Registration Statement occurs, an earnings statement of the Company
covering such twelve-month period that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
(h) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell,
contract to sell or otherwise dispose of any debt securities of the
Company or warrants to purchase debt securities of the Company
substantially similar to the Securities (other than the Securities),
without your prior written consent.
(i) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, the Company agrees to pay,
or reimburse if paid by or on behalf of you, all costs and expenses
incident to the public offering of the Securities and the performance
of the obligations of the Company under this Agreement including those
relating to: (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the issuance of the
Securities, the preparation, printing, filing and distribution of the
Registration Statement including financial statements and all exhibits,
each preliminary prospectus, the Prospectus, all amendments and
supplements to the Registration Statement and the Prospectus, and the
printing or duplication, filing and distribution of this Agreement
(including all document production charges); (ii) the preparation and
delivery of any certificates for the Securities to the Underwriters;
(iii) all expenses in connection with the registration or qualification
of the Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as you shall request, including the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the
preparation, printing and duplication, distribution and shipment of
preliminary and supplementary Blue Sky memoranda; (iv) the furnishing
(including costs of shipping and mailing) to you and to the
Underwriters of copies of each preliminary prospectus, the Prospectus
and all amendments or supplements to the Prospectus, and of the several
documents required by this paragraph to be so furnished, as may be
reasonably requested for use in connection with the offering and sale
of the Securities by the Underwriters or by dealers to whom Securities
may be sold; (v) the filing fees and expenses (including the reasonable
fees and disbursements of counsel to the Underwriters), if any,
incurred with respect to any filing with the National Association of
Securities Dealers, Inc. in connection with its review of the terms of
the public offering of the Securities; (vi) all fees and expenses in
connection with obtaining admission of the Securities to the official
list of the Luxembourg Stock Exchange; (vii) any expenses incurred by
the Company in connection with a "road show" presentation to potential
investors; and (viii) all transfer taxes, if any, with respect to the
sale and delivery of the Securities by the Company to the Underwriters.
VII.
The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter within the
meaning of either Section 15
<PAGE> 28
27
of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Underwriter or any such controlling person
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except (i)
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein and (ii) such indemnity
with respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such loss, claim, damage or
liability purchased the Securities that are the subject thereof if such person
did not receive a copy of the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), excluding
documents incorporated therein by reference, at or prior to the confirmation of
the sale of such Securities to such person in any case where such delivery is
required under the Securities Act and any untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in any
preliminary prospectus was corrected in the Prospectus.
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either of the two preceding paragraphs, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between
<PAGE> 29
28
them. It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant
to the second preceding paragraph, and by the Company, in the case of parties
indemnified pursuant to the first preceding paragraph. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, 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 the second
and third sentences of this paragraph, 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.
If the indemnification provided for in the first or second
paragraph of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Securities shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Securities (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Securities. The relative fault of the
Company on the one hand and of the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates
<PAGE> 30
29
to information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Article VII are several in proportion to the
respective principal amounts of Securities they have purchased hereunder, and
not joint.
The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Article VII were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Article VII are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Article VII and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Securities.
VIII.
This Agreement shall be subject to termination by notice given
by you to the Company, if (a) after the execution and delivery of this Agreement
and prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities shall have been declared in the
Czech Republic or in New York by either Federal or New York State authorities or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with
<PAGE> 31
30
any other such event makes it, in your judgment, impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Original Registration Statement by the
Commission.
If, on the Closing Date, any one or more of the Underwriters
shall fail or refuse to purchase Securities that it or they have agreed to
purchase hereunder on such date, and the aggregate principal amount of
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate principal
amount of the Securities to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the principal amount of
Securities set forth opposite their respective names in Schedule I bears to the
principal amount of Securities set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Securities which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase on such date; provided that in no event shall
the principal amount of Securities that any Underwriter has agreed to purchase
pursuant to Article II be increased pursuant to this Article IX by an amount in
excess of one-ninth of such principal amount of Securities without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Securities and the aggregate
principal amount of Securities with respect to which such default occurs is more
than one-tenth of the aggregate principal amount of Securities to be purchased
on such date, and arrangements satisfactory to you and the Company for the
purchase of such Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
<PAGE> 32
31
This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
<PAGE> 33
32
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York. The Company has
appointed Corporation Services Company, 1633 Broadway, New York, New York 10019
as its agent for service of process in any suit, action or proceeding with
respect to this Agreement and for actions brought under U.S. state or federal
securities laws brought in any federal or state court located in the City of New
York and the Company agrees to the jurisdiction of any such court.
Very truly yours,
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By______________________________________
Name:
Title:
Accepted, August , 1997
Morgan Stanley & Co.
Incorporated
Morgan Stanley Bank AG
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Schroder Wertheim & Co. Incorporated
Acting severally on behalf
of themselves and the
several Underwriters
named herein.
By Morgan Stanley & Co.
Incorporated
By_______________________
Name:
Title:
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of Dollar Securities of DM Securities
Underwriter To Be Purchased To Be Purchased
----------- --------------- ---------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated
Morgan Stanley Bank AG
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Schroder Wertheim & Co. Inc.
_________________ ________________
Total . . . . . . . . . $ DM
================ ================
</TABLE>
<PAGE> 1
Exh. 4.1
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN DEFINITIVE REGISTERED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS
A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation
(the "Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to _________, or
its registered assigns, the principal sum of _________ ($_________) on August
15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By___________________________________________
Name:
Title:
By___________________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By___________________________________________
Authorized Signatory
<PAGE> 3
[REVERSE SIDE OF NOTE]
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on August 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record
of the Notes at the close of business on February 1 or August 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
February 15, 1998.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from _______,
1997; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate borne by the Notes.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each February 15 and August
15 to the persons who are Holders (as reflected in the Note Register at the
close of business on the February 1 and August 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is cancelled on
registration of transfer, registration of exchange, redemption or repurchase
after such record date; provided that, with respect to the payment of principal,
the Company will make payment to the Holder that surrenders this Note to a
Paying Agent on or after August 15, 2004.
<PAGE> 4
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company, at
its option, may pay principal, premium, if any, and interest by its check
payable in such money. It may mail an interest check to a Holder's registered
address (as reflected in the Note Register). If a payment date is a date other
than a Business Day at a place of payment, payment may be made at that place on
the next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate
of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
August __, 1997 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the original aggregate principal amount at maturity of the
Notes to $125,000,000.
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after August 15, 2004 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Note Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to
<PAGE> 5
receive interest due on the next succeeding Interest Payment Date), if redeemed
during the 12-month period commencing August 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C> <C>
2001 ................................ %
2002 ................................ %
2003 and thereafter ................. %
</TABLE>
In addition, at any time and from time to time, prior to August
15, 2000, the Company may redeem Notes having a principal amount of up to $_
million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Company may redeem all, but not less than all,
the Notes at any time at 100% of the principal amount thereof, together with
accrued interest thereon, if any, to the redemption date.
Notice of any optional redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his last address as it appears in the Note Register.
Notes in denominations larger than $1,000 may be redeemed in part. On and after
the Redemption Date, interest ceases to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall
have the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Payment").
<PAGE> 6
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Note Register. Notes in denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and multiples of $1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer or exchange of any Notes selected for redemption.
Also, it need not register the transfer or exchange of any Notes for a period of
15 days before the day of the mailing of a notice of redemption of Notes
selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
<PAGE> 7
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount at maturity of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency and make any change that does not
adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates, suffer to exist or incur Liens,
Guarantee Indebtedness of the Company or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company shall deliver to the Trustee an Officers' Certificate stating whether or
not the signers know of any Default or Event of Default under such restrictive
covenants.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
An Event of Default is: a default in payment of principal on the
Notes; default in the payment of interest on the Notes and such default
continues for a period of 30 days (provided that a failure to make any of the
first six scheduled interest payments on the Notes in a timely manner will
constitute an Event of Default with no grace or cure period); failure by the
Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; and certain events of default on
other Indebtedness of the Company and/or one or more of its Significant
Subsidiaries.
<PAGE> 8
If an Event of Default, as defined in the Indenture, occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes may declare all the Notes to be due and payable.
If a bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person 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. Each Holder by accepting a Note expressly waives and releases all such
liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. 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).
<PAGE> 9
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Central European
Media Enterprises Ltd., 18 D'Arblay Street, London W1V 3FP, United Kingdom,
Attention: Legal Department.
<PAGE> 10
ASSIGNMENT FORM
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
- -----------------------------------------------
- -----------------------------------------------
Print or type name, address and zip code of assignee and irrevocably appoint
___________ , as agent, to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
Dated ___________________ Signed__________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee1
- --------
(1) The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 11
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 4.11 or Section 4.12 of the Indenture, as applicable, check the Box:
|_|
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, as
applicable, state the amount to be purchased (in principal amount at maturity):
$_____________.
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, as
applicable, please provide instructions regarding delivery of and the Persons in
whose name(s) the unredeemed portion of such surrendered Note(s) should be
registered, the address of such Person(s) should be registered, the address of
such Person(s) and appropriate delivery instructions.
Date:__________________________
Your Signature:_________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee(2):_________________________
- --------
(2) The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 12
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation
(the "Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to _________, or
its registered assigns, the principal sum of _________ (DM _________) on August
15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By ___________________________
Name:
Title:
By ___________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By ___________________________
Authorized Signatory
<PAGE> 14
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on August 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually on each Interest Payment
Date, commencing February 15, 1998. The amount of payments in respect of
interest on each Interest Payment Date to each Holder shall correspond to the
aggregate principal amount of Notes represented by the Global Bearer Note and
the Global Registered Note, as established by the Registrar at the close of
business on the relevant Record Date. Payments of principal shall be made upon
surrender of the Global Registered Note or the Global Bearer Note to the U.S.
Paying Agent, Luxembourg Paying Agent or the DM Paying Agent, as the case may
be.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from _______,
1997; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate borne by the Notes.
2. Method of Payment.
The principal of this Note shall be payable at the Corporate
Trust Office of Bankers Trust Company in New York City (which initially will be
the corporate trust office of the Trustee at 4 Albany Street, New York, New York
10006), at the office of Bankers Trust Luxembourg, S.A. in Luxembourg, (which
initially will be 14 Boulevard F.D. Roosevelt, L-2450 Luxembourg) and at the
office of Bankers Trust International PLC (Frankfurt Branch) (which initially
will be Westend Carree Grueneburgweg 16 D-60322 Frankfurt/Main, Germany) and,
subject to any fiscal or other laws and regulations applicable
<PAGE> 15
thereto, at the specified offices of any other Paying Agents appointed by the
Company. Payment of principal of and interest on this Security shall be made by
the Company in Deutsche marks through the DM Paying Agent to DKV and to Cede &
Co., the nominee for DTC, as the registered holder of the U.S. Global Security.
Payments of principal shall be made upon surrender of the Global Registered Note
and the Global Bearer Note, as the case may be, to the U.S. Paying Agent and the
DM Paying Agent, respectively.
Any DTC participant holding a beneficial interest in the Notes
through DTC (a "DTC Note Holder") shall receive payments of principal and
interest in respect of the Notes in U.S. dollars, unless such DTC Notes Holder
elects to receive payments in Deutsche marks in accordance with the procedures
set out below. To the extent the DTC Note Holder shall not have made such
election in respect of any payment of principal or interest, the aggregate
amount designated for all such DTC Note Holders in respect of such payment (the
"DM Conversion Amount") shall be converted by the U.S. Paying Agent into U.S.
dollars and paid by wire transfer of same-day funds to the registered holder of
the Global Registered Note for payment through DTC's settlement system to the
relevant DTC Participants. All costs of any such conversion and wire transfer
shall be deducted from such payments. Any such conversion shall be based on, in
the case of interest payments, the U.S. Paying Agent's Deutsche Mark bid (U.S.
dollar offer) quotation, or, in the case of principal payments, the U.S. Paying
Agent's Deutsche Mark offer (U.S. dollar bid) quotation, at or prior to 11:00
a.m. New York time, on the second New York Business Day preceding the relevant
payment date, for the purchase by the U.S. Paying Agent of the DM Conversion
Amount of U.S. dollars for settlement on such payment date. If such quotation is
not available for any reason, the U.S. Paying Agent shall endeavour to obtain a
quotation from a leading foreign exchange bank in New York City or London
selected by the U.S. Paying Agent for such purpose. If no quotation from a
leading foreign exchange bank is available, payment of the DM Conversion Amount
will be made in Deutsche marks to the account or accounts specified by DTC to
the U.S. Paying Agent.
A DTC Note Holder may elect to receive a payment of principal
and interest with respect to the Notes in Deutsche marks by causing DTC to
notify the U.S. Paying Agent at the time specified below of (i) such DTC Note
Holder's election to receive all or a portion of such payment in Deutsche marks
and (ii) wire transfer instructions to a Deutsche marks account in Federal
Republic of Germany. Such election in respect of any payment shall be made by
the DTC Note Holder at the time and in the manner required by the DTC procedures
applicable from time to time and shall, in accordance with such procedures, be
irrevocable and shall relate only to such payment. DTC notifications of such
election, wire transfer instructions and of the amount payable in Deutsche marks
pursuant to this paragraph must be received by the U.S. Paying Agent prior to
5:00 P.M. New York time on the fifth New York Business Day following the
relevant Record Date in the case of interest and prior to 5:00 P.M. New York
time on the tenth day prior to the payment date for the payment of principal.
Any payments under this paragraph in Deutsche marks shall be made by wire
transfer of same-day funds to Deutsche marks accounts designated by DTC.
<PAGE> 16
All payments made by the Company to DKV and to, or to the order
of, the registered holder of the Global Registered Note, respectively, shall
discharge the liability of the Company under the Notes to the extent of the sums
so paid.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, U.S.
Paying Agent and Registrar and Bankers Trust Luxembourg will act as the
Luxembourg Paying Agent and Bankers Trust International PLC will act as DM
Paying Agent. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co- Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
August __, 1997 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the original aggregate principal amount at maturity of the
Notes to DM 100,000,000.
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after August 15, 2001 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice at
the following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on the next succeeding
Interest Payment Date), if redeemed during the 12-month period commencing August
15 of the years set forth below:
<PAGE> 17
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2001 ................................ %
2002 ................................ %
2003 and thereafter ................. %
</TABLE>
In addition, at any time and from time to time, prior to August
15, 2000, the Company may redeem Notes having a principal amount of up to $_
million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Company may redeem all, but not less than all,
the Notes at any time at 100% of the principal amount thereof, together with
accrued interest thereon, if any, to the redemption date.
Notice of any optional redemption will be made at least 30 days
but not more than 60 days before the Redemption Date. Notes in denominations
larger than DM 1,000 may be redeemed in part. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called for redemption,
unless the Company defaults in the payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall
have the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be made within 30 days
after any Change of Control occurs. Notes in denominations larger than DM 1,000
may be sold to the Company in part. On and after the Payment Date, interest
ceases to accrue on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change of Control
Payment.
<PAGE> 18
7. Denominations; Transfer; Exchange.
The Notes are in denominations of DM 1,000 and multiples of DM
1,000 in excess thereof. A Holder may register the transfer or exchange of Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption. Also, it need not register the transfer or exchange of any Notes for
a period of 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or Federal
Republic of Germany Obligations sufficient to pay the then outstanding principal
of, premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount at maturity of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
<PAGE> 19
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates, suffer to exist or incur Liens,
Guarantee Indebtedness of the Company or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company shall deliver to the Trustee an Officers' Certificate stating whether or
not the signers know of any Default or Event of Default under such restrictive
covenants.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
An Event of Default is: a default in payment of principal on the
Notes; default in the payment of interest on the Notes and such default
continues for a period of 30 days (provided that a failure to make any of the
first six scheduled interest payments on the Notes in a timely manner will
constitute an Event of Default with no grace or cure period); failure by the
Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; and certain events of default on
other Indebtedness of the Company and/or one or more of its Significant
Subsidiaries.
If an Event of Default, as defined in the Indenture, occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes may declare all the Notes to be due and payable.
If a bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in
<PAGE> 20
principal amount of the Notes then outstanding may direct the Trustee in its
exercise of any trust or power.
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person 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. Each Holder by accepting a Note expressly waives and releases all such
liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. Governing Law.
The Notes shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws, except as referred to in Section 10.11 of the Indenture.
19. 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).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Central European
Media
<PAGE> 21
Enterprises Ltd., 18 D'Arblay Street, London W1V 3FP, United Kingdom, Attention:
Legal Department.
<PAGE> 22
ASSIGNMENT FORM FOR REGISTERED NOTES
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
___________________________________
___________________________________
Print or type name, address and zip code of assignee and irrevocably appoint
______________________________, as agent, to transfer this Note on the books of
the Company.
The agent may substitute another to act for him.
Dated _______________ Signed _______________
___________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee1 ___________________
1 The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 23
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, as applicable, check
the Box: [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.11 of the Indenture, as
applicable, state the amount to be purchased (in principal amount at maturity):
$_____________.
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.11 of the Indenture, as
applicable, please provide instructions regarding delivery of and the Persons in
whose name(s) the unredeemed portion of such surrendered Note(s) should be
registered, the address of such Person(s) should be registered, the address of
such Person(s) and appropriate delivery instructions.
Date:____________________
Your Signature:______________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee(2):_______________________
_______________
(2) The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 24
SCHEDULE TO GLOBAL NOTE
Initial Principal Amount
DM[Insert initial principal amount]
<TABLE>
<CAPTION>
Amount of Principal
Amount of Increased (Decreased) Aggregate
Principal Upon Transfer Between Principal
Date Purchased Global Notes Amount
---- --------- ------------ ------
<S> <C> <C> <C>
</TABLE>
<PAGE> 25
THIS GLOBAL CERTIFICATE HAS BEEN CREATED IN ORDER TO BE HELD IN
CUSTODY BY DEUTSCHER KASSENVEREIN AG ("DKV") AND TO SERVE AS THE BASIS FOR THE
DELIVERY AND TRANSFER OF NOTES TO BE HELD IN THE DKV DEPOSITARY AND CLEARING
SYSTEM THROUGHOUT THE LIFE OF THE SECURITIES.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation
(the "Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to the bearer
hereof, the principal sum of _________ (DM _________) on August 15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
[Regular Record Dates: February 1 and August 1.]
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By ___________________________
Name:
Title:
By ___________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By ___________________________
Authorized Signatory
<PAGE> 27
EXHIBIT C
[REVERSE SIDE OF NOTE]
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on August 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually on each Interest Payment
Date, commencing February 15, 1998. The amount of payments in respect of
interest on each Interest Payment Date to each Holder shall correspond to the
aggregate principal amount of Notes represented by the Global Bearer Note and
the Global Registered Note, as established by the Registrar at the close of
business on the relevant Record Date. Payments of principal shall be made upon
surrender of the Global Registered Note or the Global Bearer Note to the U.S.
Paying Agent, Luxembourg Paying Agent or the DM Paying Agent, as the case may
be.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from _______,
1997; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate borne by the Notes.
<PAGE> 28
2. Method of Payment.
The principal of this Note shall be payable at the Corporate
Trust Office of Bankers Trust Company in New York City (which initially will be
the corporate trust office of the Trustee at 4 Albany Street, New York, New York
10006), at the office of Bankers Trust Luxembourg, S.A. in Luxembourg, (which
initially will be 14 Boulevard F.D. Roosevelt, L-2450 Luxembourg) and at the
office of Bankers Trust International PLC (Frankfurt Branch) (which initially
will be Westend Carree Grueneburgweg 16 D-60322 Frankfurt/Main, Germany) and,
subject to any fiscal or other laws and regulations applicable thereto, at the
specified offices of any other Paying Agents appointed by the Company. Payment
of principal of and interest on this Security shall be made by the Company in
Deutsche marks through the DM Paying Agent to DKV and to Cede & Co., the nominee
for DTC, as the registered holder of the U.S. Global Security. Payments of
principal shall be made upon surrender of the Global Registered Note and the
Global Bearer Note, as the case may be, to the U.S. Paying Agent and the DM
Paying Agent, respectively.
Any DTC participant holding a beneficial interest in the Notes
through DTC (a "DTC Note Holder") shall receive payments of principal and
interest in respect of the Notes in U.S. dollars, unless such DTC Notes Holder
elects to receive payments in Deutsche marks in accordance with the procedures
set out below. To the extent the DTC Note Holder shall not have made such
election in respect of any payment of principal or interest, the aggregate
amount designated for all such DTC Note Holders in respect of such payment (the
"DM Conversion Amount") shall be converted by the U.S. Paying Agent into U.S.
dollars and paid by wire transfer of same-day funds to the registered holder of
the Global Registered Note for payment through DTC's settlement system to the
relevant DTC Participants. All costs of any such conversion and wire transfer
shall be deducted from such payments. Any such conversion shall be based on, in
the case of interest payments, the U.S. Paying Agent's Deutsche Mark bid (U.S.
dollar offer) quotation, or, in the case of principal payments, the U.S. Paying
Agent's Deutsche Mark offer (U.S. dollar bid) quotation, at or prior to 11:00
a.m. New York time, on the second New York Business Day preceding the relevant
payment date, for the purchase by the U.S. Paying Agent of the DM Conversion
Amount of U.S. dollars for settlement on such payment date. If such quotation is
not available for any reason, the U.S. Paying Agent shall endeavour to obtain a
quotation from a leading foreign exchange bank in New York City or London
selected by the U.S. Paying Agent for such purpose. If no quotation from a
leading foreign exchange bank is available, payment of the DM Conversion Amount
will be made in Deutsche marks to the account or accounts specified by DTC to
the U.S. Paying Agent.
A DTC Note Holder may elect to receive a payment of principal
and interest with respect to the Notes in Deutsche marks by causing DTC to
notify the U.S. Paying Agent at the time specified below of (i) such DTC Note
Holder's election to receive all or a portion of such payment in Deutsche marks
and (ii) wire transfer
<PAGE> 29
instructions to a Deutsche marks account in Federal Republic of Germany. Such
election in respect of any payment shall be made by the DTC Note Holder at the
time and in the manner required by the DTC procedures applicable from time to
time and shall, in accordance with such procedures, be irrevocable and shall
relate only to such payment. DTC notifications of such election, wire transfer
instructions and of the amount payable in Deutsche marks pursuant to this
paragraph must be received by the U.S. Paying Agent prior to 5:00 P.M. New York
time on the fifth New York Business Day following the relevant Record Date in
the case of interest and prior to 5:00 P.M. New York time on the tenth day prior
to the payment date for the payment of principal. Any payments under this
paragraph in Deutsche marks shall be made by wire transfer of same-day funds to
Deutsche marks accounts designated by DTC.
All payments made by the Company to DKV and to, or to the order
of, the registered holder of the Global Registered Note, respectively, shall
discharge the liability of the Company under the Notes to the extent of the sums
so paid.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, U.S.
Paying Agent and Registrar and Bankers Trust Luxembourg will act as the
Luxembourg Paying Agent and Bankers Trust International PLC will act as DM
Paying Agent. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
August __, 1997 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the original aggregate principal amount at maturity of the
Notes to DM 100,000,000.
<PAGE> 30
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after August 15, 2001 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice at
the following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on the next succeeding
Interest Payment Date), if redeemed during the 12-month period commencing August
15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2001 ................................ %
2002 ................................ %
2003 and thereafter ................. %
</TABLE>
In addition, at any time and from time to time, prior to August
15, 2000, the Company may redeem Notes having a principal amount of up to $_
million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Company may redeem all, but not less than all,
the Notes at any time at 100% of the principal amount thereof, together with
accrued interest thereon, if any, to the redemption date.
Notice of any optional redemption will be made at least 30 days
but not more than 60 days before the Redemption Date. Notes in denominations
larger than DM 1,000 may be redeemed in part. On and after the Redemption Date,
interest ceases
<PAGE> 31
to accrue on Notes or portions of Notes called for redemption, unless the
Company defaults in the payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall
have the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be made within 30 days
after any Change of Control occurs. Notes in denominations larger than DM 1,000
may be sold to the Company in part. On and after the Payment Date, interest
ceases to accrue on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change of Control
Payment.
7. Denominations; Transfer; Exchange.
The Notes are in denominations of DM 1,000 and multiples of DM
1,000 in excess thereof. A Holder may register the transfer or exchange of Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption. Also, it need not register the transfer or exchange of any Notes for
a period of 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
<PAGE> 32
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or Federal
Republic of Germany Obligations sufficient to pay the then outstanding principal
of, premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount at maturity of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency and make any change that does not
adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates, suffer to exist or incur Liens,
Guarantee Indebtedness of the Company or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company shall deliver to the Trustee an Officers' Certificate stating whether or
not the signers know of any Default or Event of Default under such restrictive
covenants.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
<PAGE> 33
14. Defaults and Remedies.
An Event of Default is: a default in payment of principal on the
Notes; default in the payment of interest on the Notes and such default
continues for a period of 30 days (provided that a failure to make any of the
first six scheduled interest payments on the Notes in a timely manner will
constitute an Event of Default with no grace or cure period); failure by the
Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; and certain events of default on
other Indebtedness of the Company and/or one or more of its Significant
Subsidiaries.
If an Event of Default, as defined in the Indenture, occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes may declare all the Notes to be due and payable.
If a bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person 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. Each Holder by accepting a Note expressly waives and releases all such
liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the Notes.
<PAGE> 34
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. Governing Law.
The Notes shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws, except as referred to in Section 10.11 of the Indenture.
19. 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).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Central European
Media Enterprises Ltd., 18 D'Arblay Street, London W1V 3FP, United Kingdom,
Attention: Legal Department.
<PAGE> 35
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, as applicable, check
the Box: [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.11 of the Indenture, as
applicable, state the amount to be purchased (in principal amount at maturity):
$ ________________ .
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.11 of the Indenture, as
applicable, please provide instructions regarding delivery of and the Persons in
whose name(s) the unredeemed portion of such surrendered Note(s) should be
registered, the address of such Person(s) should be registered, the address of
such Person(s) and appropriate delivery instructions.
Date:_______________
Your Signature:____________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee(3):____________________
_______________
(3) The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 36
SCHEDULE TO GLOBAL NOTE
Initial Principal Amount
DM[Insert initial principal amount]
<TABLE>
<CAPTION>
Amount of Principal
Amount of Increased (Decreased) Aggregate
Principal Upon Transfer Between Principal
Date Purchased Global Notes Amount
---- --------- ------------ ------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
Exh. 4.2
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
as Issuer
and
BANKERS TRUST COMPANY,
as Trustee
Indenture
Dated as of ____________, 1997
__% Senior Notes Due 2004
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
Section 310(a)(1)....................................... 7.09
(a)(2) ...................................... 7.09
(b).......................................... 7.02; 7.07
Section 311(a).......................................... 7.02
(b) ......................................... 7.02
Section 312(a).......................................... 2.03
Section 313(a).......................................... 7.05
(c) ......................................... 7.04; 7.05; 10.02
(d) ......................................... 7.05
Section 314(a).......................................... 4.18; 7.04; 10.02
(a)(4)....................................... 4.17; 10.02
(c)(1)....................................... 10.03
(c)(2)....................................... 10.03
(e).......................................... 4.17; 10.04
Section 315(a).......................................... 7.01
(b).......................................... 7.04; 10.02
(c).......................................... 7.01
(d).......................................... 7.01
(e).......................................... 6.11
Section 316(a)(1)(A).................................... 6.05
(a)(1)(B).................................... 6.04
(b).......................................... 6.07
(c).......................................... 9.03
Section 317(a)(1)....................................... 6.08
(a)(2)....................................... 6.09
(b).......................................... 2.04
Section 318(a).......................................... 10.01
(c).......................................... 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part
of the Indenture.
<PAGE> 3
TABLE OF CONTENTS****
<TABLE>
<CAPTION>
Page
----
RECITALS OF THE COMPANY
ARTICLE ONE
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.01. Definitions....................................................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act................................. 20
SECTION 1.03. Rules of Construction............................................................. 21
ARTICLE TWO
The Note
SECTION 2.01. Form and Dating................................................................... 21
SECTION 2.02. Execution, Authentication and Denominations....................................... 22
SECTION 2.03. Registrar and Paying Agent........................................................ 23
SECTION 2.04. Paying Agent to Hold Money in Trust............................................... 24
SECTION 2.05. Transfer and Exchange............................................................. 24
SECTION 2.06. Replacement Notes................................................................. 26
SECTION 2.07. Outstanding Notes................................................................. 26
SECTION 2.08. Temporary Notes................................................................... 27
SECTION 2.09. Cancellation...................................................................... 27
SECTION 2.10. CUSIP Numbers..................................................................... 28
SECTION 2.11. Defaulted Interest................................................................ 28
ARTICLE THREE
Redemption
SECTION 3.01. Right of Redemption............................................................... 28
SECTION 3.02. Notices to Trustee................................................................ 29
SECTION 3.03. Selection of Notes to Be Redeemed................................................. 29
SECTION 3.04. Notice of Redemption.............................................................. 30
SECTION 3.05. Effect of Notice of Redemption.................................................... 31
SECTION 3.06. Deposit of Redemption Price....................................................... 31
SECTION 3.07. Payment of Notes Called for Redemption............................................ 31
SECTION 3.08. Notes Redeemed in Part............................................................ 32
ARTICLE FOUR
Covenants
SECTION 4.01. Payment of Notes.................................................................. 32
</TABLE>
- --------
**** Note: The Table of Contents shall not for any purposes be deemed to be a
part of the Indenture.
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.02. Limitation on Indebtedness........................................................ 32
SECTION 4.03. Limitation on Restricted Payments................................................. 35
SECTION 4.04. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries................................................................. 38
SECTION 4.05. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries............................................................................ 39
SECTION 4.06. Limitation on Issuances of Guarantees by Restricted Subsidiaries.................. 40
SECTION 4.07. Limitation on Transactions with Shareholders and Affiliates....................... 40
SECTION 4.08. Limitation on Liens............................................................... 41
SECTION 4.09. Limitation on Sale-Leaseback Transactions......................................... 42
SECTION 4.10. Limitation on Asset Sales......................................................... 42
SECTION 4.11. Repurchase of Notes upon a Change of Control...................................... 43
SECTION 4.12. Additional Amounts................................................................ 43
SECTION 4.13. Existence......................................................................... 45
SECTION 4.14. Payment of Taxes and Other Claims................................................. 45
SECTION 4.15. Maintenance of Properties and Insurance........................................... 45
SECTION 4.16. Compliance Certificates........................................................... 46
SECTION 4.17. Commission Reports and Reports to Holders......................................... 47
SECTION 4.18. Waiver of Stay, Extension or Usury Laws........................................... 47
ARTICLE FIVE
Successor Corporation
SECTION 5.01. When Company May Merge, Etc....................................................... 47
SECTION 5.02. Successor Substituted............................................................. 48
ARTICLE SIX
Default and Remedies
SECTION 6.01. Events of Default................................................................. 49
SECTION 6.02. Acceleration...................................................................... 51
SECTION 6.03. Other Remedies.................................................................... 51
SECTION 6.04. Waiver of Past Defaults........................................................... 52
SECTION 6.05. Control by Majority............................................................... 52
SECTION 6.06. Limitation on Suits............................................................... 52
SECTION 6.07. Rights of Holders to Receive Payment.............................................. 53
SECTION 6.08. Collection Suit by Trustee........................................................ 53
SECTION 6.09. Trustee May File Proofs of Claim.................................................. 53
SECTION 6.10. Priorities........................................................................ 54
SECTION 6.11. Undertaking for Costs............................................................. 54
SECTION 6.12. Restoration of Rights and Remedies................................................ 55
SECTION 6.13. Rights and Remedies Cumulative.................................................... 55
SECTION 6.14. Delay or Omission Not Waiver...................................................... 55
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
ARTICLE SEVEN
Trustee
<S> <C> <C>
SECTION 7.01. Rights of Trustee................................................................. 55
SECTION 7.02. Individual Rights of Trustee...................................................... 58
SECTION 7.03. Trustee's Disclaimer.............................................................. 58
SECTION 7.04. Notice of Default................................................................. 58
SECTION 7.05. Reports by Trustee to Holders..................................................... 58
SECTION 7.06. Compensation and Indemnity........................................................ 59
SECTION 7.07. Replacement of Trustee............................................................ 60
SECTION 7.08. Successor Trustee by Merger, Etc.................................................. 61
SECTION 7.09. Eligibility....................................................................... 61
SECTION 7.10. Money Held in Trust............................................................... 61
ARTICLE EIGHT
Discharge of Indenture
SECTION 8.01. Termination of Company's Obligations.............................................. 62
SECTION 8.02. Defeasance and Discharge of Indenture............................................. 63
SECTION 8.03. Defeasance of Certain Obligations................................................. 65
SECTION 8.04. Application of Trust Money........................................................ 66
SECTION 8.05. Repayment to Company.............................................................. 67
SECTION 8.06. Reinstatement..................................................................... 67
ARTICLE NINE
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders........................................................ 67
SECTION 9.02. With Consent of Holders........................................................... 68
SECTION 9.03. Revocation and Effect of Consent.................................................. 69
SECTION 9.04. Notation on or Exchange of Notes.................................................. 70
SECTION 9.05. Trustee to Sign Amendments, Etc................................................... 70
SECTION 9.06. Conformity with Trust Indenture Act............................................... 70
ARTICLE TEN
Miscellaneous
SECTION 10.01. Trust Indenture Act of 1939...................................................... 70
SECTION 10.02. Notices.......................................................................... 71
SECTION 10.03. Certificate and Opinion As to Conditions Precedent............................... 72
SECTION 10.04. Statements Required in Certificate or Opinion.................................... 72
SECTION 10.05. Acts of Holders.................................................................. 73
SECTION 10.06. Rules by Trustee, Paying Agent or Registrar...................................... 74
SECTION 10.07. Payment Date Other Than a Business Day........................................... 74
SECTION 10.08. Governing Law; Submission to Jurisdiction; Agent for Service..................... 74
SECTION 10.09. No Adverse Interpretation of Other Agreements.................................... 74
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 10.10. Currency Indemnity. ............................................................. 74
SECTION 10.11. No Recourse Against Others....................................................... 75
SECTION 10.12. Successors....................................................................... 75
SECTION 10.13. Duplicate Originals.............................................................. 75
SECTION 10.14. Separability..................................................................... 75
SECTION 10.15. Table of Contents, Headings, Etc................................................. 75
SIGNATURES
EXHIBIT A Form of Security
</TABLE>
iv
<PAGE> 7
INDENTURE, dated as of __________, 1997, between CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation, as Issuer (the
"Company"), and Bankers Trust Company, a New York banking corporation, as
trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of up to $100,000,000 aggregate
principal amount of the Company's % Senior Notes Due 2004 (the "Notes") issuable
as provided in this Indenture. All things necessary to make this Indenture a
valid agreement of the Company, in accordance with its terms, have been done,
and the Company has done 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 as hereinafter
provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939, as amended, that are required to
be a part of and to govern indentures qualified under the Trust Indenture Act of
1939, as amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows:
ARTICLE ONE
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by a Restricted Subsidiary and not Incurred
in connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
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"Additional Amounts" has the meaning provided in Section 4.12.
"Adjusted Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP, plus the net income (or
loss) of Restricted Affiliates for such period determined in conformity with
GAAP; provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any Person
(other than net income attributable to a Restricted Subsidiary) in which any
Person (other than the Company or any of its Restricted Subsidiaries) has a
joint interest and the net income of any Unrestricted Subsidiary, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.03 (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v) except
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.03, any amount paid
or accrued as dividends on Preferred Stock of the Company or any Restricted
Subsidiary owned by Persons other than the Company and any of its Restricted
Subsidiaries; (vi) all extraordinary gains and extraordinary losses; and (vii)
to the extent not otherwise excluded in accordance with GAAP, the net income (or
loss) of any Restricted Subsidiary in an amount that corresponds to the
percentage ownership interest in the income of such Restricted Subsidiary not
owned on the last day of such period, directly or indirectly, by the Company.
"Adjusted Consolidated Net Tangible Assets" means the total
amount of assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as is consistent with the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission
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pursuant to Section 4.17; provided that Adjusted Consolidated Net Tangible
Assets shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount that corresponds to the percentage ownership interest in the
assets of each Restricted Subsidiary not owned on the date of determination,
directly or indirectly, by the Company.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling, "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. "Affiliate" includes,
without limitation, any "Restricted Affiliate."
"Agent" means any Registrar, Paying Agent, authenticating
agent or co-Registrar.
"Annualized Consolidated Leverage Ratio" means the ratio
calculated as set forth in the definition of Consolidated Leverage Ratio, except
that (x) in clause (ii) thereof, the Consolidated Adjusted Operating Cash Flow
shall be calculated for the latest two fiscal quarters for which consolidated
financial statements of the Company are available and then multiplied by two
(rather than calculating Consolidated Adjusted Operating Cash Flow for the then
most recent four fiscal quarters), and (y) the Reference Period shall be the
period from the beginning of the second most recent fiscal quarter through the
Transaction Date.
"Asset Acquisition" means (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or complementary to
the businesses of the Company and its Restricted Subsidiaries on the date of
such investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary of the Company or (ii) all or substantially
all of the assets that constitute a division or line of business of the Company
or any of its Restricted Subsidiaries.
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"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of Article Five; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables, advertising time, and other current
assets or obsolete or outdated equipment; provided that each such sale or other
disposition or series of such sales or other dispositions shall not involve
assets that are material to the business of the Company and its Restricted
Subsidiaries, taken as a whole, (b) a transfer of assets to the extent the
consideration received (A) is equal to the fair market value of the assets
transferred and (B) takes the form of Investments of the type described in
clause (iv) of the definition of Permitted Investment, (c) sales or other
dispositions of assets (including Common Stock of Restricted Subsidiaries) for
consideration at least equal to the fair market value of the assets sold or
disposed of, provided that the consideration received consists of assets used or
useful in the media, communications or entertainment business (or Common Stock
in a Person engaged in the media, communications or entertainment business), and
provided further that if such consideration received consists of Common Stock,
such transaction complies with Section 4.03, or (d) issuances and sales of
Common Stock permitted under clause (v) of Section 4.05.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the
Company or any committee of such Board duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the Trustee, are authorized by law to close.
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"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in the equity of such Person, whether now
outstanding or issued after the Closing Date, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligations" means the discounted present value of the
rental obligations under such lease.
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
the Company on a fully diluted basis and such ownership is greater than the
amount of voting power of the Voting Stock of the Company, on a fully diluted
basis, held by the Existing Stockholders and their Affiliates on such date; or
(ii) individuals who on the Closing Date constitute the Board of Directors
(together with any new directors whose election by the Board of Directors or
whose nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then in
office who either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the members of the Board of Directors
then in office.
"Closing Date" means the date on which the Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture
until a successor replaces it pursuant to Article Five of this Indenture and
thereafter means the successor.
"Company Order" means a written request or order signed in the
name of the Company (i) by its Chairman, a Vice Chairman, its President or a
Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary and delivered to the Trustee; provided, however, that
such written request or order may be signed by any two
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of the Persons listed in clause (i) above in lieu of being signed by one of such
Persons listed in such clause (i) and one of the officers listed in clause (ii)
above.
"Consolidated Adjusted Operating Cash Flow" means, for any
period, the sum of the amounts for such period of (i) Adjusted Consolidated Net
Income, (ii) Consolidated Interest Expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, (iii) income taxes, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income (other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and (vi)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less (x) all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
the Company and its Restricted Subsidiaries in conformity with GAAP, and (y)
cash programming acquisition costs for the period under consideration; provided
that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated Adjusted Operating Cash Flow shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of Consolidated Adjusted Operating Cash Flow attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) or (vii) of the definition thereof (but only in the same proportion
as the net income of such Restricted Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) or (vii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the
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offering of the Notes, all as determined on a consolidated basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date,
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis, plus Indebtedness of Restricted
Affiliates not consolidated in the Company's financial statements, outstanding
on such Transaction Date to (ii) the aggregate amount of Consolidated Adjusted
Operating Cash Flow for the then most recent four fiscal quarters for which
financial statements of the Company have been filed with the Commission pursuant
to Section 4.17 (such four fiscal quarter period being the "Four Quarter
Period"); provided that (A) pro forma effect shall be given to (x) reflect the
incurrence of any Indebtedness Incurred from the beginning of the Four Quarter
Period through the Transaction Date (the "Reference Period"), to the extent such
Indebtedness is outstanding on the Transaction Date and (y) reflect the
repayment of any Indebtedness that was outstanding during such Reference Period
but that is not outstanding or is to be repaid on the Transaction Date; (B) pro
forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period, as if they had occurred
and such proceeds had been applied on the first day of such Reference Period;
and (C) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (B) or (C) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed of for which financial information is, in the good
faith opinion of the Board of Directors of the Company, available.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
plus stockholders' equity of Restricted Affiliates not consolidated as of such
date, less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with
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GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
"Corporate Trust Office" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular time,
be principally administered, which office is, at the date of this Indenture,
located at 4 Albany Street, New York, New York 10006, Attention: Corporate Trust
and Agency Group.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees,
and their respective successors, until a successor Depositary shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
hereunder.
"Disqualified Stock" means any class or series of Capital
Stock of any Person that by its terms or otherwise is (i) required to be
redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the
option of the holder of such class or series of Capital Stock at any time prior
to the Stated Maturity of the Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes shall
not constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in Sections 4.10 and 4.11
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
Sections 4.10 and 4.11.
"DM Notes" means the ___% Senior Notes due 2004 issued
pursuant to the DM Indenture.
"DM Indenture" means the Indenture dated ________ __, 1997
between the Company and Bankers Trust Company, as trustee.
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"EU Country" means any of the following countries: Austria;
Belgium; Denmark; Finland; France; Germany; Greece; Ireland; Italy; Luxembourg;
The Netherlands; Portugal; Spain; Sweden; and the United Kingdom; as well as any
other country which at the time of determination is a member of the European
Union or any successors thereof.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Stockholders" means (A) each beneficial holder of
the Company's Class B Common Stock on the Closing Date, (B) family members of
any of the foregoing, (C) trusts, the only beneficiaries of which are persons or
entities described in clauses (A) and (B) above, and (D) partnerships,
corporations, or limited liability companies which are controlled by the persons
or entities described in clauses (A) and (B) above.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date, including, without
limitation, those 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 are approved by a significant
segment of the accounting profession. All ratios and computations contained or
referred to in this Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of this
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion No. 16 or other accounting literature
related thereto.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect,
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contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" or "Noteholder" means the registered holder of any
Note.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary of the Company; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
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liability upon the occurrence of the contingency giving rise to the obligation,
provided (A) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the original issue price of such Indebtedness as
increased to reflect any accretion thereof pursuant to the terms of such
Indebtedness, (B) that "Indebtedness" shall not include any amount of money
borrowed, at the time of the Incurrence of the related Indebtedness, for the
purpose of pre-funding any interest payable on such related Indebtedness and (C)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Indenture" means this Indenture as originally executed or as
it may be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Interest Payment Date" means each semiannual interest payment
date on February 15 and August 15 of each year, commencing February 15, 1998.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement.
"Investment" in any Person means any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including without
limitation, by reason of any transaction permitted by clause (iii) of Section
4.05. For purposes of the definition of "Unrestricted Subsidiary" and Section
4.03, (i) "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments, and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer. Notwithstanding the foregoing an
acquisition of assets (including, without limitation, Capital
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Stock or rights to acquire Capital Stock) by the Company or any of its
Restricted Subsidiaries shall be deemed not to be an Investment to the extent
that the consideration therefor consists of Common Stock of the Company.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof or any agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale, and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agent's fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Note Register" has the meaning provided in Section 2.03.
<PAGE> 19
13
"Notes" means any of the notes, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the
Company from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Notes validly tendered will be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) 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 Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
at maturity of $1,000 or integral multiples thereof. On the Payment Date, the
Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee
all Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
<PAGE> 20
14
"Officer" means with respect to the Company, the Chairman of
the Board, the President, any Vice President, the Chief Financial Officer, the
Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by two
Officers. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4) shall include the statements provided for in TIA
Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal
counsel who is reasonably acceptable to the Trustee. Such counsel may be an
employee of or counsel to the Company or the Trustee. Each such Opinion of
Counsel shall include the statements provided for in TIA Section 314(e).
Opinions of Counsel required to be delivered may have qualifications customary
for opinions of the type required.
"Paying Agent" has the meaning provided in Section 2.03,
except that, for the purposes of Article Eight, the Paying Agent shall not be
the Company or a Subsidiary of the Company or an Affiliate of any of them. The
term "Paying Agent" includes any additional Paying Agent.
"Permitted Investment" means (i) an Investment in the Company
or a Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment and provided further that
in the case of an Investment in a Restricted Subsidiary that is a Restricted
Affiliate, at the time of and after giving effect to such Investment and any
Incurrence of Indebtedness in connection therewith or relating thereto, the pro
forma Annualized Consolidated Leverage Ratio would be greater than zero and less
than 5 to 1; (ii) Temporary Cash Investments; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) notes and
other evidences of Indebtedness, not to exceed $2 million at any one time
outstanding; and (v) stock, obligations or notes received in satisfaction of
judgments.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a
<PAGE> 21
15
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (iii) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations, bankers' acceptances, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real
or personal property or any other asset acquired after the Closing Date;
provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with Section 4.03, (1) to finance the cost
(including the cost of improvement or construction) of property or assets
(including, without limitation, Capital Stock) and such Lien is created prior
to, at the time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property, (2) to refinance any Indebtedness so secured, or (3) as Interest Rate
Agreements and Currency Agreements relating solely to the Indebtedness described
in clause (1) or (2) above, (b) the principal amount of the Indebtedness secured
by such Lien as of the time of the Incurrence thereof does not exceed 100% of
such cost and (c) any such Lien does not extend to or cover any property or
assets other than such item of property or assets and any improvements on such
item, provided that if 100% of the Capital Stock of a Person is acquired (not
including "qualifying" shares) such Lien may extend to properties of such
Person; (vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are within
the general parameters
<PAGE> 22
16
customary in the industry and incurred in the ordinary course of business, in
each case, securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures options or
similar agreements or arrangements designed solely to protect the Company or any
of its Restricted Subsidiaries from fluctuations in interest rates, currencies
or the price of commodities; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date; and (xviii) Liens on or sales
of receivables.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding or issued
after the date of this Indenture, and includes, without limitation, all classes
and series of preferred or preference stock.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Proposed ING Credit Facility" means any ank credit facility
between a bank and any Restricted Subsidiary in a maximum outstanding principal
amount of $35.0 million and any refinancing thereof.
"Redemption Date", when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.03.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the February 1 or August 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice chairman of the board of directors, the chairman
or any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the secretary, any assistant
<PAGE> 23
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secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
(including any officer within the Corporate Trust and Agency Group (or any
successor group) of the Trustee) and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Affiliate" means any Person in which the Company
or any Restricted Subsidiary has an Investment (a) whose primary business is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment, (b) both (x) which is
not consolidated in such Person's consolidated financial statements under GAAP,
and (y) of which 50% or less of the voting power of the outstanding Voting Stock
is owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, (c) of which at least 50% of the economic interest
is owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, and (d) that has been designated by the Board of
Directors (as evidenced by a Board Resolution delivered to the Trustee) as a
Restricted Affiliate based on a determination by such Board of Directors that
(x) the Company has, directly or indirectly, the requisite control over such
Person to prevent it from Incurring Indebtedness, making Restricted Payments, or
taking any other action in contravention of any provisions of this Indenture,
and (y) such Person otherwise qualifies as a Restricted Affiliate pursuant to
the requirements hereof.
"Restricted Payments" has the meaning provided in Section
4.03.
"Restricted Subsidiary" means any Subsidiary of the Company,
or of any Subsidiary of the Company, other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its
successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means, at any date of determination,
any Restricted Subsidiary that, together with its Restricted Subsidiaries, (i)
for the most recent fiscal year of the Company, accounted for more than 10% of
the sum of the consolidated revenues of the Company and its Restricted
Subsidiaries plus the revenues of its Restricted Affiliates or (ii) as of the
end of such fiscal year, was the owner of more than 10% of the sum of the
consolidated assets of the Company and its Restricted Subsidiaries plus the
assets of its Restricted Affiliates, all as set forth on the most recently
available financial statements of the Company for such fiscal year.
<PAGE> 24
18
"Specified Date" means any Redemption Date, any Payment Date
for an Offer to Purchase pursuant to Section 4.10 or Section 4.11 or any date on
which the Notes are due and payable after an Event of Default.
"Stated Maturity" means, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity (a) of which more than 50% of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by such Person and one or more other Subsidiaries of such Person,
(b) which is consolidated in such Person's consolidated financial statements
under GAAP, or (c) which is a Restricted Affiliate.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of America
or any agency thereof, (ii) time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying notes of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or Moody's, and (vi)
time deposits, certificates of deposit, bank promissory notes and bankers'
acceptances maturing not more than 180 days after the acquisition thereof and
guaranteed or issued by any of the ten largest banks (based on assets as of the
immediately preceding December 31) organized under the laws of any jurisdiction
in which one of the Restricted Subsidiaries does
<PAGE> 25
19
business and which are not under intervention, bankruptcy or similar proceeding,
not to exceed $10 million outstanding at any one time.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended (15 U.S. Code Sections 77aaa-77bbb), as in effect on
the date this Indenture was executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph
of this Indenture until a successor replaces it in accordance with the
provisions of Article Seven of this Indenture and thereafter means such
successor.
"United States Bankruptcy Code" means the Bankruptcy Reform
Act of 1978, as amended and as codified in Title 11 of the United States Code,
as amended from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under Section
4.04, and (C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under Sections 4.02
and 4.03. The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
the first paragraph of Section 4.02 and
<PAGE> 26
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(y) no Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means notes that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) 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 redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
U.S.Government Obligation or a specific payment of interest on or principal of
any such U.S.Government Obligation held by such custodian forth account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" means with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TA, the provision is
incorporated by reference in and made a part of this Indenture. The following TA
terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture noteholder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
<PAGE> 27
21
"obligor" on the indenture securities means the Company or any
other obligor on the Note.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in
the plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
The Note
SECTION 2.01. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A. The Notes may have notations, legends or endorsements required by
law, stock exchange agreements or requirements to which the Company is subject
or usage. The Company shall approve the
<PAGE> 28
22
form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The Notes shall be issued initially in the form of one or more
global Notes in registered form, substantially in the form set forth in Exhibit
A (the "Global Notes"), deposited with, or on behalf of, the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. Each Global Note shall bear such legend as may be required or
reasonably requested by the Depositary.
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02. Execution, Authentication and Denominations. Any
Officer shall execute the Notes for the Company by facsimile or manual signature
in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee or authenticating agent authenticates the
Note, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
Pursuant to and based upon a Company Order, the Trustee or an
authenticating agent shall authenticate for original issue Global Notes in the
aggregate principal amount at maturity of $100,000,000 registered in the name of
the Depositary or the nominee of the Depositary and shall deliver such Global
Notes to the Depositary or pursuant to the Depositary's instructions; provided
that the Trustee shall be entitled to receive an Opinion of Counsel of the
Company in connection with such authentication and delivery of the Global Notes.
Such Company Order shall specify the amount of the Global Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated. The aggregate principal amount at maturity of Notes outstanding
at any time may not exceed the
<PAGE> 29
23
amount set forth above except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Section 2.06 or 2.07.
The Trustee may appoint an authenticating agent to
authenticate Notes and such authenticating agent shall be compensated by the
Company. An authenticating agent may authenticate Notes whenever the Trustee may
do so, except with regard to the original issuance of the Notes. Except as
provided in the preceding sentence, each reference in this Indenture to
authentication by the Trustee includes authentication by such authenticating
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company. The provisions of Sections 7.01, 7.02
and 7.06 hereof shall be applicable to any authenticating agent.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount at maturity and
any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "Registrar"), an office or agency where Notes may
be presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall cause the Registrar to keep a
register of the Notes and of their transfer and exchange (the "Note Register").
The Note Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. The Company may have one
or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
<PAGE> 30
24
The Company initially appoints the Trustee as Registrar,
Paying Agent, authenticating agent and agent for service of notice and demands.
If, at any time, the Trustee is not the Registrar, the Company shall furnish, or
cause to be furnished, to the Trustee at least seven Business Days before each
Interest Payment Date and at such other times as the Trustee may reasonably
request, the names and addresses of the Holders as they appear in the Note
Register. At the option of the Company, payment of interest may be made by check
mailed to the address of the Holders as such address appears in the Note
Register.
SECTION 2.04. Paying Agent to Hold Money in Trust. Not later
than each due date of the principal, premium, if any, and interest on any Notes,
the Company shall deposit with the Paying Agent money in immediately available
funds sufficient to pay such principal, premium, if any, and interest 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 the Holders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, and interest on the Notes (whether such money
has been paid to it by the Company or any other obligor on the Notes), and such
Paying Agent shall promptly notify the Trustee of any default by the Company (or
any other obligor on the Notes) in making any such payment. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed, and the Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, it will, on or before each due date of any principal of, premium, if any,
or interest on the Notes, segregate and hold in a separate trust fund for the
benefit of the Holders a sum of money sufficient to pay such principal, premium,
if any, or interest so becoming due until such sum of money shall be paid to
such Holders or otherwise disposed of as provided in this Indenture, and will
promptly notify the Trustee of its action or failure to act.
SECTION 2.05. Transfer and Exchange. When Notes are presented
to the Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount at maturity of Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes at the Registrar's request. No service
charge shall be made for any registration of transfer or exchange of the Notes,
but the Company may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith (other than
any such transfer taxes or other similar governmental charge payable upon
exchanges pursuant to Section 2.08, 3.08 or 9.04).
<PAGE> 31
25
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
Notwithstanding any other provisions of this Section 2.05,
unless and until it is exchanged in whole or in part for Notes in definitive
registered form, a Global Note representing all or a portion of the Notes may
not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
If the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Notes or if at any time the
Depositary shall no longer be eligible under the next sentence of this
paragraph, the Company shall appoint a successor Depositary with respect to the
Notes. Each Depositary appointed pursuant to this Section 2.05 must, at the time
of its appointment and at all times while it serves as Depositary, be a clearing
agency registered under the Exchange Act and any other applicable statute or
regulation. The Company will execute, and the Trustee, upon receipt of an
authentication order, will authenticate and deliver, Notes in definitive
registered form in any authorized denominations, in an aggregate principal
amount at maturity equal to the principal amount at maturity of the Global Note
representing such Notes in exchange for such Global Notes if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Notes or if at any time the Depositary shall no longer be
eligible to serve as Depositary and a successor Depositary for the Notes is not
appointed by the Company within 60 days after the Company receives such notice
or becomes aware of such ineligibility or (ii) an Event of Default has occurred
and is continuing.
The Company may at any time and in its sole discretion
determine that the Notes shall no longer be represented by a Global Note. In
such event the Company will execute, and the Trustee will, upon receipt of an
authentication order, authenticate and deliver, Notes in definitive registered
form in any authorized denominations, in an aggregate principal amount at
maturity equal to the principal amount at maturity of the Global Notes
representing such Notes in exchange for such Global Notes.
Upon the exchange of a Global Notes in definitive registered
form without coupons, in authorized denominations, such Global Note shall be
cancelled by the Trustee. Notes in definitive registered form issued in exchange
for a Global Note pursuant to this Section 2.05 shall be registered in such
names and in such authorized denominations as the Depositary for such Global
Note, pursuant to instructions from its direct or indirect
<PAGE> 32
26
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Notes to or as directed by the Persons in whose names such Notes are so
registered.
All Notes issued upon any transfer or exchange of Notes shall
be valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Notes surrendered upon such
transfer or exchange.
SECTION 2.06. Replacement Notes. If a mutilated Note is
surrendered to the Trustee or if the Holder claims that the Note has been lost,
destroyed or wrongfully taken, 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 issue and the Trustee shall authenticate a replacement Note of
like tenor and principal amount; provided that the requirements of this Section
2.06 are met. If required by the Trustee or the Company, an indemnity bond must
be furnished that is sufficient in the judgment of both the Trustee and the
Company to protect the Company, the Trustee or any Agent from any loss that any
of them may suffer if a Note is replaced. The Company may charge such Holder for
the expenses of the Company and the Trustee in replacing a Note. In case any
such mutilated, lost, destroyed or wrongfully taken Note has become or is about
to become due and payable, the Company in its discretion may pay such Note
instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
The provisions of this Section 2.06 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies against the
Company and the Trustee with respect to the replacement or payment of mutilated,
destroyed, lost or wrongfully taken Notes.
SECTION 2.07. Outstanding Notes. Notes outstanding at any time
are all Notes that have been authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.07 as not outstanding.
If a Note is replaced pursuant to Section 2.06, it ceases to
be outstanding unless and until the Trustee and the Company receive proof
satisfactory to each of them that the replaced Note is held by a bona fide
purchaser.
If the Paying Agent (other than the Company or an Affiliate of
the Company) holds on a Redemption Date or the maturity date money sufficient to
pay Notes payable on that date, then on and after that date such Notes cease to
be outstanding and interest on them shall cease to accrue.
Notes, or portions thereof, for the payment or redemption of
which moneys or U.S. Government Obligations (as provided for in Article Eight)
in the necessary amount shall
<PAGE> 33
27
have been deposited in trust with the Trustee or with any Paying Agent (other
than the Company) or shall have been set aside, segregated and held in trust by
the Company for the Holders of such Notes (if the Company shall act as its own
Paying Agent), on and after that time shall cease to be outstanding and, in the
case of redemption, interest on such Notes shall cease to accrue, provided that
if such Notes, or portions thereof, are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given as herein provided, or
provision satisfactory to the Trustee shall have been made for giving such
notice.
A Note does not cease to be outstanding because the Company or
one of its Affiliates holds such Note, provided, however, that, in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Trustee has actual knowledge to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or of such
other obligor.
SECTION 2.08. Temporary Notes. Until definitive Notes are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 2.03, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.09. Cancellation. The Company at any time may
deliver, or cause to be delivered, Notes to the Trustee for cancellation. The
Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for transfer, exchange or payment. The Trustee (and no one
else) shall cancel all Notes surrendered for transfer,
<PAGE> 34
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exchange, payment, replacement or cancellation and shall destroy them in
accordance with its normal procedure.
SECTION 2.10. CUSIP Numbers. The Company in issuing the Notes
may use "CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the
Company and the Trustee shall use CUSIP, CINS or ISIN numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes; and provided further that failure
to use CUSIP, CINS or ISIN numbers in any notice of redemption or exchange shall
not affect the validity or sufficiency of such notice. The Company shall
promptly notify the Trustee of any change in CUSIP, CINS or ISIN numbers.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.11 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
ARTICLE THREE
Redemption
SECTION 3.01. Right of Redemption. (a) The Notes will be
redeemable, at the Company's option, in whole or in part, at any time or from
time to time, on or after August 15, 2001 and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each
Holder's last address as it appears in the Note Register, at the following
Redemption Prices (expressed in percentages of principal amount), plus accrued
and unpaid interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on or prior to the
Redemption Date to receive interest due on the next succeeding Interest Payment
Date), if redeemed during the 12-month period commencing August 15 of the years
set forth below:
<PAGE> 35
29
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C> <C>
2001 .......................... %
2002 .......................... %
2003 and thereafter................ %
</TABLE>
(b) In addition, at any time and from time to time, prior to
August 15, 2000, the Company may redeem Notes having a principal amount of up to
$__ million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
(c) In the event that (i) the Company has become or would
become obligated to pay, on the next date on which any amount would be payable
under or with respect to the Notes, any Additional Amounts as a result of
certain changes affecting withholding tax laws, and (ii) the Company cannot
reasonably arrange for another obligor to make such payment so as to avoid the
requirement to pay such Additional Amounts, then the Company may redeem all, but
not less than all, the Notes at any time at 100% of the principal amount
thereof, together with accrued interest thereon, if any, to the redemption date.
SECTION 3.02. Notices to Trustee. If the Company elects to
redeem Notes pursuant to Section 3.01(a), (b) or (c), it shall notify the
Trustee in writing of the Redemption Date, the principal amount at Stated
Maturity of Notes to be redeemed and the clause of this Indenture pursuant to
which the redemption shall occur.
The Company shall give each notice provided for in this
Section 3.02 in an Officers' Certificate at least 45 days before the Redemption
Date (unless a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than
all of the Notes are to be redeemed at any time, the Trustee shall select the
Notes to be redeemed in compliance with the requirements of the principal
securities exchange, if any, on which the Notes are listed or, if the Notes are
not listed on a securities exchange, on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem fair and
appropriate; provided that no Notes of $1,000 in principal amount at maturity or
less shall be redeemed in part.
<PAGE> 36
30
The Trustee shall make the selection from the Notes
outstanding and not previously called for redemption. Notes in denominations of
$1,000 in principal amount at Stated Maturity may only be redeemed in whole. The
Trustee may select for redemption portions (equal to $1,000 in principal amount
at Stated Maturity or any integral multiple thereof) of Notes that have
denominations larger than $1,000 in principal amount at Stated Maturity.
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 and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any
redemption of Notes pursuant to Section 3.01(a), (b) or (c), at least 30 days
but not more than 60 days before a Redemption Date the Company shall mail or
cause to be mailed a notice of redemption by first class mail to each Holder
whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to
the Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the Redemption Price plus accrued and
unpaid interest to the Redemption Date upon surrender of the Notes to
the Paying Agent;
(vi) with respect to any redemption pursuant to Section
3.01(a), (b) or (c), that, if any Note is being redeemed in part, the
portion of the principal amount (equal to $1,000 in principal amount at
Stated Maturity or any integral multiple thereof) of such Note to be
redeemed and that, on and after the Redemption Date, upon surrender of
such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be reissued;
(vii) that, if any Note contains a CUSIP, CINS or ISIN number
as provided in Section 2.10, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of
<PAGE> 37
31
redemption and that reliance may be placed only on the other
identification numbers printed on the Notes; and
(viii) the aggregate principal amount at Stated Maturity of
Notes being redeemed.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee, at least 45 days (or
such shorter period as shall be satisfactory to the Trustee) before a Redemption
Date in the case of a redemption pursuant to Section 3.01(a), (b) or (c), the
Trustee shall give the notice of redemption in the name and at the expense of
the Company. If, however, the Company gives such notice to the Holders, the
Company shall concurrently deliver to the Trustee an Officers' Certificate
stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued and
unpaid interest to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of Notes held by Holders to whom such notice was
properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to
10:00 a.m. New York City time on any Redemption Date, the Company shall deposit
with the Paying Agent (or, if the Company is acting as its own Paying Agent,
shall segregate and hold in trust as provided in Section 2.04) money in
immediately available funds sufficient to pay the Redemption Price of and
accrued and unpaid interest on all Notes to be redeemed on that date other than
Notes or portions thereof called for redemption on that date that have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If
notice of redemption has been given in the manner provided above, the Notes or
portion of Notes specified in such notice to be redeemed shall become due and
payable on the Redemption Date at the Redemption Price stated therein, together
with accrued and unpaid interest to such Redemption Date, and on and after such
date (unless the Company shall default in the payment of such Notes at the
Redemption Price and accrued and unpaid interest to the Redemption Date, in
which case the principal, until paid, shall bear interest from the Redemption
Date at the rate prescribed in the Notes), such Notes shall cease to accrue
<PAGE> 38
32
interest. Upon surrender of any Note for redemption in accordance with a notice
of redemption, such Note shall be paid and redeemed by the Company at the
Redemption Price, together with accrued and unpaid interest to the Redemption
Date; provided that installments of interest whose record date is prior to the
Redemption Date shall be payable to the Holders registered as such at the close
of business such record date, if any.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any
Note that is redeemed in part, the Company shall at its expense issue and the
Trustee shall authenticate for the Holder a new Note equal in principal amount
to the unredeemed portion of such surrendered Note.
ARTICLE FOUR
Covenants
SECTION 4.01. Payment of Notes. The Company shall pay the
principal of, premium, if any, and interest on the Notes on the dates and in the
manner provided in the Notes and this Indenture. An installment of principal,
premium, if any, or interest shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or
any Affiliate of any of them) holds as of 10:00 A.M. New York City time on the
due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay the installment. If the Company or any
Subsidiary of the Company or any Affiliate of any of them, acts as Paying Agent,
an installment of principal, premium, if any, or interest shall be considered
paid on the due date if the entity acting as Paying Agent complies with the last
sentence of Section 2.04. As provided in Section 6.09, upon any bankruptcy or
reorganization procedure relative to the Company, the Trustee shall serve as the
Paying Agent for the Notes.
The Company shall pay interest on overdue principal, premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate per annum specified in the Notes.
SECTION 4.02. Limitation on Indebtedness. (a) The Company will
not, and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and Indebtedness existing on the Closing
Date); provided that the Company and any Restricted Subsidiary may Incur
Indebtedness (including Acquired Indebtedness), if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the pro forma Consolidated Leverage Ratio would be greater than zero
and less than 5 to 1; provided that no more than 50% of the Indebtedness
Incurred under this clause may be incurred by Restricted Subsidiaries.
<PAGE> 39
33
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal amount not to
exceed the greater of (A) $200 million and (B) Consolidated Adjusted Operating
Cash Flow for the preceding four quarters for which reports have been filed
pursuant to Section 4.17, in each case less any amount of Indebtedness
permanently repaid as provided under Section 4.10, provided that the aggregate
amount of Indebtedness of Restricted Subsidiaries outstanding at any one time
under this clause (i) shall not exceed one-half of the greater of the amounts
referred to in clause (A) and clause (B) above; (ii) Indebtedness (A) to the
Company evidenced by an unsubordinated promissory note or other evidence of
unsubordinated indebtedness (provided that such indebtedness may be subordinated
to the Proposed ING Credit Facility) or (B) to any of its Restricted
Subsidiaries; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (including, without limitation, the Notes), other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi), (vii), (viii), (ix), (x) or (xi) of
this paragraph (which clauses are either unlimited in amount or provide for the
refinancing of Indebtedness Incurred thereunder), and any refinancings thereof
in an amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to refinance or refund the Notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the Notes shall only be
permitted under this clause (iii) if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is outstanding, is
expressly made subordinate in right of payment to the Notes at least to the
extent that the Indebtedness to be refinanced is subordinated to the Notes, and
(C) such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness
to be refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded (assuming such Indebtedness had a final Stated Maturity
three months later than its actual final stated maturity); and provided further
that in no event may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, (B) under Currency Agreements and Interest Rate
Agreements; provided that such agreements (a) are designed solely to protect the
Company or its Subsidiaries against fluctuations in foreign
<PAGE> 40
34
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; (v) Indebtedness of
the Company, to the extent the net proceeds thereof are promptly (A) used to
purchase Notes or DM Notes tendered in an Offer to Purchase made as a result of
Change in Control or (B) deposited to defease the Notes as described in Sections
8.02 and 8.03; (vi) Guarantees of the Notes or DM Notes or Guarantees of
Indebtedness of the Company by any Restricted Subsidiary provided the Guarantee
of such Indebtedness is permitted by and made in accordance with Section 4.07;
(vii) secured Indebtedness, in an aggregate amount not to exceed $15 million at
any one time outstanding, Incurred to finance the cost (including the cost of
purchase or installation) of equipment or other tangible capital assets used or
useful in the media, communications or entertainment business, in each case
acquired by the Company or a Restricted Subsidiary after the Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time outstanding,
two times the Net Cash Proceeds (less the amount of such proceeds applied as
provided in clause (ii) or (iii) of the second paragraph of Section 4.03 or
applied to repay Indebtedness of the Company) received by the Company (or any
Restricted Subsidiary that Guarantees the Notes in accordance with Section 4.06;
provided that the Company delivers to the Trustee an Opinion of Counsel to the
effect (subject to customary caveats) that such Guarantee is enforceable and
provided further that such Capital Stock is not subsequently repurchased by the
Company or any Restricted Subsidiary) after the Closing Date from the issuance
and sale of its Capital Stock (other than Disqualified Stock) to a Person that
is not a Subsidiary of the Company; provided that such Indebtedness matures
after the Stated Maturity of the Notes and has an Average Life longer than the
Notes; (ix) Indebtedness of the Company and each Restricted Subsidiary, not to
exceed in the aggregate at any one time outstanding 60% of the accounts
receivable (net of accounts more than 90 days past due, reserves and allowances
for doubtful accounts, determined in accordance with GAAP) of the Company and
its Restricted Subsidiaries on a consolidated basis as set forth on the balance
sheet of the Company most recently filed with the Commission pursuant to Section
4.17; provided that any such Indebtedness of any Restricted Subsidiary is not
Guaranteed by the Company; (x) Indebtedness of any Restricted Subsidiary, not to
exceed at any one time outstanding the amount of the commitment to lend to such
Restricted Subsidiary by any Person not an Affiliate thereof on the Closing Date
(and refinancings of such Indebtedness); and (xi) without duplication of
Indebtedness permitted
<PAGE> 41
35
under clause (x), Indebtedness incurred under the Proposed ING Credit Facility
(including any Guarantees relating thereto) up to $35 million at any one time
outstanding, and any refinancings thereof.
(b) Notwithstanding any other provision of this Section 4.02,
the maximum amount of Indebtedness that the Company or a Restricted Subsidiary
may Incur pursuant to this Section 4.02 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness, due solely to the result of
fluctuations in interest rates or the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.02 (1) Guarantees, Liens, or obligations with
respect to letters of credit, supporting Indebtedness of any Person otherwise
included in the determination of such particular amount of Indebtedness of such
Person shall not be included and (2) any Liens granted pursuant to the equal and
ratable provisions referred to in Section 4.08 shall not be treated as
Indebtedness. For purposes of determining compliance with this Section 4.02, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
SECTION 4.03. Limitation on Restricted Payments. The Company
will not, and will not permit any Restricted Subsidiary, directly or indirectly,
to (i) declare or pay any dividend or make any distribution on or with respect
to its Capital Stock (other than (x) dividends or distributions payable solely
in shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by other stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, prior to the scheduled maturity, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes (other than the purchase, repurchase or the acquisition of Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in any case due within one year of the date of acquisition) or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at
<PAGE> 42
36
the time of, and after giving effect to, the proposed Restricted Payment: (A) a
Default or Event of Default shall have occurred and be continuing, (B) except
with respect to Investments, the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.02 or (C) the aggregate
amount of all Restricted Payments (the amount, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) made after the Closing Date,
plus the outstanding amount of all Permitted Investments permitted pursuant to
the second proviso of clause (i) of the definition of Permitted Investment,
shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss,
minus 100% of the amount of such loss) (determined by excluding income resulting
from transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed
pursuant to Section 4.17 plus (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from the issuance and sale permitted by this
Indenture of Capital Stock of the Company (other than Disqualified Stock), to a
Person who is not a Subsidiary of the Company or from the issuance to a Person
who is not a Subsidiary of the Company of any options, warrants or other rights
to acquire Capital Stock of the Company (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that are redeemable
at the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Notes) plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments except for Permitted
Investments permitted pursuant to the second proviso of clause (i) in the
definition of Permitted Investment) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary or
from the Net Cash Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in the calculation
of Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of the second paragraph of part (a) of Section 4.02; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company (or
options, warrants or other rights to
<PAGE> 43
37
acquire such Capital Stock) in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other than
Disqualified Stock) of the Company; (iv) the making of any principal payment or
the repurchase, redemption, retirement, defeasance or other acquisition for
value of Indebtedness of the Company which is subordinated in right of payment
to the Notes, in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of the Capital Stock of the Company (other than
Disqualified Stock); (v) the declaration or payment of dividends on the Common
Stock of the Company of up to 6% per annum of the Net Cash Proceeds received by
the Company in the aggregate from any public offering of Common Stock after the
Closing Date; (vi) payments or distributions to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of Article Five; (vii) any
Investments made after the Closing Date, provided that the sum of such
Investments does not exceed $25 million at any one time outstanding and that the
Board of Directors of the Company has determined in good faith that such
Investment will enable the Company or any of its Restricted Subsidiaries to
obtain additional business that it might not be able to obtain without making
such Investment; (viii) purchases or other acquisitions of Capital Stock in
compliance with the terms of written agreements in effect on the Closing Date,
as amended; provided that the Board of Directors determines that each such
amendment is not adverse to the interests of any Holder; (ix) cash payments in
lieu of the issuance of fractional shares upon the exercise of any warrants or
options on Common Stock; (x) Investments made after the Closing Date in
Restricted Affiliates in an aggregate amount at any one time outstanding not to
exceed the sum of (A) $50 million and (B) one-half of the aggregate Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale permitted by this Indenture of Capital Stock of the Company (other than
Disqualified Stock) to a Person that is not a Subsidiary of the Company and not
otherwise used for a Restricted Payment described in clauses (i) through (iii)
of the first paragraph of this covenant or invested in an outstanding
Investment, or (xi) non pro rata dividends paid to minority shareholders of
Restricted Subsidiaries pursuant to agreements for the acquisition of such
Common Stock, provided that such dividends do not in the aggregate exceed the
minority shareholder's pro rata ownership share of such Restricted Subsidiary
for the period for which such dividend or distribution is paid, provided that,
except in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein. Any Restricted Payments made other than in cash
shall be valued at fair market value. The amount of any Investment "outstanding"
at any time shall be deemed to be equal to the amount of such Investment on the
date made, less the return of capital (including dividends) to the Company and
its Restricted Subsidiaries with respect to such Investment (up to the amount of
such Investment on the date made).
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clause (ii) thereof
and an exchange of Capital Stock for Capital Stock or Indebtedness referred to
in clause (iii) or (iv) thereof), shall be
<PAGE> 44
38
included in calculating whether the conditions of clause (C) of the first
paragraph of this Section 4.03 have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this Section 4.03 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
SECTION 4.04. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any Restricted Subsidiary, (ii)
pay any Indebtedness owed to the Company or any Restricted Subsidiary, (iii)
make loans or advances to the Company or any other Restricted Subsidiary, or
(iv) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances
or restrictions: (i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law, rule or
regulation or, to the extent not material to the Company, at the behest of
regulatory authorities; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this Section 4.04, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi)
with respect
<PAGE> 45
39
to Restricted Subsidiaries in which, on and subsequent to the Closing Date, the
Company and its Restricted Subsidiaries only make Investments that are evidenced
by unsubordinated promissory notes that bear a reasonable rate of interest and
are payable prior to the Stated Maturity of the Notes; provided that such
encumbrances and restrictions expressly allow the payment of interest and
principal on such promissory notes; (vii) solely of the type referred to in
clause (iii) or (iv) of the first paragraph of this Section 4.04 that are
contained in any stockholders' agreement, joint venture agreement or similar
agreement among owners of Common Stock of a Restricted Subsidiary; provided that
such restrictions consist solely of requirements that transactions between such
Restricted Subsidiaries and Affiliates thereof (including the Company and its
Restricted Subsidiaries) be on fair and reasonable terms no less favorable to
such Restricted Subsidiary than could be obtained in a comparable arm's-length
transaction with a Person that is not such an Affiliate; or (viii) contained in
the terms of any Indebtedness or any agreement pursuant to which such
Indebtedness was issued if the Board of Directors of the Company determines that
such encumbrance or restriction together with encumbrances and restrictions of
any other Indebtedness will not materially affect the Company's ability to make
interest or principal payments on the Notes; or (ix) contained in the agreement
pertaining to the Proposed ING Credit Facility, provided that the terms thereof
are not materially more restrictive than those set forth on the offer letter
from ING Barings dated July 24, 1997, including the Term Sheet attached thereto.
Nothing contained in this Section 4.04 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.08 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
SECTION 4.05. Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries. The Company will not sell, and will not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares
of Capital Stock of a Restricted Subsidiary (including options, warrants or
other rights to purchase shares of such Capital Stock) except (i) to the Company
or a Restricted Subsidiary; (ii) issuances of director's qualifying shares or
sales to non-U.S. nationals of shares of Capital Stock of non-U.S. Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary, provided any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under Section 4.03, if made on the date of such issuance or
sale; (iv) issuances or sales of Common Stock, either (x) the Net Cash Proceeds
of which are promptly applied pursuant to clause (A) or (B) of Section 4.10 or
(y) in the case of a sale for consideration other than cash, in exchange for
property or services having a fair market value at least equal to the fair
market value of the Common Stock issued; and (v) issuances and sales of up to 6%
of the Common Stock of each Restricted Subsidiary in connection with employee
benefit plans or arrangements.
<PAGE> 46
40
SECTION 4.06. Limitation on Issuances of Guarantees by
Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of the Company which is
pari passu with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall
not be applicable to (x) any Guarantee of any Restricted Subsidiary that existed
at the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, (y) any Guarantee by Restricted Subsidiaries to the extent any such
Restricted Subsidiary could itself Incur such Indebtedness being Guaranteed
(without duplication in the case of the same Indebtedness being Guaranteed by
one or more Restricted Subsidiaries) under Section 4.02; or (z) any Guarantee of
Indebtedness under the Proposed ING Credit Facility. If the Guaranteed
Indebtedness is (A) pari passu with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee, or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
SECTION 4.07. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
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The foregoing limitation does not limit, and shall not apply
to (i) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm (or a subsidiary or affiliate thereof) in the United States stating
that the transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between the Company and any
of its Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries; (iii) the payment of reasonable and customary regular
fees to directors of the Company who are not employees of the Company; (iv) any
Payments or other transactions pursuant to any tax-sharing agreement between the
Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes; (v) transactions in the ordinary course of business of the Company or
any Restricted Subsidiary; provided that the aggregate amount of such
transactions do not exceed $2 million in any fiscal year; or (vi) any Restricted
Payments not prohibited by Section 4.03. Notwithstanding the foregoing, any
transaction covered by the first paragraph of this Section 4.07 and not covered
by clauses (ii) through (iv) of this paragraph, the aggregate amount of which
exceeds $1 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.
SECTION 4.08. Limitation on Liens. The Company will not, and
will not permit any Restricted Subsidiary to, create, incur, asume or suffer to
exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
this Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes or the Note Guarantee, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing
on the Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted Subsidiary
to secure Indebtedness owing to the Company or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) or clause (xi)
of the second paragraph of Section 4.02; provided that such Liens do not extend
to or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(v) Permitted Liens; (vi) Liens securing obligations not in excess of $2
million; (vii) Liens on any property or assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary permitted to be Incurred
under Section 4.02; or (viii) Liens granted over any assets of the Company or
any Restricted Subsidiary to secure the Proposed ING Credit Facility, including
without limitation cash held by the Company and any Capital Stock held by the
Company.
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SECTION 4.09. Limitation on Sale-Leaseback Transactions. The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any sale-leaseback transaction involving any of its
assets or properties whether now owned or hereafter acquired, whereby the
Company or a Restricted Subsidiary sells or transfers such assets or properties
and then or thereafter leases such assets or properties or any part thereof or
any other assets or properties which the Company or such Restricted Subsidiary,
as the case may be, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; (iv) the Company or such Restricted Subsidiary,
within twelve months after the sale or transfer of any assets or properties is
completed, applies an amount not less than the net proceeds received from such
sale in accordance with clause (A) or (B) of the first paragraph of Section
4.10; or (v) it relates to the Proposed ING Credit Facility.
SECTION 4.10. Limitation on Asset Sales. The Company will not,
and will not permit any Restricted Subsidiary to, consummate any Asset Sale
unless (i) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 75% of the consideration received consists of cash
or Temporary Cash Investments. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its subsidiaries have
been filed pursuant to Section 4.18), then the Company shall, or shall cause the
relevant Restricted Subsidiary to, (i) within twelve months after the date Net
Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets, (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or any Restricted
Subsidiary providing a Subsidiary Guarantee pursuant to Section 4.06 or
Indebtedness of any other Restricted Subsidiary, in each case owing to a Person
other than the Company or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) (or enter into
a definitive agreement committing to so invest within twelve months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment
and (ii) apply (no later than the end of the twelve-
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43
month period referred to in clause (i)) such excess Net Cash Proceeds (to the
extent not applied pursuant to clause (i)) as provided in the following
paragraph of this Section 4.10. The amount of such excess Net Cash Proceeds
required to be applied (or to be committed to be applied) during such
twelve-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this Section 4.10 totals at least $10 million, the Company must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes on the relevant Payment Date equal to the
Excess Proceeds on such date, at a purchase price equal to 101% of the principal
amount of the Notes, plus, in each case, accrued interest (if any) to the
Payment Date.
SECTION 4.11. Repurchase of Notes upon a Change of Control.
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
SECTION 4.12. Additional Amounts. In the event of any change
in the laws of Bermuda or of any political subdivision or taxing authority
thereof or therein or any change in the interpretation or administration
thereof, the effect of which is to require the withholding or deduction by the
Company pursuant to the Notes of any amount for taxes, the Company will pay, to
the extent it may then lawfully do so, such additional amounts ("Additional
Amounts") as may be necessary in order that every net payment of the principal
of and interest on the Notes, after deduction for withholding for or on account
of any future tax, assessment or other governmental charge, will not be less
than the amount provided for in the Notes to be then due and payable; provided,
however, that the foregoing obligation to pay Additional Amounts shall not apply
in respect of:
(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 any political subdivision or
taxing authority thereof 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 or
having had a permanent establishment therein or (ii) the presentation
of a Note (where presentation is required) for payment on a date more
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44
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 limit the Company's obligation to pay Additional Amounts if
the completing and filing of the information described in subclause (i)
or the declaration or other claim described in subclause (ii) 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 payment.
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 Officer's 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 the Trustee to pay such Additional
Amounts to holders on the payment date. Whenever in this Indenture there is
mentioned, in any context, the payment of principal (and premium, if any),
Redemption Price, interest or any other amount payable under or with respect to
any Note, such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
<PAGE> 51
45
SECTION 4.13. Existence. Subject to Articles Four and Five of
this Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), licenses and franchises of the Company and each such Subsidiary;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary, if the
maintenance or preservation thereof is no longer desirable in the conduct of the
business of the Company and its Restricted Subsidiaries taken as a whole; and
provided further that any Restricted Subsidiary may consolidate with, merge
into, or sell, convey, transfer, lease or otherwise dispose of all or part of
its property and assets to the Company or any Wholly Owned Restricted
Subsidiary.
SECTION 4.14. Payment of Taxes and Other Claims. The Company
will pay or discharge and shall cause each of its Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Subsidiary, (b) the income or
profits of any such Subsidiary which is a corporation or (c) the property of the
Company or any such Subsidiary and (ii) all material lawful claims for labor,
materials and supplies that, if unpaid, might by law become a lien upon the
property of the Company or any such Subsidiary; provided that the Company shall
not be required to pay or discharge, or cause to be paid or discharged, any such
tax, assessment, charge or claim the amount, applicability or validity of which
is being contested in good faith by appropriate proceedings and for which
adequate reserves have been established.
SECTION 4.15. Maintenance of Properties and Insurance. The
Company will cause all properties used or useful in the conduct of its business
or the business of any Restricted Subsidiary and material to the Company and its
Restricted Subsidiaries taken as a whole, to be maintained and kept in working
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.16 shall prevent the Company or any such Restricted Subsidiary
from discontinuing the use, operation or maintenance of any of such properties
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors or the board of directors of such Restricted
Subsidiary having managerial responsibility for any such property, desirable in
the conduct of the business of the Company or such Restricted Subsidiary.
<PAGE> 52
46
The Company will provide or cause to be provided, for itself
and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, products liability insurance and public liability insurance,
with reputable insurers or with the government of the United States of America,
or an agency or instrumentality thereof, in such amounts, with such deductibles
and by such methods as the Company in good faith shall determine to be
reasonable and appropriate in the circumstances.
SECTION 4.16. Compliance Certificates. (a) The Company shall
deliver to the Trustee, within 45 days after the end of each fiscal quarter (90
days after the end of the last fiscal quarter of each year), an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal quarter. In the case of the Officers'
Certificate delivered within 90 days of the end of the Company's fiscal year,
such certificate shall contain a certification from the principal executive
officer, principal financial officer or principal accounting officer of the
Company that a review has been conducted of the activities of the Company and
its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under this Indenture and that the Company has complied with all
conditions and covenants under this Indenture. For purposes of this Section
4.16, such compliance shall be determined without regard to any period of grace
or requirement of notice provided under this Indenture. If any of the signers of
the Officers' Certificate have knowledge of such a Default or Event of Default,
the certificate shall describe any such Default or Event of Default and its
status. The first certificate to be delivered pursuant to this Section 4.16(a)
shall be for the first fiscal quarter beginning after the execution of this
Indenture.
(b) The Company shall deliver to the Trustee, within 90 days
after the end of the Company's fiscal year, a certificate signed by the
Company's independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.16 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms, covenants, provisions or conditions
of Article Four and Section 5.01 of this Indenture as they pertain to accounting
matters and, if any Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; provided that such
independent certified public accountants shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such Default or
Event of Default that would not be disclosed in the course of an audit
examination conducted in accordance with generally accepted auditing standards
in effect at the date of such examination.
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(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.17. Commission Reports and Reports to Holders.
Whether or not the Company is then required to file reports with the Commission,
the Company shall file with the Commission all such reports and other
information as it would be required to file with the Commission by Seciton 13(a)
or 15(d) under the Exchange Act if it were subject thereto. Upon request, the
Company shall supply the Trustee and each Holder or shall supply to the Trustee
for forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information. The Company also shall comply with the other
provisions of TIA Section 314(a).
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The
Company covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE FIVE
Successor Corporation
SECTION 5.01. When Company May Merge, Etc. The Company will
not consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the jurisdiction of incorporation of the Company immediately prior to such
transaction, the United States of America, the British Virgin Islands, the
Cayman Islands, the Netherlands Antilles, any EU Country or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture,
<PAGE> 54
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executed and delivered to the Trustee, all of the obligations of the Company on
all of the Notes and under this Indenture; provided that, with respect to any
such transaction immediately subsequent to which the continuing Person is
incorporated in a jurisdiction other than the United States or the jurisdiction
in which such Person was incorporated immediately prior to such transaction, (A)
the Company delivers to the Trustee an Opinion of Counsel stating that the
obligations of the continuing Person under the Indenture are enforceable under
the laws of the new jurisdiction of its incorporation to the same extent as the
obligations of the Company under the Indenture immediately prior to such
transaction; (B) the continuing Person agrees in writing to submit to
jurisdiction and appoints an agent for the service of process, each under terms
substantially similar to the terms contained in the Indenture with respect to
the Company; (C) the continuing Person agrees in writing to pay "additional
amounts" as provided under this Indenture with respect to the Company except
that such "additional amounts" shall relate to any withholding tax whatsoever
regardless of any change of law (subject to exceptions substantially similar to
those contained in this Indenture and described under Section 4.13); and (D) the
Board of Directors of the Company determines in good faith that such transaction
will have no material adverse effect on any Holder and a Board Resolution to
that effect is delivered to the Trustee; (ii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company or any Person becoming the successor obligor of the Notes would have
a Consolidated Leverage Ratio no higher (or, if negative, no lower) than the
Consolidated Leverage Ratio of the Company immediately prior to such
transaction; provided that, in connection with any such merger or consolidation,
no consideration (other than Common Stock in the surviving Person or the
Company) shall be issued or distributed to the stockholders of the Company; and
(v) the Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv))
and Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clauses (iii) and (iv) above do not
apply if, in the good faith determination of the Board of Directors of the
Company, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state or jurisdiction of
incorporation of the Company; and provided further that any such transaction
shall not have as one of its purposes the evasion of the foregoing limitations.
SECTION 5.02. Successor Substituted. Upon any consolidation or
merger, or any sale, conveyance, transfer or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to
<PAGE> 55
49
which such sale, conveyance, transfer or other disposition is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; provided, however, that in the case of a
lease, the Company shall not be released from the obligation to pay the
principal of and interest on the Notes.
ARTICLE SIX
Default and Remedies
SECTION 6.01. Events of Default. An "Event of Default" shall
occur with respect to the Notes if:
(a) the Company defaults in the payment of the principal of
(or premium, if any, on) any Note when the same becomes due and payable
at Stated Maturity, upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any
Note when the same becomes due and payable, and such default continues
for a period of 30 days;
(c) the Company defaults in the performance or breaches the
provisions of Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.11 or Section 4.12;
(d) the Company defaults in the performance of or breaches any
covenant or agreement of the Company in the Indenture or under the
Notes (other than a default specified in clause (a), (b) or (c) above)
and such default or breach continues for a period of 30 consecutive
days after written notice to the Company by the Trustee or the Holders
of 25% or more in aggregate principal amount at maturity of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any of its Significant Subsidiaries
having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (A) an event of
default that has caused the holder thereof to declare such Indebtedness
to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such
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acceleration and/or (B) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such
payment default;
(f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall
not be paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property
and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors.
A Default under clause (d) is not an Event of Default until
the Trustee notifies the Company in writing, or the holders of at least 25% of
the principal amount at maturity of the Notes then outstanding notify the
Company and the Trustee in writing, of the Default and the Company does not cure
the Default within 30 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default." Such notice shall be given by the Trustee if so requested in
writing by the Holders of at least 25% in aggregate principal amount at maturity
of the Notes then outstanding.
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SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in clause (g) or (h) of Section 6.01 that occurs
with respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount at maturity
of the Notes then outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee at the
request of the Holders shall, declare the principal amount of, premium, if any,
and accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal amount, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) of Section 6.01
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 clause (e) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiary or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto and such rescission and annulment would not conflict with
any judgment or decree of a court of competent jurisdiction. If an Event of
Default specified in clause (g) or (h) of Section 6.01 occurs with respect to
the Company, the principal amount of, premium, if any, and accrued interest on
the Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
At any time after such a declaration of acceleration, but
before a judgment or decree for the payment of the money due has been obtained
by the Trustee, the Holders of at least a majority in aggregate principal amount
at maturity of the outstanding Notes by written notice to the Company and to the
Trustee may waive all past Defaults and rescind and annul such declaration of
acceleration and its consequences if (a) the Company has paid or deposited with
the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes that have become due
otherwise than by such declaration or occurrence of acceleration and interest
thereon at the rate prescribed therefor by such Notes, and (iv) to the extent
that payment of such interest is lawful, interest upon overdue interest, if any,
at the rate prescribed therefor by such Notes, (b) all existing Events of
Default, other than the non-payment of the principal amount of, premium, if any,
and accrued interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (c) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy by proceeding at
law or in equity to collect the payment of principal of, premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
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The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections
6.02, 6.07 and 9.02, the Holders of at least a majority in aggregate principal
amount at maturity of the outstanding Notes, by notice to the Trustee, may waive
an existing Default or Event of Default and its consequences, except a Default
in the payment of principal of, premium, if any, or interest on any Note as
specified in clause (a) or (b) of Section 6.01 (including in connection with an
Offer to Purchase) or in respect of a covenant or provision of this Indenture
which 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 Event of Default or impair any right
consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a
majority in aggregate principal amount at maturity of the outstanding Notes, by
notice to the Trustee, may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee; provided that the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that may involve
the Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders not joining in the giving of
such direction; and provided further that the Trustee may take any other action
it deems proper that is not inconsistent with any directions received from
Holders of Notes pursuant to this Section 6.05.
SECTION 6.06. Limitation on Suits. A Holder may not institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Notes, or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) such Holder has previously given to the Trustee written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount
at maturity of 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;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against any costs,
liabilities or expenses to be incurred in compliance with such request;
<PAGE> 59
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(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount at maturity of the outstanding Notes have
not given the Trustee a direction that is inconsistent with such
written request.
For purposes of Section 6.05 of this Indenture and this
Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
at maturity of outstanding Notes have concurred in any request or direction of
the Trustee to pursue any remedy available to the Trustee or the Holders with
respect to this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of the principal of, premium, if any, or interest
on such Holder's Note on or after the respective due dates expressed on such
Note (including in a notice with respect to an Offer to Purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default in payment of principal, premium or interest specified in clause (a) or
(b) of Section 6.01 occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against the Company or any
other obligor of the Notes for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the rate
specified in the Notes, and 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.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents 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 any other amounts due the Trustee under
Section 7.06) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies, notes or
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other property payable or deliverable upon conversion or exchange of the Notes
or upon any such claims and to distribute the same, and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 7.06. Nothing herein contained shall be deemed to empower
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.
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.06,
including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs. 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 or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this
Indenture, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
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SECTION 6.12. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then, and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or wrongfully taken Notes in Section 2.06, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder 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 Six 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 SEVEN
Trustee
SECTION 7.01. Rights of Trustee. (i) Except during the
continuance of an Event of Default,
(a) 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
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth and correctness of the statements
and certificates or opinions furnished to it and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are specifically
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required to be furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
(ii) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in its exercise,
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
(iii) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(a) this Subsection shall not be construed to limit the effect
of Subsection (i) of this Section;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount at
maturity of the outstanding Notes, relating to the time, method and
place of conducting any proceeding for exercising any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture with respect to the Notes.
(iv) Subject to TIA Sections 315(a) through (d):
(a) the Trustee may rely upon 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, which shall
conform to Section 11.04. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(c) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity
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against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction;
(d) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers; provided that the Trustee's conduct does not
constitute negligence or bad faith;
(e) 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, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it;
(f) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed), may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(g) the Trustee may consult with counsel and the 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;
(h) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(i) the Trustee may execute any of the trusts or powers
hereunder either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder;
(j) the Trustee may conclusively rely as to the identity and
addresses of Holders and other matters contained therein on the
register of the Notes maintained by the Registrar pursuant to Section
2.03 hereof and shall not be affected by notice to the contrary; and
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58
(k) unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
SECTION 7.02. Individual Rights of Trustee. The Trustee, 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 the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.03. Trustee's Disclaimer. The Trustee (i) shall not
be responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, (ii) shall not be accountable for the Company's use
of the proceeds from the Notes (iii) shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and (iv) shall not be responsible for any statement in the Notes other than its
certificate of authentication.
SECTION 7.04. Notice of Default. If any Default or any Event
of Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall mail to each Holder in the manner and to
the extent provided in TIA Section 313(c) notice of the Default or Event of
Default within 45 days after it occurs, unless such Default or Event of Default
has been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of, premium, if any, or interest on any
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 Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interest of the Holders.
The Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) a default described in Section 6.01(a) or
(b) so long as the Trustee is the Paying Agent or (ii) any Default or Event of
Default of which the Trustee shall have received written notification or a
Responsible Officer charged with the administration of this Indenture shall have
obtained actual knowledge, and such notification shall not be deemed to include
receipt of information obtained in any report or other reports and documents
furnished under Section 4.17 of this Indenture which reports and documents the
Trustee shall have no duty to examine.
SECTION 7.05. Reports by Trustee to Holders. Within 60 days
after each _______, beginning with _______, 1998, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such
_______, if required by TIA Section 313(a).
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A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the Commission
and each stock exchange on which the Notes are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange or of any delisting thereof.
SECTION 7.06. Compensation and Indemnity. The Company shall
pay to the Trustee such compensation as shall be agreed upon in writing for its
services hereunder. The compensation of the Trustee shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
expenses and advances incurred or made by it in addition to compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it
harmless against, any loss or liability or expense incurred by it without
negligence or bad faith on its part in connection with the acceptance or
administration of this Indenture and its duties under this Indenture and the
Notes, including the costs and expenses of defending itself against any claim or
liability and of complying with any process served upon it or any of its
officers in connection with the exercise or performance of any of its powers or
duties under this Indenture and the Notes. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Company need not pay for any settlements made without its
consent. The Company need not reimburse any expense or indemnity against any
loss or liability incurred by the Trustee through negligence or bad faith.
The Trustee shall have a claim prior to the Notes on all money
or property held or collected by the Trustee, in its capacity as Trustee, for
any amount owing it pursuant to this Section 7.06, except money or property held
in trust to pay principal of, premium, if any, and interest on particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services (including the
reasonable fees and expenses of its agents and counsel) will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under this Section 7.06 out of the estate in
any such proceeding, shall be
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denied for any reason, other than solely because of the wilful misconduct of the
Trustee or its Agents, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise.
The provisions of this Section 7.06 shall survive the
termination of this Indenture.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.07. Replacement of Trustee. A resignation or removal
of the Trustee and appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in this
Section 7.07.
The Trustee may resign by so notifying the Company in writing
at least 30 days prior to the date of the proposed resignation. The Holders of a
majority in aggregate principal amount at maturity of the outstanding Notes may
remove the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.09;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in aggregate principal amount at maturity of the
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company. If the successor Trustee does not take office
within 30 days after the retiring Trustee resigns or is removed, the retiring
Trustee, the Company or the Holders of a majority in aggregate principal amount
at maturity of the outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.06, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee fails to comply with Section 7.09, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect provided in this Section.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.07, the Company's obligation under Section 7.06 shall continue for the
benefit of the retiring Trustee.
SECTION 7.08. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.09. Eligibility. Any Trustee serving hereunder shall
be a bank or trust company, within or without the state, which is authorized by
law to perform all of the duties imposed upon it hereby and which either (i) has
a reported capital and surplus aggregating at least $25,000,000 or (ii) is a
wholly owned subsidiary of a bank, a trust company or a bank holding company
having a reported capital and surplus aggregating at least $25,000,000, and
shall at all times satisfy the requirements of TIA Section 310(a)(i).
SECTION 7.10. Money Held in Trust. The Trustee shall not be
liable for interest on any money received by it except as the Trustee may agree
with the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight of this Indenture.
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ARTICLE EIGHT
Discharge of Indenture
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or notes have theretofore been held in trust and thereafter repaid to
the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by
it hereunder; or
(ii) (A) the Notes have become due and payable, mature within
one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption, (B) the Company irrevocably deposits or causes to be
irrevocably deposited in trust with the Trustee during such one-year
period, under the terms of an irrevocable trust agreement in form
satisfactory to the Trustee, as trust funds solely for the benefit of
the Holders for that purpose, money or U.S. Government Obligations
sufficient (in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee), without consideration of any
reinvestment of any interest thereon, to pay principal, premium, if,
any, and interest on the Notes to maturity or redemption, as the case
may be, and to pay all other sums payable by it hereunder, (C) no
Default or Event of Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit, (D) such
deposit will not result in a breach or violation of, or constitute a
default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which it is bound and (E) the
Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's
obligations under Section 7.06 shall survive. With respect to the foregoing
clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06,
2.11, 4.01, 4.02, 7.06, 7.07, 8.04, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.06, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
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the Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The
Company will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.02, and the provisions of
this Indenture will no longer be in effect with respect to the Notes, and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same, except as to (i) rights of registration of transfer and
exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes, (iii) rights of Holders to receive payments of principal thereof
and interest thereon, (iv) the Company's obligations under Section 2.03, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the rights
of the Holders as beneficiaries of this Indenture with respect to the property
so deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(A) the Company has irrevocably deposited or caused to be
irrevocably deposited with the Trustee in trust, money and/or U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (A), money in an amount 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, without consideration of the
reinvestment of such interest and after payment of all state and local
taxes or other charges and assessments in respect thereof payable by
the Trustee, the principal of, premium, if any, and accrued interest on
the Notes on the Stated Maturity of such payments or upon earlier
redemption in accordance with the terms of this Indenture and the Notes
and shall have irrevocably instructed the Trustee to apply such money
to the payment of such principal, premium and interest;
(B) the Company has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for Bermuda income tax or other tax purposes as a
result of the Company's exercise of its option under this Section 8.02,
disregarding income tax on any amounts that would have been received
but for such exercise of its option under this Section 8.02, and will
be subject to income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by a copy of) a ruling based on
relevant law and practice at the time directed to the Trustee from the
relevant tax authority to the same effect or (y) a ruling based on
relevant law and practice at the time directed to the Trustee from the
relevant tax authority to the same effect as the aforementioned Opinion
of Counsel, (ii) either (A)
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an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for U.S. income tax or other tax purposes as a
result of the Company's exercise of its option under this Section 8.02
and will be subject to income tax on the same amount and in the same
manner and at the same time as would have been the case if such option
had not been exercised, which Opinion of Counsel must be based upon
(and accompanied by a copy of) a ruling published by the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (B) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (iii) an Opinion of Counsel to
the effect that the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of a Holder who may be deemed to be an "insider" for purposes
of the United States Bankruptcy Code, after one year following the
deposit), the trust fund will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law in a case commenced by or against the Company
under either such statute;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default, or event that after the
giving of notice or lapse of time or both would become a Default or an
Event of Default, shall have occurred and be continuing on the date of
such deposit or during the period ending on the 123rd day after the
date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any 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;
(D) if at such time the Notes are listed on a securities
exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge; and
(E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day
period referred to in clause (B)(iii) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day period with respect to this Section 8.02, the Company's
obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01, 7.06, 7.07,
8.04, 8.05 and 8.06 shall survive until the Notes are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.06, 8.05 and 8.06 shall
survive. If
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and when a ruling from the Internal Revenue Service or an Opinion of Counsel
referred to in clauses (B)(i) and (B)(ii) of this Section 8.02 is able to be
provided specifically without regard to, and not in reliance upon, the
continuance of the Company's obligations under Section 4.01, then the Company's
obligations under such Section 4.01 shall cease upon delivery to the Trustee of
such ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
After any such irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company
may omit to comply with any term, provision or condition set forth in clauses
(iii) and (iv) of Section 5.01 and Sections 4.02 through 4.17, and clauses (c)
and (d) of Section 6.01 and clauses (iii) and (iv) of Section 5.01 and Sections
4.02 through 4.17, and clauses (e) and (f) of Section 6.01 shall be deemed not
to be Events of Default, in each case with respect to the outstanding Notes if:
(i) the Company has irrevocably deposited or caused to be
irrevocably deposited with the Trustee in trust, money and/or U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount 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, without consideration of the
reinvestment of such interest and after payment of all state and local
taxes or other charges and assessments in respect thereof payable by
the Trustee, the principal of, premium, if any, and accrued interest on
the Notes on the Stated Maturity of such payments or upon earlier
redemption in accordance with the terms of this Indenture and the Notes
and shall have irrevocably instructed the Trustee to apply such money
to the payment of such principal, premium and interest;
(ii) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of
notice or lapse of time or both would become an Event of Default, shall
have occurred and be continuing on the date of such deposit or during
the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or
constitute a default under, any 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;
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(iii) the Company has delivered to the Trustee (x) an Opinion
of Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940 and (B) the Holders
will not recognize income, gain or loss for Bermuda income tax or other
tax purposes as a result of such deposit and defeasance of certain
obligations, disregarding income tax on any amounts that would have
been received but for such exercise of its option under this Section
8.03, and will be subject to income tax on the same amount and in the
same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred and (C) after the
passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section
15 of the New York Debtor and Creditor Law in a case commenced by or
against the Company under either such statute, and (y) either (A) an
Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for U.S. income tax or other tax purposes as a
result of the Company's exercise of its option under this Section 8.02
and will be subject to income tax on the same amount and in the same
manner and at the same time as would have been the case if such option
had not been exercised, which Opinion of Counsel must be based upon
(and accompanied by a copy of) a ruling published by the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (B) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel;
(iv) at such time the Notes are listed on a securities
exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Sections
8.05 and 8.06, the Trustee or Paying Agent shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03,
as the case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
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SECTION 8.05. Repayment to Company. Subject to Sections 7.06,
8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon written request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; provided that
the Trustee or such Paying Agent before being required to make any payment may
cause to be published at the expense of the Company once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money at such Holder's address (as set forth in the Note Register) notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, 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 had occurred pursuant to Section 8.01, 8.02 or
8.03, as the case may be, 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 8.01, 8.02 or 8.03, as the case may be; provided that, if the
Company has made any payment of principal of, premium, if any, or interest on
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 NINE
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Company, when
authorized by a resolution of its Board of Directors, and the Trustee may amend
or supplement this Indenture or the Notes without notice to or the consent of
any Holder:
(i) to cure any ambiguity, defect or inconsistency;
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(ii) to comply with Article Five;
(iii) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(iv) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee;
(v) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(vi) to add one or more subsidiary guarantees on the terms
required by this Indenture; or
(vii) to make any change that does not adversely affect the
rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections
6.04 and 6.07 and without prior notice to the Holders, the Company, when
authorized by its Board of Directors (as evidenced by a Board Resolution), and
the Trustee may amend this Indenture and the Notes with the written consent of
the Holders of not less than a majority in principal amount at maturity of the
Notes then outstanding, and the Holders of not less than a majority in principal
amount at maturity of the Notes then outstanding by written notice to the
Trustee may waive future compliance by the Company with any provision of this
Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without
the consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal amount of, or premium, if any, or
interest on, any Note;
(iii) change the place or currency of payment of principal of,
or premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of
any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note;
<PAGE> 75
69
(v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend this
Indenture;
(vi) waive a default in the payment of principal of, premium,
if any, or interest on the Notes;
(vii) reduce the percentage of aggregate principal amount at
maturity of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults; or
(viii) modify any of the provisions of this Section 9.02,
except to increase any such percentage 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.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an
amendment or waiver becomes effective, a consent to it by a Holder is a
continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the Note of the consenting
Holder, even if notation of the consent is not made on any Note. However, any
such Holder or subsequent Holder may revoke the consent as to its Note or
portion of its Note. Such revocation shall be effective only if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective. An amendment, supplement or waiver shall become
effective on receipt by the Trustee of written consents from the Holders of the
requisite percentage in principal amount at maturity of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last two sentences of 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 consent to such
<PAGE> 76
70
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such record
date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it is of the type described in any of clauses (i)
through (v) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (v) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an
amendment, supplement or waiver changes the terms of a Note, the Trustee may
require the Holder to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Note about the changed terms and return it to the
Holder and the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or issue a new Note shall not affect the validity and effect of such
amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the rights
of the Trustee. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
Miscellaneous
SECTION 10.01. Trust Indenture Act of 1939. This Indenture is
subject to the provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
<PAGE> 77
71
SECTION 10.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery addressed as
follows:
if to the Company:
Central European Media Enterprises Ltd.
18 D'Arblay Street
London, W1V 3FP
United Kingdom
Telecopier No.: (44) 171-292-7948
Attention: Legal Department
with a copy to: (which shall not constitute notice)
Rosenman & Colin LLP
Telecopier No.: (212) 940-8776
Attention: Robert L. Kohl, Esq.
if to the Trustee:
Bankers Trust Company
4 Albany Street
New York, New York 10006
Telecopier No.: (212) 250-6961
Attention: Corporate Trust and Agency Group
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail (certified or registered, return receipt requested) to its
address shown on the register kept by the Registrar and shall be sufficiently
given to such Holder if so mailed or delivered within the time presented. Any
notice or communication shall also be so mailed to any Person described in TIA
Section 313(c), to the extent required by the TIA.
<PAGE> 78
72
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.
Except for a notice to the Trustee, which is deemed given only when received,
and except as otherwise provided in this Indenture, if a notice or communication
is mailed in the manner provided in this Section 10.02, it is duly given,
whether or not the addressee receives it.
Holders may communicate pursuant to TIA Section 312(b) 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 TIA Section 312(c).
SECTION 10.03. Certificate and Opinion As to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate reasonably satisfactory to the
Trustee 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
(ii) an Opinion of Counsel reasonably satisfactory to the
Trustee stating that, in the opinion of such Counsel, all such
conditions precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with, and such
other opinions as the Trustee may reasonably request; provided,
however, that, with respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public
officials.
<PAGE> 79
73
SECTION 10.05. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if made
in the manner provided in this Section.
(b) The ownership of Notes shall be proved by the Note
Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind every
future Holder of the same Note or the Holder of every Note issued upon the
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company in reliance thereon, whether or not notation of such action is
made upon such Note.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver of other act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for purposes of
determining whether Holders of the requisite proportion of Notes then
outstanding have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other act, and for this
purpose the Notes then outstanding shall be computed as of such record date;
provided that no such request, demand, authorization, direction, notice,
consent, waiver or other act by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
<PAGE> 80
74
SECTION 10.06. Rules by Trustee, Paying Agent or Registrar.
The Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.07. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Payment Date for an Offer to Purchase,
Stated Maturity or date of maturity of any Note shall not be a Business Day at
any place of payment, then payment of principal of, premium, if any, or interest
on such Note, as the case may be, need not be made on such date, but may be made
on the next succeeding Business Day at such place of payment with the same force
and effect as if made on the Interest Payment Date, Payment Date for an Offer to
Purchase, or Redemption Date, or at the Stated Maturity or date of maturity of
such Note; provided that no interest shall accrue for the period from and after
such Interest Payment Date, Payment Date for an Offer to Purchase, Redemption
Date, Stated Maturity or date of maturity, as the case may be.
SECTION 10.08. Governing Law; Submission to Jurisdiction;
Agent for Service. This Indenture and the Notes shall be governed by the laws of
the State of New York. The Trustee, the Company and the Holders agree to submit
to the jurisdiction of the U.S. federal and New York state courts located in the
Borough of Manhattan, City and State of New York in any action or proceeding
arising out of or relating to this Indenture or the Notes, and the Company
hereby waives any objection which it may now have or hereafter have to the
laying of venue of any such action or proceeding and any right to which it may
be entitled on account of place of residence or domicile. The Company has
appointed Corporation Service Company, _______ as the Company's authorized agent
upon which process may be served in any such action.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture and this
Indenture.
SECTION 10.10. Currency Indemnity. U.S. dollars are the sole
currency of account and payment for all sums payable by the Company under or in
connection with the Notes, including damages. Any amount received or recovered
in a currency other than dollars (whether as a result of, or of the enforcement
of, a judgment or order of a court of any jurisdiction, 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 a discharge to
the Company to the extent of the 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 dollar amount is less than the dollar amount expressed to be due to the
recipient under any Note, the Company shall
<PAGE> 81
75
indemnify the recipient against any loss sustained by it as a result. In any
event, the Company shall indemnify the recipient against the cost of making any
such purchase. For the purposes of this Section 10.10, it will be sufficient for
the Holder to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
dollars been made with the amount so received in that 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, it being
required that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation from
the Company's other obligations, 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.
SECTION 10.11. No Recourse Against Others. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company contained in
this Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 10.12. Successors. All agreements of the Company in
this Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 10.13. Duplicate Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.
SECTION 10.14. Separability. 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 10.15. Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been
<PAGE> 82
76
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms and provisions
hereof.
<PAGE> 83
77
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.,
as Issuer
________________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
_______________________________________
Name:
Title:
<PAGE> 84
EXHIBIT A
[FACE OF NOTE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN DEFINITIVE REGISTERED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS
A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]1
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation
(the "Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to ______, or its
registered assigns, the principal sum of _______ ($______) on August 15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Regular Record Dates: February 1 and August 1.
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.
________
1 To be included in global notes registered in the name of DTC or its nominee.
<PAGE> 85
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By___________________________________________
Name:
Title:
By___________________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By________________________________________
Authorized Signatory
<PAGE> 86
A-3
[REVERSE SIDE OF NOTE]
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on August 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record
of the Notes at the close of business on February 1 or August 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
February 15, 1998.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from _______,
1997; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate borne by the Notes.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each February 15 and August
15 to the persons who are Holders (as reflected in the Note Register at the
close of business on the February 1 and August 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is cancelled on
registration of transfer, registration of exchange, redemption or repurchase
after such record date; provided that, with respect to the
<PAGE> 87
A-4
payment of principal, the Company will make payment to the Holder that
surrenders this Note to a Paying Agent on or after August 15, 2004.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company, at
its option, may pay principal, premium, if any, and interest by its check
payable in such money. It may mail an interest check to a Holder's registered
address (as reflected in the Note Register). If a payment date is a date other
than a Business Day at a place of payment, payment may be made at that place on
the next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate
of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
August __, 1997 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The
Indenture limits the original aggregate principal amount at maturity of the
Notes to $125,000,000.
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after August 15, 2004 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class
<PAGE> 88
A-5
mail to each Holder's last address as it appears in the Note Register, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on the next succeeding
Interest Payment Date), if redeemed during the 12-month period commencing August
15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C> <C>
2001 ................................ %
2002 ................................ %
2003 and thereafter ................. %
</TABLE>
In addition, at any time and from time to time, prior to August
15, 2000, the Company may redeem Notes having a principal amount of up to $_
million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Company may redeem all, but not less than all,
the Notes at any time at 100% of the principal amount thereof, together with
accrued interest thereon, if any, to the redemption date.
Notice of any optional redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his last address as it appears in the Note Register.
Notes in denominations larger than $1,000 may be redeemed in part. On and after
the Redemption Date, interest ceases to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
<PAGE> 89
A-6
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall
have the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Note Register. Notes in denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and multiples of $1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer or exchange of any Notes selected for redemption.
Also, it need not register the transfer or exchange of any Notes for a period of
15 days before the day of the mailing of a notice of redemption of Notes
selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
<PAGE> 90
A-7
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount at maturity of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency and make any change that does not
adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates, suffer to exist or incur Liens,
Guarantee Indebtedness of the Company or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company shall deliver to the Trustee an Officers' Certificate stating whether or
not the signers know of any Default or Event of Default under such restrictive
covenants.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
<PAGE> 91
A-8
14. Defaults and Remedies.
An Event of Default is: a default in payment of principal on the
Notes; default in the payment of interest on the Notes and such default
continues for a period of 30 days (provided that a failure to make any of the
first six scheduled interest payments on the Notes in a timely manner will
constitute an Event of Default with no grace or cure period); failure by the
Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; and certain events of default on
other Indebtedness of the Company and/or one or more of its Significant
Subsidiaries.
If an Event of Default, as defined in the Indenture, occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes may declare all the Notes to be due and payable.
If a bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person 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. Each Holder by accepting a Note expressly waives and releases all such
liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the Notes.
<PAGE> 92
A-9
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. 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).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Central European
Media Enterprises Ltd., 18 D'Arblay Street, London W1V 3FP, United Kingdom,
Attention: Legal Department.
<PAGE> 93
A-10
ASSIGNMENT FORM
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
- -------------------------------------------
- -------------------------------------------
Print or type name, address and zip code of assignee and irrevocably appoint
_________________, as agent, to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
Dated ___________________ Signed______________________________
____________________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee(2)_________________________
- --------
2 The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 94
A-11
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, as applicable, check
the Box: |_|
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, as
applicable, state the amount to be purchased (in principal amount at maturity):
$______.
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, as
applicable, please provide instructions regarding delivery of and the Persons in
whose name(s) the unredeemed portion of such surrendered Note(s) should be
registered, the address of such Person(s) should be registered, the address of
such Person(s) and appropriate delivery instructions.
Date:_______________________________
Your Signature:______________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee(3):______________________________
- --------
3 The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 95
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
as Issuer
and
BANKERS TRUST COMPANY,
as Trustee
Indenture
Dated as of ____________, 1997
__% Senior Notes Due 2004
<PAGE> 96
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
Section 310(a)(1) ............................................... 7.09
(a)(2) ..................................................... 7.09
(b) ........................................................ 7.02; 7.07
Section 311(a) .................................................. 7.02
(b) ........................................................ 7.02
Section 312(a) .................................................. 2.03
Section 313(a) .................................................. 7.05
(c)......................................................... 7.04;7.05; 10.02
(d) ........................................................ 7.05
Section 314(a)................................................... 4.18;7.04; 10.02
(a)(4) ..................................................... 4.17; 10.02
(c)(1) ..................................................... 10.03
(c)(2) ..................................................... 10.03
(e) ........................................................ 4.17; 10.04
Section 315(a) .................................................. 7.01
(b) ........................................................ 7.04; 10.02
(c) ........................................................ 7.01
(d) ........................................................ 7.01
(e) ........................................................ 6.11
Section 316(a)(1)(A) ............................................ 6.05
(a)(1)(B) .................................................. 6.04
(b) ........................................................ 6.07
(c) ........................................................ 9.03
Section 317(a)(1) ............................................... 6.08
(a)(2) ..................................................... 6.09
(b) ........................................................ 2.04
Section 318(a) .................................................. 10.01
(c) ........................................................ 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part
of the Indenture.
<PAGE> 97
i
TABLE OF CONTENTS***
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS OF THE COMPANY
ARTICLE ONE
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ...................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act . 21
SECTION 1.03. Rules of Construction ............................ 21
ARTICLE TWO
The Note
SECTION 2.01. Form; Dating and Denominations ................... 22
SECTION 2.02. Execution and Authentication ..................... 23
SECTION 2.03. Registrar and Paying Agent ....................... 23
SECTION 2.04. Holder to Be Treated as Owner .................... 24
SECTION 2.05. Paying Agent to Hold Money in Trust .............. 25
SECTION 2.06. Transfer and Exchange ............................ 26
SECTION 2.07. Replacement Notes ................................ 28
SECTION 2.08. Outstanding Notes ................................ 28
SECTION 2.09. Temporary Notes .................................. 29
SECTION 2.10. Cancellation ..................................... 30
SECTION 2.11. CUSIP Numbers .................................... 30
SECTION 2.12. Defaulted Interest ............................... 30
SECTION 2.13. Deposit of Moneys ................................ 30
ARTICLE THREE
Redemption
SECTION 3.01. Right of Redemption .............................. 31
SECTION 3.02. Notices to Trustee ............................... 32
</TABLE>
*** Note: The Table of Contents shall not for any purposes be deemed to be a
part of the Indenture.
<PAGE> 98
ii
<TABLE>
<S> <C>
SECTION 3.03. Selection of Notes to Be Redeemed ...................... 32
SECTION 3.04. Notice of Redemption ................................... 32
SECTION 3.05. Effect of Notice of Redemption ......................... 33
SECTION 3.06. Deposit of Redemption Price ............................ 34
SECTION 3.07. Payment of Notes Called for Redemption ................. 34
SECTION 3.08. Notes Redeemed in Part ................................. 34
ARTICLE FOUR
Covenants
SECTION 4.01. Payment of Notes ....................................... 34
SECTION 4.02. Limitation on Indebtedness ............................. 35
SECTION 4.03. Limitation on Restricted Payments ...................... 38
SECTION 4.04. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries ................... 40
SECTION 4.05. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries ............................. 42
SECTION 4.06. Limitation on Issuances of Guarantees by Restricted
Subsidiaries ........................................ 42
SECTION 4.07. Limitation on Transactions with Shareholders and
Affiliates .......................................... 43
SECTION 4.08. Limitation on Liens .................................... 44
SECTION 4.09. Limitation on Sale-Leaseback Transactions .............. 44
SECTION 4.10. Limitation on Asset Sales .............................. 45
SECTION 4.11. Repurchase of Notes upon a Change of Control ........... 45
SECTION 4.12. Additional Amounts ..................................... 46
SECTION 4.13. Existence .............................................. 47
SECTION 4.14. Payment of Taxes and Other Claims ...................... 47
SECTION 4.15. Maintenance of Properties and Insurance ................ 48
SECTION 4.16. Compliance Certificates ................................ 48
SECTION 4.17. Commission Reports and Reports to Holders .............. 49
SECTION 4.18. Waiver of Stay, Extension or Usury Laws ................ 49
ARTICLE FIVE
Successor Corporation
SECTION 5.01. When Company May Merge, Etc ............................ 50
SECTION 5.02. Successor Substituted .................................. 51
</TABLE>
<PAGE> 99
iii
ARTICLE SIX
Default and Remedies
<TABLE>
<S> <C>
SECTION 6.01. Events of Default ...................................... 51
SECTION 6.02. Acceleration ........................................... 53
SECTION 6.03. Other Remedies ......................................... 54
SECTION 6.04. Waiver of Past Defaults ................................ 54
SECTION 6.05. Control by Majority .................................... 54
SECTION 6.06. Limitation on Suits .................................... 55
SECTION 6.07. Rights of Holders to Receive Payment ................... 55
SECTION 6.08. Collection Suit by Trustee ............................. 56
SECTION 6.09. Trustee May File Proofs of Claim ....................... 56
SECTION 6.10. Priorities ............................................. 56
SECTION 6.11. Undertaking for Costs .................................. 57
SECTION 6.12. Restoration of Rights and Remedies ..................... 57
SECTION 6.13. Rights and Remedies Cumulative ......................... 57
SECTION 6.14. Delay or Omission Not Waiver ........................... 57
ARTICLE SEVEN
Trustee
SECTION 7.01. Rights of Trustee ...................................... 58
SECTION 7.02. Individual Rights of Trustee ........................... 60
SECTION 7.03. Trustee's Disclaimer ................................... 60
SECTION 7.04. Notice of Default ...................................... 60
SECTION 7.05. Reports by Trustee to Holders .......................... 61
SECTION 7.06. Compensation and Indemnity ............................. 61
SECTION 7.07. Replacement of Trustee ................................. 62
SECTION 7.08. Successor Trustee by Merger, Etc ....................... 63
SECTION 7.09. Eligibility ............................................ 64
SECTION 7.10. Money Held in Trust .................................... 64
ARTICLE EIGHT
Discharge of Indenture
SECTION 8.01. Termination of Company's Obligations ................... 64
SECTION 8.02. Defeasance and Discharge of Indenture .................. 65
SECTION 8.03. Defeasance of Certain Obligations ...................... 67
SECTION 8.04. Application of Trust Money ............................. 69
</TABLE>
<PAGE> 100
iv
<TABLE>
<S> <C>
SECTION 8.05. Repayment to Company ................................... 69
SECTION 8.06. Reinstatement .......................................... 69
ARTICLE NINE
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders ............................. 70
SECTION 9.02. With Consent of Holders ................................ 70
SECTION 9.03. Revocation and Effect of Consent ....................... 71
SECTION 9.04. Notation on or Exchange of Notes ....................... 72
SECTION 9.05. Trustee to Sign Amendments, Etc ........................ 72
SECTION 9.06. Conformity with Trust Indenture Act .................... 73
ARTICLE TEN
Miscellaneous
SECTION 10.01. Trust Indenture Act of 1939 ........................... 73
SECTION 10.02. Notices ............................................... 73
SECTION 10.03. Certificate and Opinion As to Conditions Precedent 74
SECTION 10.04. Statements Required in Certificate or Opinion ......... 75
SECTION 10.05. Acts of Holders ....................................... 75
SECTION 10.06. Rules by Trustee, Paying Agent or Registrar ........... 76
SECTION 10.07. Payment Date Other Than a Business Day ................ 76
SECTION 10.08. Governing Law; Submission to Jurisdiction; Agent for
Service ............................................. 77
SECTION 10.09. No Adverse Interpretation of Other Agreements ......... 77
SECTION 10.10. Currency Indemnity .................................... 77
SECTION 10.11. Substitution of Currency .............................. 78
SECTION 10.12. No Recourse Against Others ............................ 78
SECTION 10.13. Successors ............................................ 78
SECTION 10.14. Duplicate Originals ................................... 78
SECTION 10.15. Separability .......................................... 78
SECTION 10.16. Table of Contents, Headings, Etc ...................... 78
SECTION 10.17. Meetings .............................................. 78
SIGNATURES
Exhibit A - Face of Global Registered Note
Exhibit B - Face of Global Bearer Note
Exhibit C - Reverse of Note
</TABLE>
<PAGE> 101
INDENTURE, dated as of __________, 1997, between CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD., a Bermuda corporation, as Issuer (the "Company"), and
Bankers Trust Company, a New York banking corporation, as trustee (the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to DM 100,000,000 aggregate
principal amount of the Company's % Senior Notes Due 2004 (the "Notes")
issuable as provided in this Indenture. All things necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done, and the Company has done 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
as hereinafter provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939, as amended, that are required to
be a part of and to govern indentures qualified under the Trust Indenture Act of
1939, as amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows:
ARTICLE ONE
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person
<PAGE> 102
2
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Additional Amounts" has the meaning provided in Section 4.12.
"Adjusted Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP, plus the net income (or
loss) of Restricted Affiliates for such period determined in conformity with
GAAP; provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any Person
(other than net income attributable to a Restricted Subsidiary) in which any
Person (other than the Company or any of its Restricted Subsidiaries) has a
joint interest and the net income of any Unrestricted Subsidiary, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.03 (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v) except
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.03, any amount paid
or accrued as dividends on Preferred Stock of the Company or any Restricted
Subsidiary owned by Persons other than the Company and any of its Restricted
Subsidiaries; (vi) all extraordinary gains and extraordinary losses; and (vii)
to the extent not otherwise excluded in accordance with GAAP, the net income (or
loss) of any Restricted Subsidiary in an amount that corresponds to the
percentage ownership interest in the income of such Restricted Subsidiary not
owned on the last day of such period, directly or indirectly, by the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount
of assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks,
<PAGE> 103
3
patents, unamortized debt discount and expense and other like intangibles, all
as is consistent with the most recent quarterly or annual consolidated balance
sheet of the Company and its Restricted Subsidiaries, prepared in conformity
with GAAP and filed with the Commission pursuant to Section 4.17; provided that
Adjusted Consolidated Net Tangible Assets shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount that corresponds to the
percentage ownership interest in the assets of each Restricted Subsidiary not
owned on the date of determination, directly or indirectly, by the Company.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling, "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. "Affiliate" includes,
without limitation, any "Restricted Affiliate."
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Annualized Consolidated Leverage Ratio" means the ratio calculated
as set forth in the definition of Consolidated Leverage Ratio, except that (x)
in clause (ii) thereof, the Consolidated Adjusted Operating Cash Flow shall be
calculated for the latest two fiscal quarters for which consolidated financial
statements of the Company are available and then multiplied by two (rather than
calculating Consolidated Adjusted Operating Cash Flow for the then most recent
four fiscal quarters), and (y) the Reference Period shall be the period from the
beginning of the second most recent fiscal quarter through the Transaction Date.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary of the Company
<PAGE> 104
4
or (ii) all or substantially all of the assets that constitute a division or
line of business of the Company or any of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of Article Five; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables, advertising time, and other current
assets or obsolete or outdated equipment; provided that each such sale or other
disposition or series of such sales or other dispositions shall not involve
assets that are material to the business of the Company and its Restricted
Subsidiaries, taken as a whole, (b) a transfer of assets to the extent the
consideration received (A) is equal to the fair market value of the assets
transferred and (B) takes the form of Investments of the type described in
clause (iv) of the definition of Permitted Investment, (c) sales or other
dispositions of assets (including Common Stock of Restricted Subsidiaries) for
consideration at least equal to the fair market value of the assets sold or
disposed of, provided that the consideration received consists of assets used or
useful in the media, communications or entertainment business (or Common Stock
in a Person engaged in the media, communications or entertainment business), and
provided further that if such consideration received consists of Common Stock,
such transaction complies with Section 4.03, or (d) issuances and sales of
Common Stock permitted under clause (v) of Section 4.05.
"Average Life" means, at any date of determination with respect to
any debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board duly authorized to act under this Indenture.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means any day on which banking institutions in New
York City, in Frankfurt am Main and London are not authorized or obligated by
law or executive
<PAGE> 105
5
order to be closed and on which foreign exchange markets in such cities are open
for business.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in the equity of such Person, whether now
outstanding or issued after the Closing Date, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligations" means the discounted present value of the rental
obligations under such lease.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 35% of the total voting power of the Voting Stock of the
Company on a fully diluted basis and such ownership is greater than the amount
of voting power of the Voting Stock of the Company, on a fully diluted basis,
held by the Existing Stockholders and their Affiliates on such date; or (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office.
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to Article Five of this Indenture and thereafter
means the successor.
<PAGE> 106
6
"Company Order" means a written request or order signed in the name
of the Company (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary and delivered to the Trustee; provided, however, that such
written request or order may be signed by any two of the Persons listed in
clause (i) above in lieu of being signed by one of such Persons listed in such
clause (i) and one of the officers listed in clause (ii) above.
"Consolidated Adjusted Operating Cash Flow" means, for any period,
the sum of the amounts for such period of (i) Adjusted Consolidated Net Income,
(ii) Consolidated Interest Expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, and (vi) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less (x) all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP, and (y) cash
programming acquisition costs for the period under consideration; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated Adjusted Operating Cash Flow shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of Consolidated Adjusted Operating Cash Flow attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
<PAGE> 107
7
clause (iii) or (vii) of the definition thereof (but only in the same proportion
as the net income of such Restricted Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) or (vii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis, plus Indebtedness of Restricted
Affiliates not consolidated in the Company's financial statements, outstanding
on such Transaction Date to (ii) the aggregate amount of Consolidated Adjusted
Operating Cash Flow for the then most recent four fiscal quarters for which
financial statements of the Company have been filed with the Commission pursuant
to Section 4.17 (such four fiscal quarter period being the "Four Quarter
Period"); provided that (A) pro forma effect shall be given to (x) reflect the
incurrence of any Indebtedness Incurred from the beginning of the Four Quarter
Period through the Transaction Date (the "Reference Period"), to the extent such
Indebtedness is outstanding on the Transaction Date and (y) reflect the
repayment of any Indebtedness that was outstanding during such Reference Period
but that is not outstanding or is to be repaid on the Transaction Date; (B) pro
forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period, as if they had occurred
and such proceeds had been applied on the first day of such Reference Period;
and (C) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (B) or (C) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed of for which financial information is, in the good
faith opinion of the Board of Directors of the Company, available.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
plus stockholders' equity of Restricted Affiliates not consolidated
<PAGE> 108
8
as of such date, less any amounts attributable to Disqualified Stock or any
equity security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable from
the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which
the corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 4 Albany Street, New York, New York 10006, Attention: Corporate Trust
and Agency Group.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 4.10 and 4.11 and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to Sections
4.10 and 4.11.
"DKV" means Deutscher Kassenverein AG, Frankfurt am Main.
"Dollar Notes" means the __% Senior Notes due 2004 issued pursuant
to the Dollar Note Indenture.
"Dollar Note Indenture" means the indenture dated ___, 1997 between
the Company and Bankers Trust Company, as trustee.
<PAGE> 109
9
"DM" means Deutsche Mark.
"DM Paying Agent" means Bankers Trust International PLC (Frankfurt
Branch).
"DTC" means The Depository Trust Company.
"EU Country" means any of the following countries: Austria; Belgium;
Denmark; France; Germany; Greece; Ireland; Italy; Luxembourg; The Netherlands;
Portugal; Spain; Sweden; and the United Kingdom; as well as any other country
which at the time of determination is a member of the European Union or any
successors thereof.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Stockholders" means (A) each beneficial holder of the
Company's Class B Common Stock on the Closing Date, (B) family members of any of
the foregoing, (C) trusts, the only beneficiaries of which are persons or
entities described in clauses (A) and (B) above, and (D) partnerships,
corporations, or limited liability companies which are controlled by the persons
or entities described in clauses (A) and (B) above.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Federal Republic of Germany Obligations" means securities that are
direct and unconditional obligations of the Federal Republic of Germany or any
of its states (Bundeslander), as defined in Section 1807 No. 2 of the German
Civil Code (Burgerliches Gesetzbuch), as from time to time amended, and are not
callable or redeemable at the option of the issuer thereof.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those 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
<PAGE> 110
10
Accounting Standards Board or in such other statements by such other entity as
are approved by a significant segment of the accounting profession. All ratios
and computations contained or referred to in this Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of this Indenture shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the offering of
the Notes and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion No. 16 or other
accounting literature related thereto.
"Global Notes" means the Global Bearer Note and the Global
Registered Note.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" or "Noteholder" means the registered holder of any Note or
the holder of the Global Bearer Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary of the Company; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below)
<PAGE> 111
11
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if drawn upon, to the extent such
drawing is reimbursed no later than the third Business Day following receipt by
such Person of a demand for reimbursement), (iv) all obligations of such Person
to pay the deferred and unpaid purchase price of property or services, which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the original issue price of such Indebtedness as increased to
reflect any accretion thereof pursuant to the terms of such Indebtedness, (B)
that "Indebtedness" shall not include any amount of money borrowed, at the time
of the Incurrence of the related Indebtedness, for the purpose of pre-funding
any interest payable on such related Indebtedness and (C) that Indebtedness
shall not include any liability for federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Interest Payment Date" means each semiannual interest payment date
on February 15 and August 15 of each year, commencing February 15, 1998.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement.
"Investment" in any Person means any direct or indirect advance,
loan or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or
<PAGE> 112
12
use of others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the fair market value of the Capital Stock (or any other Investment), held
by the Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary, including without limitation, by
reason of any transaction permitted by clause (iii) of Section 4.05. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.03, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments, and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer. Notwithstanding the foregoing an
acquisition of assets (including, without limitation, Capital Stock or rights to
acquire Capital Stock) by the Company or any of its Restricted Subsidiaries
shall be deemed not to be an Investment to the extent that the consideration
therefor consists of Common Stock of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Luxembourg" means the Grand Duchy of Luxembourg.
"Luxembourg Paying Agent" means Bankers Trust Luxembourg S.A.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of
<PAGE> 113
13
such sale, and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary of the Company as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agent's fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"New York Business Day" means any day other than a Saturday or
Sunday or a day on which banking institutions in New York City are authorized or
required by law or executive order to close.
"Note Register" has the meaning provided in Section 2.03.
"Notes" means any of the notes, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by notice to the Trustee and providing notice to each
Holder in accordance with Section 10.02(b) stating: (i) the covenant pursuant to
which the offer is being made and that all Notes validly tendered will be
accepted for payment on a pro rata basis; (ii) the purchase price and the date
of purchase (which shall be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is made) (the "Payment Date"); (iii) that
any Note not tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the purchase price, any
Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest on and after the Payment Date; (v) that Holders electing to have
a Note purchased pursuant to the Offer to Purchase will be required to surrender
the Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day immediately preceding the Payment Date; (vi) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the third Business Day immediately preceding the Payment
Date, a telegram, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes
<PAGE> 114
14
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) 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 Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount at maturity of
DM 1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly provide to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and provide to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of DM 1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Officer" means with respect to the Company, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, the
Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by two Officers.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4) shall include the statements provided for in TIA Section
314(e).
"Opinion of Counsel" means a written opinion signed by legal counsel
who is reasonably acceptable to the Trustee. Such counsel may be an employee of
or counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e). Opinions of Counsel
required to be delivered may have qualifications customary for opinions of the
type required.
"Paying Agent" means the DM Paying Agent, any successor thereof, the
U.S. Paying Agent, any successor thereof, the Luxembourg Paying Agent, any
successor thereof, and any other Person (including the Company acting as Paying
Agent, except that, for the purposes of Article Eight, the Paying Agent shall
not be the Company or a Subsidiary of the Company or an Affiliate of any of
them, authorized by the Company to pay principal of land premium, if any, or
interest on any Notes on behalf of the Company.
<PAGE> 115
15
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment and provided further that
in the case of an Investment in a Restricted Subsidiary that is a Restricted
Affiliate, at the time of and after giving effect to such Investment and any
Incurrence of Indebtedness in connection therewith or relating thereto, the pro
forma Annualized Consolidated Leverage Ratio would be greater than zero and less
than 5 to 1; (ii) Temporary Cash Investments; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) notes and
other evidences of Indebtedness, not to exceed $2 million at any one time
outstanding; and (v) stock, obligations or notes received in satisfaction of
judgments.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
its Restricted Subsidiaries; (vi) Liens (including extensions and renewals
thereof) upon real or personal property or any other asset acquired after the
Closing Date; provided that (a) such Lien is created solely for the purpose of
securing Indebtedness Incurred, in accordance with Section 4.03, (1) to finance
the cost (including the cost of improvement or construction) of property or
assets (including, without limitation, Capital Stock) and such Lien is created
prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property, (2) to refinance any Indebtedness so secured, or (3)
as Interest Rate Agreements and Currency Agreements relating solely to the
Indebtedness described in clause (1) or (2) above, (b) the principal
<PAGE> 116
16
amount of the Indebtedness secured by such Lien as of the time of the Incurrence
thereof does not exceed 100% of such cost and (c) any such Lien does not extend
to or cover any property or assets other than such item of property or assets
and any improvements on such item, provided that if 100% of the Capital Stock of
a Person is acquired (not including "qualifying" shares) such Lien may extend to
properties of such Person; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are within
the general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; and (xviii) Liens on or sales of receivables.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the date of this Indenture, and includes, without limitation, all classes
and series of preferred or preference stock.
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"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Proposed ING Credit Facility" means any bank credit facility
between a bank and any Restricted Subsidiary in a maximum outstanding principal
amount of $35.0 million and any refinancing thereof.
"Redemption Date", when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.03.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the February 1 or August 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers (including any officer within the Corporate
Trust and Agency Group (or any successor group) of the Trustee) and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his or her knowledge of and familiarity with
the particular subject.
"Restricted Affiliate" means any Person in which the Company or any
Restricted Subsidiary has an Investment (a) whose primary business is related,
ancillary or complementary to the business of the Company and its Restricted
Subsidiaries on the date of such Investment, (b) both (x) which is not
consolidated in such Person's consolidated financial statements under GAAP, and
(y) of which 50% or less of the voting power of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, (c) of which at least 50% of the economic interest
is owned, directly or indirectly, by such Person and one or more Restricted
Subsidiaries of such Person, and (d) that has been designated by the Board of
Directors (as evidenced by a Board Resolution delivered to the Trustee) as a
Restricted Affiliate based on a determination by such Board of Directors that
(x) the Company has, directly or indirectly, the requisite
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18
control over such Person to prevent it from Incurring Indebtedness, making
Restricted Payments, or taking any other action in contravention of any
provisions of this Indenture, and (y) such Person otherwise qualifies as a
Restricted Affiliate pursuant to the requirements hereof.
"Restricted Payments" has the meaning provided in Section 4.03.
"Restricted Subsidiary" means any Subsidiary of the Company, or of
any Subsidiary of the Company, other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Restricted Subsidiaries, (i) for
the most recent fiscal year of the Company, accounted for more than 10% of the
sum of the consolidated revenues of the Company and its Restricted Subsidiaries
plus the revenues of its Restricted Affiliates or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the sum of the consolidated
assets of the Company and its Restricted Subsidiaries plus the assets of its
Restricted Affiliates, all as set forth on the most recently available financial
statements of the Company for such fiscal year.
"Specified Date" means any Redemption Date, any Payment Date for an
Offer to Purchase pursuant to Section 4.10 or Section 4.11 or any date on which
the Notes are due and payable after an Event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity (a) of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person, (b) which is
consolidated in such Person's consolidated financial statements under GAAP, or
(c) which is a Restricted Affiliate.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time
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19
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States, and which
bank or trust company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying notes of the
types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, (v) securities with maturities of six months
or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or Moody's, and (vi) time deposits, certificates of deposit,
bank promissory notes and bankers' acceptances maturing not more than 180 days
after the acquisition thereof and guaranteed or issued by any of the ten largest
banks (based on assets as of the immediately preceding December 31) organized
under the laws of any jurisdiction in which one of the Restricted Subsidiaries
does business and which are not under intervention, bankruptcy or similar
proceeding, not to exceed $10 million outstanding at any one time.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbb), as in effect on the
date this Indenture was executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
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20
"Trustee" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the provisions
of Article Seven of this Indenture and thereafter means such successor.
"U.S. Paying Agent" means Bankers Trust Company.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.04, and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Sections 4.02 and 4.03. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving effect to such designation
(x) the Company could Incur $1.00 of additional Indebtedness under the first
paragraph of Section 4.02 and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of
any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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21
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TA, the provision is
incorporated by reference in and made a part of this Indenture. The following TA
terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture noteholder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any other
obligor on the Note.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
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22
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
The Note
SECTION 2.01. Form; Dating and Denominations. The Notes and the
Trustee's certificate of authentication shall be substantially in the form of
certain exhibits annexed hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange agreements or requirements to which
the Company is subject or usage. The Company shall approve the form of the Notes
and any notation, legend or endorsement on the Notes. Each Note shall be dated
the date of its authentication.
Each of the Notes shall be issued only in denominations of DM 1,000
and integral multiples thereof ("Authorized Denominations"). The face of the
Notes shall be substantially in the form of certain exhibits hereto as described
below and the reverse of the Note shall be the terms and provisions
substantially as set forth in Exhibit C hereto. To the extent applicable, the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Notes initially offered and sold to U.S. investors shall be issued
in the form of a single, permanent global certificate in registered form (the
"Global Registered Note"), deposited with Bankers Trust Company, as custodian
for DTC (in such capacity, the "Custodian"), duly executed by the Company and
authenticated by the Registrar as hereinafter provided. The face of the Global
Registered Note shall be substantially in the form of Exhibit A hereto and shall
bear the legend included therein.
The Notes sold outside of the United States shall be issued in the
form of one permanent global Note in bearer form, substantially in the form set
forth in Exhibit B hereto (the "Global Bearer Note"), deposited with Deutscher
Kassenverein AG, Frankfurt am Main ("DKV") duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The face of the Global
Bearer Note shall be substantially in the form of Exhibit B hereto and shall
bear the legend included therein.
The aggregate principal amount of each of the Global Registered Note
and the Global Bearer Note (together, the "Global Notes") may from time to time
be increased or decreased by adjustments made on the records of the Registrar as
hereinafter provided. Every Global Note shall have affixed to its reverse a
schedule for the purpose of recording such adjustments. Together, the Notes
represented by the Global Bearer Note and the Global
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23
Registered Note will be equal to the aggregate principal amount of the Notes
outstanding at any time.
The Global Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. Execution and Authentication. Any officer shall
execute the Notes for the Company by facsimile or manual signature in the name
and on behalf of the Company.
If the officer whose signature is on a Note no longer holds that
office at the time the Trustee or authenticating agent authenticates the Note,
the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
Pursuant to and based upon a Company Order, the Trustee or an
authenticating agent shall authenticate for original issue Notes in the
aggregate principal amount at maturity of DM 100,000,000 provided that the
Trustee shall be entitled to receive an Opinion of Counsel of the Company in
connection with such authentication and delivery of the Notes. Such Company
Order shall specify the amount of the Notes to be authenticated and the date on
which the original issue of Notes is to be authenticated. The aggregate
principal amount at maturity of Notes outstanding at any time may not exceed the
amount set forth above except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Section 2.06 or 2.07.
The Trustee may appoint an authenticating agent to authenticate
Notes and such authenticating agent shall be compensated by the Company. An
authenticating agent may authenticate Notes whenever the Trustee may do so,
except with regard to the original issuance of the Notes. Except as provided in
the preceding sentence, each reference in this Indenture to authentication by
the Trustee includes authentication by such authenticating agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company. The provisions of Sections 7.01, 7.02 and 7.06
hereof shall be applicable to any authenticating agent.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency in New York City where Notes may be presented for
registration of
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24
transfer or for exchange (the "Registrar"), an office or agency in New York
City, in Luxembourg and in Frankfurt am Main, Germany where Notes may be
presented for payment (the "Paying Agent") and an office or agency in New York
City where notices and demands to or upon the Company in respect of the Notes
and this Indenture may be served. The Company shall cause the Registrar to keep
a register of the Notes and of their transfer and exchange (the "Note
Register"). The Note Register shall be in written form or any other form capable
of being converted into written form within a reasonable time. The Company may
have one or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, U.S. Paying
Agent, authenticating agent and agent for service of notice and demands. The
Company also appoints Bankers Trust International PLC (Frankfurt Branch) as DM
Paying Agent and Bankers Trust Luxembourg S.A. as Luxembourg Paying Agent. If,
at any time, the Trustee is not the Registrar, the Company shall furnish, or
cause to be furnished, to the Trustee at least seven Business Days before each
Interest Payment Date and at such other times as the Trustee may reasonably
request, the names and addresses of the Holders as they appear in the Note
Register. At the option of the Company, payment of interest may be made by check
mailed to the address of the Holders as such address appears in the Note
Register.
SECTION 2.04. Holder to Be Treated as Owner. (a) The Company, the
Paying Agent, the Registrar, the Trustee and any agent of the Company, the
Paying Agent, the Registrar or the Trustee may deem and treat each Holder of a
Note as the absolute owner of such Note for the purpose of receiving payment of
or on account of the principal of and, subject to the provisions of this
Indenture, and interest on such Note and for all other purposes. Neither the
Company, the Paying Agent, the Registrar, the Trustee nor any agent of the
Company, the Paying Agent, the Registrar or the Trustee shall be affected by any
<PAGE> 125
25
notice to the contrary. All such payments so made to any such Person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
Note.
(b) Members of, or participants in, DTC ("Participants") shall have
no rights under this Agreement with respect to the Global Registered Note held
on their behalf by DTC, or the Custodian as DTC's custodian, or under the Global
Registered Note, and DTC may be treated by the Company, the Agents and any agent
of the Company or the Agents as the absolute owner of the Global Registered Note
for all purposes whatsoever. Notwithstanding the foregoing, the DTC, as a
Holder, may appoint agents and otherwise authorize Participants to give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder is entitled to give or take under this Indenture,
including the right to sue for payment of principal or interest pursuant to
Section 316(b) of the TIA. Except as provided in Section 2.06, owners of
beneficial interests in the Global Registered Note will not be authorized to
have Notes registered in their names, and will not receive and will not be
entitled to receive physical delivery of definitive certificates representing
individual Notes. Beneficial interests in the Global Registered Notes may be
held only through Participants in DTC.
(c) DKV account holders ("Account Holders") shall have no rights
under this Agreement with respect to the Global Bearer Note held on their behalf
by DKV or under the Global Bearer Note and DKV may be treated by the Company,
the Agents and any agent of the Company or the Agents as the absolute owner of
the Global Bearer Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Agents or any agent of
the Company or the Agents, from giving effect to any written certification,
proxy or other authorization furnished by DKV or impair, as between DKV and the
Account Holders, the operation of customary practices governing the exercise of
the rights of a Holder of any Note. The Holder of the Global Bearer Note may
grant proxies and otherwise authorize any person, including Account Holders and
persons that may hold interests through Account Holders, to take any action
which a Holder is entitled to take under this Indenture or the Notes. Owners of
co-ownership interests in the Global Bearer Note will not be entitled to have
Notes registered in their names, and will not receive and will not be entitled
to receive physical delivery of definitive certificates representing individual
Notes. Co-ownership interests in the Global Bearer Note may be held only through
accounts with Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme
("Cedel Bank").
SECTION 2.05. Paying Agent to Hold Money in Trust. 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 the Holders or the Trustee
all money held by the Paying Agent for the payment of principal of, premium, if
any, and interest on the Notes (whether
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such money has been paid to it by the Company or any other obligor on the
Notes), and such Paying Agent shall promptly notify the Trustee of any default
by the Company (or any other obligor on the Notes) in making any such payment.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee and account for any funds disbursed, and the Trustee may at any
time during the continuance of any payment default, upon written request to a
Paying Agent, require such Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent
shall have no further liability for the money so paid over to the Trustee. If
the Company or any Subsidiary of the Company or any Affiliate of any of them
acts as Paying Agent, it will, on or before each due date of any principal of,
premium, if any, or interest on the Notes, segregate and hold in a separate
trust fund for the benefit of the Holders a sum of money sufficient to pay such
principal, premium, if any, or interest so becoming due until such sum of money
shall be paid to such Holders or otherwise disposed of as provided in this
Indenture, and will promptly notify the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. When Notes are presented to the
Registrar with a request to register the transfer or to exchange them for an
equal principal amount at maturity of Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's request. No service charge shall be made
for any registration of transfer or exchange of the Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.09, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the date of notice of redemption under Section 3.03 and
ending at the close of business on the day of such mailing, or (ii) to register
the transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
Except as otherwise provided in this Section 2.06, transfers of
Global Notes shall be limited to transfers of book-entry interests between and
within DKV and DTC except as provided below. Transfers of interests in the
Global Notes between DKV Account holders, on the one hand, and DTC Participants,
on the other hand, shall be effected by an increase or a reduction in the
aggregate amount of Notes represented by the Global Bearer Note and the
corresponding reduction or increase in the aggregate amount of Notes represented
by the Global Registered Note. Any beneficial interest in one of the Global
Notes that is transferred to a person who takes delivery in the form of an
interest in another
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27
Global Note will, upon transfer, cease to be an interest in such first Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
Transfers of interests in one Global Bearer Note to parties who will
hold the interests through the same Global Bearer Note will be effected in the
ordinary way in accordance with the respective rules and operating procedures of
the DKV, DTC, Euroclear or Cedel Bank, as the case may be.
Notwithstanding any other provisions of this Section 2.06, unless
and until it is exchanged in whole or in part for Notes in definitive registered
form, a Global Note representing all or a portion of the Notes may not be
transferred except as a whole by the DTC to a nominee of DTC or by a nominee of
DTC to DTC or another nominee of DTC or by DTC or any such nominee to a
successor depositary or a nominee of such successor depositary.
If DTC notifies the Company that it is unwilling or unable to
continue as depositary for the Global Registered Note or if at any time DTC
shall no longer be eligible under the next sentence of this paragraph, the
Company shall appoint a successor depositary with respect to the Notes. Each
depositary appointed pursuant to this Section 2.05 must, at the time of its
appointment and at all times while it serves as depositary, be a clearing agency
registered under the Exchange Act and any other applicable statute or
regulation. The Company will execute, and the Trustee, upon receipt of an
authentication order, will authenticate and deliver, Notes in definitive
registered form in any authorized denominations, in an aggregate principal
amount at maturity equal to the principal amount at maturity of the Global Note
representing such Notes in exchange for the Global Registered Note if (i) DTC
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Registered Note or if at any time DTC shall no longer be eligible
to serve as depositary and a successor depositary for the Notes is not appointed
by the Company within 60 days after the Company receives such notice or becomes
aware of such ineligibility or (ii) an Event of Default has occurred and is
continuing.
The Company may at any time and in its sole discretion determine
that the registered Notes shall no longer be represented by a Global Registered
Note. In such event the Company will execute, and the Trustee will, upon receipt
of an authentication order, authenticate and deliver, Notes in definitive
registered form in any authorized denominations, in an aggregate principal
amount at maturity equal to the principal amount at maturity of the Global
Registered Note representing such Notes in exchange for such Global Registered
Note.
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Upon the exchange of the Global Registered Note in definitive
registered form without coupons, in authorized denominations, the Global
Registered Note shall be cancelled by the Trustee. Notes in definitive
registered form issued in exchange for the Global Registered Note pursuant to
this Section 2.06 shall be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Notes to or as directed by the Persons in whose names such Notes are so
registered.
All Notes issued upon any transfer or exchange of Notes shall be
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Notes surrendered upon such transfer
or exchange.
SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, 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
issue and the Trustee shall authenticate a replacement Note of like tenor and
principal amount; provided that the requirements of this Section 2.06 are met.
If required by the Trustee or the Company, an indemnity bond must be furnished
that is sufficient in the judgment of both the Trustee and the Company to
protect the Company, the Trustee or any Agent from any loss that any of them may
suffer if a Note is replaced. The Company may charge such Holder for the
expenses of the Company and the Trustee in replacing a Note. In case any such
mutilated, lost, destroyed or wrongfully taken Note has become or is about to
become due and payable, the Company in its discretion may pay such Note instead
of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies against the Company and the
Trustee with respect to the replacement or payment of mutilated, destroyed, lost
or wrongfully taken Notes.
SECTION 2.08. Outstanding Notes. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those cancelled
by it, those delivered to it for cancellation and those described in this
Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to each of them that the replaced Note is held by a bona fide
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on a Redemption Date or the maturity date money sufficient to pay
Notes payable on
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29
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
Notes, or portions thereof, for the payment or redemption of which
monies or Federal Republic of Germany Obligations (as provided for in Article
Eight) in the necessary amount shall have been deposited in trust with the
Trustee or with any Paying Agent (other than the Company) or shall have been set
aside, segregated and held in trust by the Company for the Holders of such Notes
(if the Company shall act as its own Paying Agent), on and after that time shall
cease to be outstanding and, in the case of redemption, interest on such Notes
shall cease to accrue, provided that if such Notes, or portions thereof, are to
be redeemed prior to the maturity thereof, notice of such redemption shall have
been given as herein provided, or provision satisfactory to the Trustee shall
have been made for giving such notice.
A Note does not cease to be outstanding because the Company or one
of its Affiliates holds such Note, provided, however, that, in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Trustee has actual knowledge to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or of such
other obligor.
SECTION 2.09. Temporary Notes. Until definitive Global Notes are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Global Notes but may have insertions, substitutions, omissions and
other variations determined to be appropriate by the Officers executing the
temporary Notes, as evidenced by their execution of such temporary Notes. If
temporary Notes are issued, the Company will cause definitive Global Notes to be
prepared without unreasonable delay. After the preparation of definitive Global
Notes, the temporary Notes shall be exchangeable for definitive Global Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 2.03, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Global Notes of authorized
denominations. Until so exchanged, the temporary Notes shall be entitled to the
same benefits under this Indenture as definitive Global Notes.
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30
SECTION 2.10. Cancellation. The Company at any time may deliver, or
cause to be delivered, Notes to the Trustee for cancellation. The Registrar and
the Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee (and no one else) shall cancel all
Notes surrendered for transfer, exchange, payment, replacement or cancellation
and shall destroy them in accordance with its normal procedure.
SECTION 2.11. CUSIP Numbers. The Company in issuing the Notes may
use "CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the
Company and the Trustee shall use CUSIP, CINS or ISIN numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes; and provided further that failure
to use CUSIP, CINS or ISIN numbers in any notice of redemption or exchange shall
not affect the validity or sufficiency of such notice. The Company shall
promptly notify the Trustee of any change in CUSIP, CINS or ISIN numbers.
SECTION 2.12. Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.12 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall give notice to each Holder and to the Trustee, with such notice
stating the subsequent special record date, the payment date and the amount of
defaulted interest to be paid.
SECTION 2.13. Deposit of Moneys. In order to provide for the payment
of principal of and interest on the Notes as the same shall become due and
payable, the Company hereby agrees to pay to the U.S. Paying Agent, Luxembourg
Paying Agent or the DM Paying Agent, as the case may be, by wire transfer of
immediately available funds for credit to the account of the U.S. Paying Agent,
Luxembourg Paying Agent or the DM Paying Agent, as the case may be, prior to
10:00 a.m., local time, on each interest payment date or the maturity date
(including a date fixed for redemption) of the Notes in such coin or currency of
the Federal Republic of Germany as at the time of payment shall be legal tender
for the payment of public and private debts, an amount in cash which (together
with any cash then held by the Paying Agents and available for the purpose)
shall be sufficient to pay the interest or principal or both, as the case may
be, becoming due on such date; provided, however, that if such date is not a
Business Day, the Company shall make such payment on the next succeeding
Business Day.
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31
The Company shall cause the bank through which payments due
hereunder this section 2.05 to supply the Paying Agent by 10:00 a.m., local
time, two Business Days prior to the due date for any such payment an
irrevocable confirmation (by tested telex or Swift MT 100 Message) of its
intention to make such payment.
ARTICLE THREE
Redemption
SECTION 3.01. Right of Redemption. (a) The Notes will be redeemable,
at the Company's option, in whole or in part, at any time or from time to time,
on or after August 15, 2001 and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice, at the following Redemption Prices (expressed
in percentages of principal amount), plus accrued and unpaid interest, if any,
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date that is on or prior to the Redemption Date to
receive interest due on the next succeeding Interest Payment Date), if redeemed
during the 12-month period commencing August 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2001 .................. %
2002 .................. %
2003 and thereafter..... %
</TABLE>
(b) In addition, at any time and from time to time, prior to August
15, 2000, the Company may redeem Notes having a principal amount of up to DM 35
million with the Net Cash Proceeds that are actually received by the Company
from one or more sales of Common Stock of the Company, at a Redemption Price
(expressed as a percentage of principal amount) of %, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the next succeeding Interest Payment Date);
provided that each such redemption occurs within 180 days of the related sales.
(c) In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to
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32
make such payment so as to avoid the requirement to pay such Additional Amounts,
then the Company may redeem all, but not less than all, the Notes at any time at
100% of the principal amount thereof, together with accrued interest thereon, if
any, to the redemption date.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.01(a), (b) or (c), it shall notify the Trustee in
writing of the Redemption Date, the principal amount at Stated Maturity of Notes
to be redeemed and the clause of this Indenture pursuant to which the redemption
shall occur.
The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements of the principal securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem fair and appropriate;
provided that no Notes of DM 1,000 in principal amount at maturity or less shall
be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of DM 1,000 in
principal amount at Stated Maturity may only be redeemed in whole. The Trustee
may select for redemption portions (equal to DM 1,000 in principal amount at
Stated Maturity or any integral multiple thereof) of Notes that have
denominations larger than DM 1,000 in principal amount at Stated Maturity.
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 and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption
of Notes pursuant to Section 3.01(a), (b) or (c), at least 30 days but not more
than 60 days before a Redemption Date the Company shall effect notice of
redemption in accordance with Section 10.02(b).
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
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33
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is
to receive payment of the Redemption Price plus accrued and unpaid
interest to the Redemption Date upon surrender of the Notes to the Paying
Agent;
(vi) with respect to any redemption pursuant to Section 3.01(a), (b)
or (c), that, if any Note is being redeemed in part, the portion of the
principal amount (equal to DM 1,000 in principal amount at Stated Maturity
or any integral multiple thereof) of such Note to be redeemed and that, on
and after the Redemption Date, upon surrender of such Note, a new Note or
Notes in principal amount equal to the unredeemed portion thereof will be
reissued;
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.10, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes; and
(viii) the aggregate principal amount at Stated Maturity of Notes
being redeemed.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee, at least 45 days (or
such shorter period as shall be satisfactory to the Trustee) before a Redemption
Date in the case of a redemption pursuant to Section 3.01(a), (b) or (c), the
Trustee shall give the notice of redemption in the name and at the expense of
the Company. If, however, the Company gives such notice to the Holders, the
Company shall concurrently deliver to the Trustee an Officers' Certificate
stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption has been made, Notes called for redemption become due and payable on
the Redemption Date and at the Redemption Price. Upon surrender of any Notes to
the Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
and unpaid interest to the Redemption Date.
<PAGE> 134
34
In any event, failure to give notice, or any defect therein, shall
not affect the validity of the proceedings for the redemption of Notes held by
Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to 10:00
a.m., local time on any Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company is acting as its own Paying Agent, shall
segregate and hold in trust as provided in Section 2.05) money in immediately
available funds sufficient to pay the Redemption Price of and accrued and unpaid
interest on all Notes to be redeemed on that date other than Notes or portions
thereof called for redemption on that date that have been delivered by the
Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued and unpaid interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at the Redemption
Price and accrued and unpaid interest to the Redemption Date, in which case the
principal, until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Notes), such Notes shall cease to accrue interest. Upon
surrender of any Note for redemption in accordance with a notice of redemption,
such Note shall be paid and redeemed by the Company at the Redemption Price,
together with accrued and unpaid interest to the Redemption Date; provided that
installments of interest whose record date is prior to the Redemption Date shall
be payable to the Holders registered as such at the close of business such
record date, if any.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note
that is redeemed in part, the Company shall at its expense issue and the Trustee
shall authenticate for the Holder a new Note equal in principal amount to the
unredeemed portion of such surrendered Note.
ARTICLE FOUR
Covenants
SECTION 4.01. Payment of Notes. The Company shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds as of 10:00 A.M. local time on the due date
money deposited by the Company in immediately available funds and
<PAGE> 135
35
designated for and sufficient to pay the installment. If the Company or any
Subsidiary of the Company or any Affiliate of any of them, acts as Paying Agent,
an installment of principal, premium, if any, or interest shall be considered
paid on the due date if the entity acting as Paying Agent complies with the last
sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or
reorganization procedure relative to the Company, the Trustee shall serve as the
Paying Agent for the Notes.
The Company shall pay interest on overdue principal, premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate per annum specified in the Notes.
SECTION 4.02. Limitation on Indebtedness. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and the Dollar Notes and Indebtedness
existing on the Closing Date); provided that the Company and any Restricted
Subsidiary may Incur Indebtedness (including Acquired Indebtedness), if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the pro forma Consolidated Leverage Ratio
would be greater than zero and less than 5 to 1; provided that no more than 50%
of the Indebtedness Incurred under this clause may be incurred by Restricted
Subsidiaries.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal amount not to
exceed the greater of (A) $200 million and (B) Consolidated Adjusted Operating
Cash Flow for the preceding four quarters for which reports have been filed
pursuant to Section 4.17, in each case less any amount of Indebtedness
permanently repaid as provided under Section 4.10, provided that the aggregate
amount of Indebtedness of Restricted Subsidiaries outstanding at any one time
under this clause (i) shall not exceed one-half of the greater of the amounts
referred to in clause (A) and clause (B) above; (ii) Indebtedness (A) to the
Company evidenced by an unsubordinated promissory note or other evidence of
unsubordinated indebtedness (provided that such indebtedness may be subordinated
to the Proposed ING Credit Facility) or (B) to any of its Restricted
Subsidiaries; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (including, without limitation, the Notes), other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi), (vii), (viii), (ix), (x) or (xi) of
this paragraph (which clauses are either unlimited in amount or provide for the
refinancing of Indebtedness Incurred thereunder), and any refinancings thereof
in an amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to refinance or refund
<PAGE> 136
36
the Notes or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes, and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded (assuming such Indebtedness had a
final Stated Maturity three months later than its actual final stated maturity);
and provided further that in no event may Indebtedness of the Company be
refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to
this clause (iii); (iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a) are
designed solely to protect the Company or its Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; (v) Indebtedness of
the Company, to the extent the net proceeds thereof are promptly (A) used to
purchase Notes or Dollar Notes tendered in an Offer to Purchase made as a result
of Change in Control or (B) deposited to defease the Notes as described in
Sections 8.02 and 8.03; (vi) Guarantees of the Notes or Dollar Notes or
Guarantees of Indebtedness of the Company by any Restricted Subsidiary provided
the Guarantee of such Indebtedness is permitted by and made in accordance with
Section 4.06; (vii) secured Indebtedness, in an aggregate amount not to exceed
$15 million at any one time outstanding, Incurred to finance the cost (including
the cost of purchase or installation) of equipment or other tangible capital
assets used or useful in the media, communications or entertainment business, in
each case acquired by the Company or a Restricted Subsidiary after the Closing
Date; (viii) Indebtedness of the
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37
Company not to exceed, at any one time outstanding, two times the Net Cash
Proceeds (less the amount of such proceeds applied as provided in clause (ii) or
(iii) of the second paragraph of Section 4.03 or applied to repay Indebtedness
of the Company) received by the Company (or any Restricted Subsidiary that
Guarantees the Notes in accordance with Section 4.06; provided that the Company
delivers to the Trustee an Opinion of Counsel to the effect (subject to
customary caveats) that such Guarantee is enforceable and provided further that
such Capital Stock is not subsequently repurchased by the Company or any
Restricted Subsidiary) after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company; provided that such Indebtedness matures after the
Stated Maturity of the Notes and has an Average Life longer than the Notes; (ix)
Indebtedness of the Company and each Restricted Subsidiary, not to exceed in the
aggregate at any one time outstanding 60% of the accounts receivable (net of
accounts more than 90 days past due, reserves and allowances for doubtful
accounts, determined in accordance with GAAP) of the Company and its Restricted
Subsidiaries on a consolidated basis as set forth on the balance sheet of the
Company most recently filed with the Commission pursuant to Section 4.17;
provided that any such Indebtedness of any Restricted Subsidiary is not
Guaranteed by the Company; (x) Indebtedness of any Restricted Subsidiary, not to
exceed at any one time outstanding the amount of the commitment to lend to such
Restricted Subsidiary by any Person not an Affiliate thereof on the Closing Date
(and refinancings of such Indebtedness); and (xi) without duplication of
Indebtedness permitted under clause (x), Indebtedness incurred under the
Proposed ING Credit Facility (including any Guarantees relating thereto) up to
$35 million in principal amount at any one time outstanding, and any
refinancings thereof.
(b) Notwithstanding any other provision of this Section 4.02, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.02 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness, due solely to the result of
fluctuations in interest rates or the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.02 (1) Guarantees, Liens, or obligations with
respect to letters of credit, supporting Indebtedness of any Person otherwise
included in the determination of such particular amount of Indebtedness of such
Person shall not be included and (2) any Liens granted pursuant to the equal and
ratable provisions referred to in Section 4.08 shall not be treated as
Indebtedness. For purposes of determining compliance with this Section 4.02, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
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38
SECTION 4.03. Limitation on Restricted Payments. The Company will
not, and will not permit any Restricted Subsidiary, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by other stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, prior to the scheduled maturity, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes (other than the purchase, repurchase or the acquisition of Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in any case due within one year of the date of acquisition) or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) except with respect to Investments, the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of Section 4.02 or (C) the aggregate amount of all Restricted Payments (the
amount, if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date, plus the outstanding amount of all
Permitted Investments permitted pursuant to the second proviso of clause (i) of
the definition of Permitted Investment, shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such loss)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to Section 4.17 plus (2) the
aggregate Net Cash Proceeds received by the Company after the Closing Date from
the issuance and sale permitted by this Indenture of Capital Stock of the
Company (other than Disqualified Stock), to a Person who is not a Subsidiary of
the Company or from the issuance to a Person who is not a Subsidiary of the
Company of any options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Disqualified Stock or any options,
warrants or other rights that are redeemable at the option
<PAGE> 139
39
of the holder, or are required to be redeemed, prior to the Stated Maturity of
the Notes) plus (3) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments, except for Permitted Investments
permitted pursuant to the second proviso of clause (i) in the definition of
Permitted Investment) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary or from the Net
Cash Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Notes, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of part (a) of Section 4.02; (iii) the repurchase, redemption
or other acquisition of Capital Stock of the Company (or options, warrants or
other rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Disqualified Stock) of the Company; (iv) the making of any principal
payment or the repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which is subordinated in
right of payment to the Notes, in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of the Capital Stock of the Company
(other than Disqualified Stock); (v) the declaration or payment of dividends on
the Common Stock of the Company of up to 6% per annum of the Net Cash Proceeds
received by the Company in the aggregate from any public offering of Common
Stock after the Closing Date; (vi) payments or distributions to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
Article Five; (vii) any Investments made after the Closing Date, provided that
the sum of such Investments does not exceed $25 million at any one time
outstanding and that the Board of Directors of the Company has determined in
good faith that such Investment will enable the Company or any of its Restricted
Subsidiaries to obtain additional business that it might not be able to obtain
without making such Investment; (viii) purchases or other acquisitions of
Capital Stock in compliance with the terms of written agreements in effect on
the Closing Date, as amended; provided that the Board of Directors determines
that each such amendment is not adverse to the interests of any Holder; (ix)
cash payments in lieu of the issuance of fractional shares upon the exercise of
any warrants or options on Common Stock; (x) Investments made after the Closing
Date in Restricted Affiliates in an aggregate
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amount at any one time outstanding not to exceed the sum of (A) $50 million and
(B) one-half of the aggregate Net Cash Proceeds received by the Company after
the Closing Date from the issuance and sale permitted by this Indenture of
Capital Stock of the Company (other than Disqualified Stock) to a Person that is
not a Subsidiary of the Company and not otherwise used for a Restricted Payment
described in clauses (i) through (iii) of the first paragraph of this covenant
or invested in an outstanding Investment, or (xi) non pro rata dividends paid to
minority shareholders of Restricted Subsidiaries pursuant to agreements for the
acquisition of such Common Stock, provided that such dividends do not in the
aggregate exceed the minority shareholder's pro rata ownership share of such
Restricted Subsidiary for the period for which such dividend or distribution is
paid, provided that, except in the case of clauses (i) and (iii), no Default or
Event of Default shall have occurred and be continuing or occur as a consequence
of the actions or payments set forth therein. Any Restricted Payments made other
than in cash shall be valued at fair market value. The amount of any Investment
"outstanding" at any time shall be deemed to be equal to the amount of such
Investment on the date made, less the return of capital (including dividends) to
the Company and its Restricted Subsidiaries with respect to such Investment (up
to the amount of such Investment on the date made).
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clause (ii) thereof
and an exchange of Capital Stock for Capital Stock or Indebtedness referred to
in clause (iii) or (iv) thereof), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this Section 4.03 have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this Section 4.03 only to
the extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
SECTION 4.04. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any Restricted Subsidiary, (ii)
pay any Indebtedness owed to the Company or any Restricted Subsidiary, (iii)
make loans or advances to the Company or any other Restricted Subsidiary, or
(iv) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such
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agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law, rule or regulation or, to
the extent not material to the Company, at the behest of regulatory authorities;
(iii) existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, existing at the
time of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (iv) in the case of clause (iv) of the first paragraph of
this Section 4.04, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by this Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; (vi) with respect to
Restricted Subsidiaries in which, on and subsequent to the Closing Date, the
Company and its Restricted Subsidiaries only make Investments that are evidenced
by unsubordinated promissory notes that bear a reasonable rate of interest and
are payable prior to the Stated Maturity of the Notes; provided that such
encumbrances and restrictions expressly allow the payment of interest and
principal on such promissory notes; (vii) solely of the type referred to in
clause (iii) or (iv) of the first paragraph of this Section 4.04 that are
contained in any stockholders' agreement, joint venture agreement or similar
agreement among owners of Common Stock of a Restricted Subsidiary; provided that
such restrictions consist solely of requirements that transactions between such
Restricted Subsidiaries and Affiliates thereof (including the Company and its
Restricted Subsidiaries) be on fair and reasonable terms no less favorable to
such Restricted Subsidiary than could be obtained in a comparable arm's-length
transaction with a Person that is not such an Affiliate; or (viii) contained in
the terms of any Indebtedness or any agreement pursuant to which such
Indebtedness was issued if the Board of Directors of the Company determines that
such encumbrance or restriction together with encumbrances and restrictions of
any other Indebtedness will not materially affect the Company's ability to make
interest or principal payments on the Notes; or (ix) contained in the agreement
pertaining to the Proposed ING Credit Facility, provided that the terms thereof
are not materially more restrictive than those set forth in the offer letter
from ING Barings dated July 24, 1997, including the Term Sheet attached thereto.
Nothing contained in this Section 4.04 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.08 or (2)
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restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
SECTION 4.05. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to non-U.S. nationals of shares of Capital Stock of non-U.S. Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary, provided any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under Section 4.03, if made on the date of such issuance or
sale; (iv) issuances or sales of Common Stock, either (x) the Net Cash Proceeds
of which are promptly applied pursuant to clause (A) or (B) of Section 4.10 or
(y) in the case of a sale for consideration other than cash, in exchange for
property or services having a fair market value at least equal to the fair
market value of the Common Stock issued; and (v) issuances and sales of up to 6%
of the Common Stock of each Restricted Subsidiary in connection with employee
benefit plans or arrangements.
SECTION 4.06. Limitation on Issuances of Guarantees by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall
not be applicable to (x) any Guarantee of any Restricted Subsidiary that existed
at the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, (y) any Guarantee by Restricted Subsidiaries to the extent any such
Restricted Subsidiary could itself Incur such Indebtedness being Guaranteed
(without duplication in the case of the same Indebtedness being Guaranteed by
one or more Restricted Subsidiaries) under Section 4.02; or (z) any Guarantee of
Indebtedness under the Proposed ING Credit Facility. If the Guaranteed
Indebtedness is (A) pari passu with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee, or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed
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Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
SECTION 4.07. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm (or a subsidiary or affiliate thereof) in the United States stating
that the transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between the Company and any
of its Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries; (iii) the payment of reasonable and customary regular
fees to directors of the Company who are not employees of the Company; (iv) any
Payments or other transactions pursuant to any tax-sharing agreement between the
Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes; (v) transactions in the ordinary course of business of the Company or
any Restricted Subsidiary; provided that the aggregate amount of such
transactions do not exceed $2 million in any fiscal year; or (vi) any Restricted
Payments not prohibited by Section 4.03. Notwithstanding the foregoing, any
transaction covered by the first paragraph of this Section 4.07 and not covered
by clauses (ii) through (iv) of this paragraph, the aggregate amount of which
exceeds $1 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.
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SECTION 4.08. Limitation on Liens. The Company will not, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
this Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes or the Note Guarantee, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted Subsidiary
to secure Indebtedness owing to the Company or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) or clause (xi)
of the second paragraph of Section 4.02; provided that such Liens do not extend
to or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(v) Permitted Liens; (vi) Liens securing obligations not in excess of $2
million; (vii) Liens on any property or assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary permitted to be Incurred
under Section 4.02; or (viii) Liens granted over any assets of the Company or
any Restricted Subsidiary to secure the Proposed ING Credit Facility, including
without limitation cash held by the Company and any Capital Stock held by the
Company.
SECTION 4.09. Limitation on Sale-Leaseback Transactions. The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any sale-leaseback transaction involving any of its
assets or properties whether now owned or hereafter acquired, whereby the
Company or a Restricted Subsidiary sells or transfers such assets or properties
and then or thereafter leases such assets or properties or any part thereof or
any other assets or properties which the Company or such Restricted Subsidiary,
as the case may be, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; (iv) the Company or such Restricted Subsidiary,
within twelve months after the sale or transfer of any assets or properties is
completed, applies an amount not less than the net proceeds received from such
sale in accordance with clause (A) or (B) of the first paragraph of Section
4.10; or (v) it relates to the Proposed ING Credit Facility.
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SECTION 4.10. Limitation on Asset Sales. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale unless
(i) the consideration received by the Company or such Restricted Subsidiary is
at least equal to the fair market value of the assets sold or disposed of and
(ii) at least 75% of the consideration received consists of cash or Temporary
Cash Investments. In the event and to the extent that the Net Cash Proceeds
received by the Company or any of its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its subsidiaries have
been filed pursuant to Section 4.18), then the Company shall, or shall cause the
relevant Restricted Subsidiary to, (i) within twelve months after the date Net
Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets, (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or any Restricted
Subsidiary providing a Subsidiary Guarantee pursuant to Section 4.06 or
Indebtedness of any other Restricted Subsidiary, in each case owing to a Person
other than the Company or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) (or enter into
a definitive agreement committing to so invest within twelve months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment
and (ii) apply (no later than the end of the twelve-month period referred to in
clause (i)) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (i)) as provided in the following paragraph of this Section 4.10. The
amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such twelve-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this Section 4.10 totals at least $10 million, the Company must commence, not
later than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes on the relevant Payment Date equal to the Excess Proceeds on such date, at
a purchase price equal to 101% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
SECTION 4.11. Repurchase of Notes upon a Change of Control. The
Company must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all Notes then outstanding, at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
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SECTION 4.12. Additional Amounts. In the event of any change in the
laws of Bermuda or of any political subdivision or taxing authority thereof or
therein or any change in the interpretation or administration thereof, the
effect of which is to require the withholding or deduction by the Company
pursuant to the Notes of any amount for taxes, the Company will pay, to the
extent it may then lawfully do so, such additional amounts ("Additional
Amounts") as may be necessary in order that every net payment of the principal
of and interest on the Notes, after deduction for withholding for or on account
of any future tax, assessment or other governmental charge, will not be less
than the amount provided for in the Notes to be then due and payable; provided,
however, that the foregoing obligation to pay Additional Amounts shall not apply
in respect of:
(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 any political subdivision or taxing authority thereof
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 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 limit the Company's
obligation to pay Additional Amounts if the completing and filing of the
information described in subclause (i) or the declaration or other claim
described in subclause (ii) 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
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(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 payment.
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 Officer's 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 the Trustee to pay such Additional Amounts to
holders on the payment date. Whenever in this Indenture there is mentioned, in
any context, the payment of principal (and premium, if any), Redemption Price,
interest or any other amount payable under or with respect to any Note, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
SECTION 4.13. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), licenses and franchises of the Company and each such Subsidiary;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary, if the
maintenance or preservation thereof is no longer desirable in the conduct of the
business of the Company and its Restricted Subsidiaries taken as a whole; and
provided further that any Restricted Subsidiary may consolidate with, merge
into, or sell, convey, transfer, lease or otherwise dispose of all or part of
its property and assets to the Company or any Wholly Owned Restricted
Subsidiary.
SECTION 4.14. Payment of Taxes and Other Claims. The Company will
pay or discharge and shall cause each of its Subsidiaries to pay or discharge,
or cause to be paid or discharged, before the same shall become delinquent (i)
all material taxes, assessments and governmental charges levied or imposed upon
(a) the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
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discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established.
SECTION 4.15. Maintenance of Properties and Insurance. The Company
will cause all properties used or useful in the conduct of its business or the
business of any Restricted Subsidiary and material to the Company and its
Restricted Subsidiaries taken as a whole, to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.15 shall prevent the Company or any such Restricted Subsidiary
from discontinuing the use, operation or maintenance of any of such properties
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors or the board of directors of such Restricted
Subsidiary having managerial responsibility for any such property, desirable in
the conduct of the business of the Company or such Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as the Company in good faith shall determine to be reasonable and
appropriate in the circumstances.
SECTION 4.16. Compliance Certificates. (a) The Company shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days of the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company that
a review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.16, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If any of the signers of
the Officers' Certificate have knowledge of such a Default or Event of Default,
the certificate shall describe any such Default or Event of Default and its
status. The first certificate to be
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delivered pursuant to this Section 4.16(a) shall be for the first fiscal quarter
beginning after the execution of this Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after
the end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.16 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms, covenants, provisions or conditions
of Article Four and Section 5.01 of this Indenture as they pertain to accounting
matters and, if any Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; provided that such
independent certified public accountants shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such Default or
Event of Default that would not be disclosed in the course of an audit
examination conducted in accordance with generally accepted auditing standards
in effect at the date of such examination.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.17. Commission Reports and Reports to Holders. Whether or
not the Company is then required to file reports with the Commission, the
Company shall file with the Commission all such reports and other information as
it would be required to file with the Commission by Section 13(a) or 15(d) under
the Exchange Act if it were subject thereto. Upon request, the Company shall
supply the Trustee and each Holder or shall supply to the Trustee for forwarding
to each such Holder, without cost to such Holder, copies of such reports and
other information.
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein
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granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE FIVE
Successor Corporation
SECTION 5.01. When Company May Merge, Etc. The Company will not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the jurisdiction of incorporation of the Company immediately prior to such
transaction, the United States of America, the British Virgin Islands, the
Cayman Islands, the Netherlands Antilles, any EU Country or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of the
Notes and under this Indenture; provided that, with respect to any such
transaction immediately subsequent to which the continuing Person is
incorporated in a jurisdiction other than the United States or the jurisdiction
in which such Person was incorporated immediately prior to such transaction, (A)
the Company delivers to the Trustee an Opinion of Counsel stating that the
obligations of the continuing Person under the Indenture are enforceable under
the laws of the new jurisdiction of its incorporation to the same extent as the
obligations of the Company under the Indenture immediately prior to such
transaction; (B) the continuing Person agrees in writing to submit to
jurisdiction and appoints an agent for the service of process, each under terms
substantially similar to the terms contained in the Indenture with respect to
the Company; (C) the continuing Person agrees in writing to pay "additional
amounts" as provided under this Indenture with respect to the Company except
that such "additional amounts" shall relate to any withholding tax whatsoever
regardless of any change of law (subject to exceptions substantially similar to
those contained in this Indenture and described under Section 4.13); and (D) the
Board of Directors of the Company determines in good faith that such transaction
will have no material adverse effect on any Holder and a Board Resolution to
that effect is delivered to the Trustee; (ii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company or any Person becoming the successor obligor
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of the Notes would have a Consolidated Leverage Ratio no higher (or, if
negative, no lower) than the Consolidated Leverage Ratio of the Company
immediately prior to such transaction; provided that, in connection with any
such merger or consolidation, no consideration (other than Common Stock in the
surviving Person or the Company) shall be issued or distributed to the
stockholders of the Company; and (v) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state or jurisdiction of incorporation of the
Company; and provided further that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
SECTION 5.02. Successor Substituted. Upon any consolidation or
merger, or any sale, conveyance, transfer or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided, however, that in the case of a lease, the
Company shall not be released from the obligation to pay the principal of and
interest on the Notes.
ARTICLE SIX
Default and Remedies
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Notes if:
(a) the Company defaults in the payment of the principal of (or
premium, if any, on) any Note when the same becomes due and payable at
Stated Maturity, upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period
of 30 days;
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(c) the Company defaults in the performance or breaches the
provisions of Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.11 or Section 4.12;
(d) the Company defaults in the performance of or breaches any
covenant or agreement of the Company in the Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above) and such
default or breach continues for a period of 30 consecutive days after
written notice to the Company by the Trustee or the Holders of 25% or more
in aggregate principal amount at maturity of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company or any of its Significant Subsidiaries having an
outstanding principal amount of $10 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (A) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full
or such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (B) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such
payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
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(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any Significant Subsidiary or for all or substantially all of
the property and assets of the Company or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors.
A Default under clause (d) is not an Event of Default until the
Trustee notifies the Company in writing, or the holders of at least 25% of the
principal amount at maturity of the Notes then outstanding notify the Company
and the Trustee in writing, of the Default and the Company does not cure the
Default within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default." Such notice shall be given by the Trustee if so requested in writing
by the Holders of at least 25% in aggregate principal amount at maturity of the
Notes then outstanding.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount at maturity
of the Notes then outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee at the
request of the Holders shall, declare the principal amount of, premium, if any,
and accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal amount, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) of Section 6.01
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 clause (e) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiary or waived by the holders of
the relevant and such rescission and annulment would not conflict with any
judgement or decree of a court of competent jurisdiction Indebtedness within 60
days after the declaration of acceleration with respect thereto and such
rescission and annulment would not conflict with any judgement or decree of a
court of competent jurisdiction. If an Event of Default specified in clause (g)
or (h) of Section 6.01 occurs with respect to the Company, the principal amount
of, premium, if any, and accrued interest on the Notes then outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in aggregate principal amount at
maturity of the outstanding Notes by written
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notice to the Company and to the Trustee may waive all past Defaults and rescind
and annul such declaration of acceleration and its consequences if (a) the
Company has paid or deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Notes, (iii) the principal of and premium, if
any, on any Notes that have become due otherwise than by such declaration or
occurrence of acceleration and interest thereon at the rate prescribed therefor
by such Notes, and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest, if any, at the rate prescribed therefor by such
Notes, (b) all existing Events of Default, other than the non-payment of the
principal amount of, premium, if any, and accrued interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived and (c) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02,
6.07 and 9.02, the Holders of at least a majority in aggregate principal amount
at maturity of the outstanding Notes, by notice to the Trustee, may waive an
existing Default or Event of Default and its consequences, except a Default in
the payment of principal of, premium, if any, or interest on any Note as
specified in clause (a) or (b) of Section 6.01 (including in connection with an
Offer to Purchase) or in respect of a covenant or provision of this Indenture
which 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 Event of Default or impair any right
consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a
majority in aggregate principal amount at maturity of the outstanding Notes, by
notice to the Trustee, may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee; provided that the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that may involve
the Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders not joining in the giving of
such direction; and provided further that the Trustee may take any other action
it deems
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proper that is not inconsistent with any directions received from Holders of
Notes pursuant to this Section 6.05.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) such Holder has previously given to the Trustee written notice
of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount at
maturity of 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;
(iii) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, liabilities or
expenses to be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount at maturity of the outstanding Notes have not
given the Trustee a direction that is inconsistent with such written
request.
For purposes of Section 6.05 of this Indenture and this Section
6.06, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
at maturity of outstanding Notes have concurred in any request or direction of
the Trustee to pursue any remedy available to the Trustee or the Holders with
respect to this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of the principal of, premium, if any, or interest on such
Holder's Note on or after the respective due dates expressed on such Note
(including in a notice with respect to an Offer to Purchase), or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
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SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and 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.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents 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 any other amounts due the Trustee under
Section 7.06) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies, notes or
other property payable or deliverable upon conversion or exchange of the Notes
or upon any such claims and to distribute the same, and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 7.06. Nothing herein contained shall be deemed to empower
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.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.06, including
payment of all compensation, expense and liabilities incurred, and all
advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any
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kind, according to the amounts due and payable on such Notes for
principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs. 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 or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 of this Indenture, or a
suit by Holders of more than 10% in principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder 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 Six or by
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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 SEVEN
Trustee
SECTION 7.01. Rights of Trustee. (i) Except during the continuance
of an Event of Default,
(a) 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
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth and correctness of the statements and
certificates or opinions furnished to it and conforming to the
requirements of this Indenture; but in the case of any such certificates
or opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Indenture.
(ii) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(iii) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(a) this Subsection shall not be construed to limit the effect of
Subsection (i) of this Section;
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount at
maturity of the outstanding Notes,
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relating to the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture with respect to the
Notes.
(iv) Subject to TIA Sections 315(a) through (d):
(a) the Trustee may rely upon 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, which shall conform to
Section 11.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities that might be incurred by it in compliance with such
request or direction;
(d) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers; provided that the Trustee's conduct does not constitute
negligence or bad faith;
(e) 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, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it;
(f) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed), may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(g) the Trustee may consult with counsel and the 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;
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(h) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(i) the Trustee may execute any of the trusts or powers hereunder
either directly or by or through agents or attorneys and the Trustee shall
not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(j) the Trustee may conclusively rely as to the identity and
addresses of Holders and other matters contained therein on the register
of the Notes maintained by the Registrar pursuant to Section 2.03 hereof
and shall not be affected by notice to the contrary; and
(k) unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
SECTION 7.02. Individual Rights of Trustee. The Trustee, 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 the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.03. Trustee's Disclaimer. The Trustee (i) shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, (ii) shall not be accountable for the Company's use
of the proceeds from the Notes (iii) shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and (iv) shall not be responsible for any statement in the Notes other than its
certificate of authentication.
SECTION 7.04. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall transmit in the manner provided in this
Indenture and in the manner and to the extent provided in TIA Section 313(c)
notice of the Default or Event of Default within 45 days after it occurs, unless
such Default or Event of Default has been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of,
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premium, if any, or interest 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 Responsible Officers of the
Trustee in good faith determine that the withholding of such notice is in the
interest of the Holders.
The Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) a default described in Section 6.01(a) or (b) so
long as the Trustee is the Paying Agent or (ii) any Default or Event of Default
of which the Trustee shall have received written notification or a Responsible
Officer charged with the administration of this Indenture shall have obtained
actual knowledge, and such notification shall not be deemed to include receipt
of information obtained in any report or other reports and documents furnished
under Section 4.17 of this Indenture which reports and documents the Trustee
shall have no duty to examine.
SECTION 7.05. Reports by Trustee to Holders. Within 60 days after
each _______, beginning with _______, 1998, the Trustee shall transmit to the
Holders, in the manner provided in this Indenture and in the manner and to the
extent provided in TIA Section 313(c) a brief report dated as of such _______,
if required by TIA Section 313(a).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange or of any delisting thereof.
SECTION 7.06. Compensation and Indemnity. The Company shall pay to
the Trustee such compensation as shall be agreed upon in writing for its
services hereunder. The compensation of the Trustee shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
expenses and advances incurred or made by it in addition to compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred by it without negligence or
bad faith on its part in connection with the acceptance or administration of
this Indenture and its duties under this Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties under this
Indenture and the Notes. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Company need not pay for any
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settlements made without its consent. The Company need not reimburse any expense
or indemnity against any loss or liability incurred by the Trustee through
negligence or bad faith.
The Trustee shall have a claim prior to the Notes on all money or
property held or collected by the Trustee, in its capacity as Trustee, for any
amount owing it pursuant to this Section 7.06, except money or property held in
trust to pay principal of, premium, if any, and interest on particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services (including the
reasonable fees and expenses of its agents and counsel) will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under this Section 7.06 out of the estate in any such
proceeding, shall be denied for any reason, other than solely because of the
wilful misconduct of the Trustee or its Agents, payment of the same shall be
secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise.
The provisions of this Section 7.06 shall survive the termination of
this Indenture.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.07. Replacement of Trustee. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.07.
The Trustee may resign by so notifying the Company in writing at
least 30 days prior to the date of the proposed resignation. The Holders of a
majority in aggregate principal amount at maturity of the outstanding Notes may
remove the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.09;
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(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the Trustee
or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount at maturity of the outstanding Notes
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company. If the successor Trustee does not take office within 30 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in aggregate principal amount at maturity of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.06, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee fails to comply with Section 7.09, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect provided in this Section.
Notwithstanding replacement of the Trustee pursuant to this Section
7.07, the Company's obligation under Section 7.06 shall continue for the benefit
of the retiring Trustee.
SECTION 7.08. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
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SECTION 7.09. Eligibility. Any Trustee serving hereunder shall be a
bank or trust company, within or without the state, which is authorized by law
to perform all of the duties imposed upon it hereby and which either (i) has a
reported capital and surplus aggregating at least $25,000,000 or (ii) is a
wholly owned subsidiary of a bank, a trust company or a bank holding company
having a reported capital and surplus aggregating at least $25,000,000, and
shall at all times satisfy the requirements of TIA Section 310(a)(i).
SECTION 7.10. Money Held in Trust. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree with
the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight of this Indenture.
ARTICLE EIGHT
Discharge of Indenture
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or notes
have theretofore been held in trust and thereafter repaid to the Company,
as provided in Section 8.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder; or
(ii) (A) the Notes have become due and payable, mature within one
year or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of
redemption, (B) the Company irrevocably deposits or causes to be
irrevocably deposited in trust with the Trustee during such one-year
period, under the terms of an irrevocable trust agreement in form
satisfactory to the Trustee, as trust funds solely for the benefit of the
Holders for that purpose, money or Federal Republic of Germany Obligations
sufficient (in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect
to the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture
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65
or any other agreement or instrument to which the Company is a party or by
which it is bound and (E) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating that
all conditions precedent provided for herein relating to the satisfaction
and discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.06 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.12,
4.01, 7.06, 7.07, 8.04, 8.05 and 8.06 shall survive until the Notes are no
longer outstanding. Thereafter, only the Company's obligations in Sections 7.06,
8.04, 8.05 and 8.06 shall survive. After any such irrevocable deposit, the
Trustee upon request shall acknowledge in writing the discharge of the Company's
obligations under the Notes and this Indenture except for those surviving
obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company
will be deemed to have paid and will be discharged from any and all obligations
in respect of the Notes on the 123rd day after the date of the deposit referred
to in clause (A) of this Section 8.02, and the provisions of this Indenture will
no longer be in effect with respect to the Notes, and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the same,
except as to (i) rights of registration of transfer and exchange, (ii)
substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes,
(iii) rights of Holders to receive payments of principal thereof and interest
thereon, (iv) the Company's obligations under Section 2.03, (v) the rights,
obligations and immunities of the Trustee hereunder and (vi) the rights of the
Holders as beneficiaries of this Indenture with respect to the property so
deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(A) the Company has irrevocably deposited or caused to be
irrevocably deposited with the Trustee in trust, money and/or Federal
Republic of Germany Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will provide,
not later than one day before the due date of any payment referred to in
this clause (A), money in an amount 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, without consideration of the reinvestment of such interest and
after payment of all state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and accrued interest on the Notes on the Stated Maturity
of such payments or upon earlier redemption in accordance with the terms
of this Indenture and the Notes and shall have irrevocably instructed the
Trustee to apply such money to the payment of such principal, premium and
interest;
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(B) the Company has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for Bermuda income tax or other tax purposes as a result of
the Company's exercise of its option under this Section 8.02, disregarding
income tax on any amounts that would have been received but for such
exercise of its option under this Section 8.02, and will be subject to
income tax on the same amount and in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge had
not occurred, which Opinion of Counsel must be based upon (and accompanied
by a copy of) a ruling based on relevant law and practice at the time
directed to the Trustee from the relevant tax authority to the same effect
or (y) a ruling based on relevant law and practice at the time directed to
the Trustee from the relevant tax authority to the same effect as the
aforementioned Opinion of Counsel, (ii) either (A) an Opinion of Counsel
to the effect that Holders will not recognize income, gain or loss for
U.S. income tax or other tax purposes as a result of the Company's
exercise of its option under this Section 8.02 and will be subject to
income tax on the same amount and in the same manner and at the same time
as would have been the case if such option had not been exercised, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a
ruling published by the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the
Closing Date such that a ruling is no longer required or (B) a ruling
directed to the Trustee received from the Internal Revenue Service to the
same effect as the aforementioned Opinion of Counsel and (iii) an Opinion
of Counsel to the effect that the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and after the passage of
123 days following the deposit (except, with respect to any trust funds
for the account of a Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust fund will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law in a case commenced by or against the Company
under either such statute;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default, or event that after the giving of
notice or lapse of time or both would become a Default or an Event of
Default, shall have occurred and be continuing on the date of such deposit
or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any 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;
(D) if at such time the Notes are listed on a securities exchange,
the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge; and
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(E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day
period referred to in clause (B)(iii) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day period with respect to this Section 8.02, the Company's
obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.12, 4.01, 7.06,
7.07, 8.04, 8.05 and 8.06 shall survive until the Notes are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.06, 8.05
and 8.06 shall survive. If and when a ruling from the Internal Revenue Service
or an Opinion of Counsel referred to in clauses (B)(i) and (B)(ii) of this
Section 8.02 is able to be provided specifically without regard to, and not in
reliance upon, the continuance of the Company's obligations under Section 4.01,
then the Company's obligations under such Section 4.01 shall cease upon delivery
to the Trustee of such ruling or Opinion of Counsel and compliance with the
other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may
omit to comply with any term, provision or condition set forth in clauses (iii)
and (iv) of Section 5.01 and Sections 4.02 through 4.17, and clauses (c) and (d)
of Section 6.01 and clauses (iii) and (iv) of Section 5.01 and Sections 4.02
through 4.17, and clauses (e) and (f) of Section 6.01 shall be deemed not to be
Events of Default, in each case with respect to the outstanding Notes if:
(i) the Company has irrevocably deposited or caused to be
irrevocably deposited with the Trustee in trust, money and/or Federal
Republic of Germany Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will provide,
not later than one day before the due date of any payment referred to in
this clause (i), money in an amount 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, without consideration of the reinvestment of such interest and
after payment of all state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and accrued interest on the Notes on the Stated Maturity
of such payments or upon earlier redemption in accordance with the terms
of
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this Indenture and the Notes and shall have irrevocably instructed the
Trustee to apply such money to the payment of such principal, premium and
interest;
(ii) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any 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;
(iii) the Company has delivered to the Trustee (x) an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and (B) the Holders will
not recognize income, gain or loss for Bermuda income tax or other tax
purposes as a result of such deposit and defeasance of certain
obligations, disregarding income tax on any amounts that would have been
received but for such exercise of its option under this Section 8.03, and
will be subject to income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred and (C) after the passage of 123
days following the deposit (except, with respect to any trust funds for
the account of any Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust funds will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law in a case commenced by or against the Company
under either such statute, and (y) either (A) an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for U.S.
income tax or other tax purposes as a result of the Company's exercise of
its option under this Section 8.02 and will be subject to income tax on
the same amount and in the same manner and at the same time as would have
been the case if such option had not been exercised, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling
published by the Internal Revenue Service to the same effect unless there
has been a change in applicable federal income tax law after the Closing
Date such that a ruling is no longer required or (B) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect
as the aforementioned Opinion of Counsel;
(iv) at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel
to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for
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herein relating to the defeasance contemplated by this Section 8.03 have
been complied with.
SECTION 8.04. Application of Trust Money. Subject to Sections 8.05
and 8.06, the Trustee or Paying Agent shall hold in trust money or Federal
Republic of Germany Obligations deposited with it pursuant to Section 8.01, 8.02
or 8.03, as the case may be, and shall apply the deposited money and the money
from Federal Republic of Germany Obligations in accordance with the Notes and
this Indenture to the payment of principal of, premium, if any, and interest on
the Notes; but such money need not be segregated from other funds except to the
extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.06, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon written request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; provided that
the Trustee or such Paying Agent before being required to make any payment may
give notice in accordance with Section 10.02(b) that such money remains
unclaimed and that after a date specified therein (which shall be at least 30
days from the date of such publication or mailing) any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or Federal Republic of Germany Obligations in
accordance with Section 8.01, 8.02 or 8.03, as the case may be, 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 had occurred pursuant to Section
8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee or Paying
Agent is permitted to apply all such money or Federal Republic of Germany
Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be;
provided that, if the Company has made any payment of principal of, premium, if
any, or interest on 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 Federal Republic of Germany Obligations
held by the Trustee or Paying Agent.
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ARTICLE NINE
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Company, when
authorized by a resolution of its Board of Directors, and the Trustee may amend
or supplement this Indenture or the Notes without notice to or the consent of
any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to comply with Article Five;
(iii) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(iv) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee;
(v) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(vi) to add one or more subsidiary guarantees on the terms required
by this Indenture; or
(vii) to make any change that does not adversely affect the rights
of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution), and the Trustee may
amend this Indenture and the Notes with the written consent of the Holders of
not less than a majority in principal amount at maturity of the Notes then
outstanding, and the Holders of not less than a majority in principal amount at
maturity of the Notes then outstanding by written notice to the Trustee may
waive future compliance by the Company with any provision of this Indenture or
the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
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(ii) reduce the principal amount of, or premium, if any, or interest
on, any Note;
(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Note;
(v) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend this Indenture;
(vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes;
(vii) reduce the percentage of aggregate principal amount at
maturity of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults; or
(viii) modify any of the provisions of this Section 9.02, except to
increase any such percentage 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.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice
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of revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount at maturity of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of 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 consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (v) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms. Failure to make the appropriate notation or
issue a new Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the rights
of the Trustee. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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SECTION 9.06. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
Miscellaneous
SECTION 10.01. Trust Indenture Act of 1939. This Indenture is
subject to the provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 10.02. Notices. (a) Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery addressed as
follows:
if to the Company:
Central European Media Enterprises Ltd.
18 D'Arblay Street
London, W1V 3FP
United Kingdom
Telecopier No.: (44) 171-292-7948
Attention: Legal Department
with a copy to: (which shall not constitute notice)
Rosenman & Colin LLP
Telecopier No.: (212) 940-8776
Attention: Robert L. Kohl, Esq.
if to the Trustee:
Bankers Trust Company
4 Albany Street
New York, New York 10006
Telecopier No.: (212) 250-6961
Attention: Corporate Trust and Agency Group
<PAGE> 174
74
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
(b) Where this Agreement provides for notice of any event to Holders
by the Company or Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided): to registered Holders, if in writing and
mailed, first-class postage (or, if first class mail is unavailable, by airmail)
prepaid, to each registered Holder at his address as it appears in the Register,
in each case not later than the latest date, and not earlier than the earliest
date, prescribed hereunder for the giving of such notice; or, to unregistered
Holders, if such notice is published in the following journals: (i) the
Bundesanzeiger and one mandatory nationwide newspaper (if practicable, the
Borren-Zeitung) in the German language; (ii) a leading daily newspaper (if
practicable, The Wall Street Journal (Eastern Edition)) printed in the English
language and of general circulation in New York; and (iii) a leading daily
newspaper (if practicable, the Financial Times (London Edition)) printed in the
English language and of general circulation in London, in each case, once in
each of three successive calendar weeks, the first publication to be not later
than the latest date, and not earlier than the earliest date, prescribed
hereunder for the giving of such notice. Any notice to registered Holders shall
be deemed to have been given on the fourth weekday after the date of mailing.
Any notice to unregistered Holders will become effective for all purposes on the
date of its publication in the Bundesanzeiger.
Holders may communicate pursuant to TIA Section 312(b) 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
TIA Section 312(c).
SECTION 10.03. Certificate and Opinion As to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate reasonably satisfactory to the Trustee
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
(ii) an Opinion of Counsel reasonably satisfactory to the Trustee
stating that, in the opinion of such Counsel, all such conditions
precedent have been complied with.
<PAGE> 175
75
SECTION 10.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that the person making such certificate or opinion
has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with, and such other
opinions as the Trustee may reasonably request; provided, however, that,
with respect to matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 10.05. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if made
in the manner provided in this Section.
(b) The ownership of registered Notes shall be proved by the Note
Register, and ownership of bearer Notes shall be proved by possession thereof.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the transfer thereof or
in exchange therefor or in lieu thereof, in respect of anything done, suffered
or omitted to be done by the Trustee, any Paying Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
<PAGE> 176
76
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver of other act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for this purpose the Notes
then outstanding shall be computed as of such record date; provided that no such
request, demand, authorization, direction, notice, consent, waiver or other act
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 10.06. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.07. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Payment Date for an Offer to Purchase,
Stated Maturity or date of maturity of any Note shall not be a Business Day at
any place of payment, then payment of principal of, premium, if any, or interest
on such Note, as the case may be, need not be made on such date, but may be made
on the next succeeding Business Day at such place of payment with the same force
and effect as if made on the Interest Payment Date, Payment Date for an Offer to
Purchase, or Redemption Date, or at the Stated Maturity or date of maturity of
such Note; provided that no interest shall accrue for the period from and after
such Interest Payment Date, Payment Date for an Offer to Purchase, Redemption
Date, Stated Maturity or date of maturity, as the case may be.
SECTION 10.08. Governing Law; Submission to Jurisdiction; Agent for
Service. This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws, except as referred to in Section 10.11. The Trustee, the
Company and the Holders agree to submit to the jurisdiction of the U.S. federal
and New York state courts located in the Borough of Manhattan, City and State of
New York in any action or proceeding arising out
<PAGE> 177
77
of or relating to this Indenture or the Notes, and the Company hereby waives any
objection which it may now have or hereafter have to the laying of venue of any
such action or proceeding and any right to which it may be entitled on account
of place of residence or domicile. The Company has appointed Corporation Service
Company, _______ as the Company's authorized agent upon which process may be
served in any such action.
SECTION 10.09. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture and this Indenture.
SECTION 10.10. Currency Indemnity. Deutsche marks are the sole
currency of account and payment for all sums payable by the Company under or in
connection with the Notes, including damages. Any amount received or recovered
in a currency other than Deutsche marks (whether as a result of, or of the
enforcement of, a judgment or order of a court of any jurisdiction, 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 a
discharge to the Company to the extent of the Deutsche marks 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 Deutsche marks amount is less than the Deutsche
marks amount expressed to be due to the recipient under any Note, the Company
shall indemnify the recipient against any loss sustained by it as a result. In
any event, the Company shall indemnify the recipient against the cost of making
any such purchase. For the purposes of this Section 10.10, it will be sufficient
for the Holder to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
Deutsche marks been made with the amount so received in that other currency on
the date of receipt or recovery (or, if a purchase of Deutsche marks on such
date had not been practicable, on the first date on which it would have been
practicable, it being required that the need for a change of date be certified
in the manner mentioned above). These indemnities constitute a separate and
independent obligation from the Company's other obligations, 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.
SECTION 10.11. Substitution of Currency. If the Federal Republic of
Germany adopts the Euro, the regulations of the European Commission relating to
the Euro shall apply to the Notes and this Indenture. The circumstances and
consequences described in this paragraph entitle neither the Company nor any
Holder to early redemption, rescission, notice, repudiation, adjustment or
renegotiation of the terms and conditions of the Notes or this Indenture or to
raise other obligations of the Company under the Notes and this Indenture.
<PAGE> 178
78
SECTION 10.12. No Recourse Against Others. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company contained in
this Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 10.13. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 10.14. Duplicate Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
SECTION 10.15. Separability. 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 10.16. Table of Contents, Headings, Etc. 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 to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
SECTION 10.17. Meetings. (a) The Company may at any time and from
time to time call a meeting of the Holders, such meeting to be held at such time
and at such place as the Company shall determine, for the purpose of obtaining a
waiver of any covenant or condition set forth in this Indenture. Upon a request
in writing made by Holders of the Notes of not less than 25% of the aggregate
outstanding principal amount of the Notes, after the Notes have become due and
payable due to a default, the Trustee shall convene a meeting of the Holders of
the Notes, such meeting to be held at such time and at such place as the Company
or the Holders shall determine. Notice of any meeting of Holders, setting forth
the time and place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be not less than 20 nor more than 90 days prior
to the date fixed for the meeting. To be entitled to vote at any meeting of
Holders of the Notes a person shall be (i)
<PAGE> 179
79
a Holder of one or more Notes or (ii) a person appointed by an instrument in
writing as proxy by the Holder of one or more of such Notes. The only persons
who shall be entitled to be present or to speak at any meeting of such Holders
shall be the persons entitled to vote at such meeting and their counsel and any
representatives and counsel of the Company.
(b) The persons entitled to vote at least a majority in aggregate
principal amount of the Notes at the time outstanding shall constitute a quorum
for the purpose of any action to be taken at a meeting of holders of the Notes.
No business shall be transacted in the absence of a quorum, unless a quorum is
present when the meeting is called to order. In the absence of a quorum within
30 minutes of the time appointed for any such meeting, the meeting may be
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting shall be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting. Notice of the reconvening of
any adjourned meeting shall be given as provided above except that such notice
must be given not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Subject to the foregoing, at the reconvening of any
meeting further adjourned for lack of a quorum, the persons entitled to vote at
least 25% in aggregate principal amount of the Notes at the time outstanding
shall constitute a quorum for the taking of any action set forth in the notice
of the original meeting. Notice of the reconvening of an adjourned meeting shall
state expressly the percentage of the aggregate principal amount of the
outstanding Notes which shall constitute a quorum. At a meeting or an adjourned
meeting duly convened and at which a quorum is present as aforesaid, any
resolution to waive compliance by the Company, as the case may be, with any of
the covenants or conditions referred to above shall be effectively passed and
decided if passed and/or decided by the persons entitled to vote the percentage
of the aggregate principal amount of the outstanding Notes required to amend or
modify the Notes pursuant to Section 9.02 of this Indenture. It shall not be
necessary for the vote or consent of the Holders of Notes to approve the
particular form of any proposed modification, amendment, supplement,
authorization, notice, consent, waiver or other action, but it shall be
sufficient if such vote or consent shall approve the substance thereof.
(c) Any Holder of the Notes who has executed an instrument in
writing appointing a person as proxy shall be deemed to be present for the
purposes of determining a quorum and be deemed to have voted; provided that such
holder shall be considered as present or voting only with respect to the matters
covered by such instrument in writing. Any resolution passed or decision taken
at any meeting of holders duly held in accordance with this Section 10.17 shall
be binding on all the holders whether or not present or represented at the
meeting.
(d) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Holders of at least a majority in aggregate principal amount of the
Notes represented at the
<PAGE> 180
80
meeting. At any meeting each holder or proxy shall be entitled to one vote for
each DM 1,000 principal amount of Notes held or represented by him; provided
that no vote shall be cast or counted at any meeting in respect of any Note
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote except as a
holder or proxy. Any meeting of holders duly called at which a quorum is present
may be adjourned from time to time, and the meeting may be held as so adjourned
without further notice.
(e) The vote upon any resolution submitted to any meeting of holders
of the Notes shall be by written ballot on which shall be subscribed the
signatures of the Holders or proxies and on which shall be inscribed the serial
number or numbers of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in triplicate of the
proceedings of each meeting of Holders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was published as provided above. The
record shall be signed and verified by the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the Trustee to have
attached thereto the ballots voted at the meeting. Any record so signed and
verified shall be conclusive evidence of the matters therein stated.
<PAGE> 181
81
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.,
as Issuer
__________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
__________________________________
Name:
Title:
<PAGE> 182
EXHIBIT A
[Form of Face of Global Registered Note]
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to ______________ , or its
registered assigns, the principal sum of ________ (DM __________ ) on
August 15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 183
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By ________________________________
Name:
Title:
By ________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By________________________________
Authorized Signatory
<PAGE> 184
EXHIBIT B
[Form of Face of Global Bearer Note]
THIS GLOBAL CERTIFICATE HAS BEEN CREATED IN ORDER TO BE HELD IN
CUSTODY BY DEUTSCHER KASSENVEREIN AG ("DKV") AND TO SERVE AS THE BASIS FOR THE
DELIVERY AND TRANSFER OF NOTES TO BE HELD IN THE DKV DEPOSITARY AND CLEARING
SYSTEM THROUGHOUT THE LIFE OF THE SECURITIES.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Notes Due 2004
[CUSIP]
[CINS][ISIN]
No. $______
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD., a Bermuda corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to the bearer hereof, the
principal sum of _______ (DM ______ ) on August 15, 2004.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
[Regular Record Dates: February 1 and August 1.]
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 185
B-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By________________________________
Name:
Title:
By________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the __% Senior Notes Due 2004 described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By________________________________
Authorized Signatory
<PAGE> 186
EXHIBIT C
[REVERSE SIDE OF NOTE]
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
__% Senior Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on August 15, 2004.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually on each Interest Payment Date,
commencing February 15, 1998. The amount of payments in respect of interest on
each Interest Payment Date to each Holder shall correspond to the aggregate
principal amount of Notes represented by the Global Bearer Note and the Global
Registered Note, as established by the Registrar at the close of business on the
relevant Record Date. Payments of principal shall be made upon surrender of the
Global Registered Note or the Global Bearer Note to the U.S. Paying Agent,
Luxembourg Paying Agent or the DM Paying Agent, as the case may be.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from _______, 1997;
provided that, if there is no existing default in the payment of interest and if
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate borne by the Notes.
<PAGE> 187
C-2
2. Method of Payment.
The principal of this Note shall be payable at the Corporate Trust
Office of Bankers Trust Company in New York City (which initially will be the
corporate trust office of the Trustee at 4 Albany Street, New York, New York
10006), at the office of Bankers Trust Luxembourg, S.A. in Luxembourg, (which
initially will be 14 Boulevard F.D. Roosevelt, L-2450 Luxembourg) and at the
office of Bankers Trust International PLC (Frankfurt Branch) (which initially
will be Westend Carree Grueneburgweg 16 D-60322 Frankfurt/Main, Germany) and,
subject to any fiscal or other laws and regulations applicable thereto, at the
specified offices of any other Paying Agents appointed by the Company. Payment
of principal of and interest on this Security shall be made by the Company in
Deutsche marks through the DM Paying Agent to DKV and to Cede & Co., the nominee
for DTC, as the registered holder of the U.S. Global Security. Payments of
principal shall be made upon surrender of the Global Registered Note and the
Global Bearer Note, as the case may be, to the U.S. Paying Agent and the DM
Paying Agent, respectively.
Any DTC participant holding a beneficial interest in the Notes
through DTC (a "DTC Note Holder") shall receive payments of principal and
interest in respect of the Notes in U.S. dollars, unless such DTC Notes Holder
elects to receive payments in Deutsche marks in accordance with the procedures
set out below. To the extent the DTC Note Holder shall not have made such
election in respect of any payment of principal or interest, the aggregate
amount designated for all such DTC Note Holders in respect of such payment (the
"DM Conversion Amount") shall be converted by the U.S. Paying Agent into U.S.
dollars and paid by wire transfer of same-day funds to the registered holder of
the Global Registered Note for payment through DTC's settlement system to the
relevant DTC Participants. All costs of any such conversion and wire transfer
shall be deducted from such payments. Any such conversion shall be based on, in
the case of interest payments, the U.S. Paying Agent's Deutsche Mark bid (U.S.
dollar offer) quotation, or, in the case of principal payments, the U.S. Paying
Agent's Deutsche Mark offer (U.S. dollar bid) quotation, at or prior to 11:00
a.m. New York time, on the second New York Business Day preceding the relevant
payment date, for the purchase by the U.S. Paying Agent of the DM Conversion
Amount of U.S. dollars for settlement on such payment date. If such quotation is
not available for any reason, the U.S. Paying Agent shall endeavour to obtain a
quotation from a leading foreign exchange bank in New York City or London
selected by the U.S. Paying Agent for such purpose. If no quotation from a
leading foreign exchange bank is available, payment of the DM Conversion Amount
will be made in Deutsche marks to the account or accounts specified by DTC to
the U.S. Paying Agent.
A DTC Note Holder may elect to receive a payment of principal and
interest with respect to the Notes in Deutsche marks by causing DTC to notify
the U.S.
<PAGE> 188
C-3
Paying Agent at the time specified below of (i) such DTC Note Holder's election
to receive all or a portion of such payment in Deutsche marks and (ii) wire
transfer instructions to a Deutsche marks account in Federal Republic of
Germany. Such election in respect of any payment shall be made by the DTC Note
Holder at the time and in the manner required by the DTC procedures applicable
from time to time and shall, in accordance with such procedures, be irrevocable
and shall relate only to such payment. DTC notifications of such election, wire
transfer instructions and of the amount payable in Deutsche marks pursuant to
this paragraph must be received by the U.S. Paying Agent prior to 5:00 P.M. New
York time on the fifth New York Business Day following the relevant Record Date
in the case of interest and prior to 5:00 P.M. New York time on the tenth day
prior to the payment date for the payment of principal. Any payments under this
paragraph in Deutsche marks shall be made by wire transfer of same-day funds to
Deutsche marks accounts designated by DTC.
All payments made by the Company to DKV and to, or to the order of,
the registered holder of the Global Registered Note, respectively, shall
discharge the liability of the Company under the Notes to the extent of the sums
so paid.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, U.S. Paying
Agent and Registrar and Bankers Trust Luxembourg will act as the Luxembourg
Paying Agent and Bankers Trust International PLC will act as DM Paying Agent.
The Company may change any authenticating agent, Paying Agent or Registrar
without notice. The Company, any Subsidiary or any Affiliate of any of them may
act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of August
__, 1997 (the "Indenture"), between the Company and Bankers Trust Company, as
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
<PAGE> 189
C-4
The Notes are unsecured senior obligations of the Company. The
Indenture limits the original aggregate principal amount at maturity of the
Notes to DM 100,000,000.
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after August 15, 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on the next succeeding
Interest Payment Date), if redeemed during the 12-month period commencing August
15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2001 .................... %
2002 .................... %
2003 and thereafter ..... %
</TABLE>
In addition, at any time and from time to time, prior to August 15,
2000, the Company may redeem Notes having a principal amount of up to $_ million
with the Net Cash Proceeds that are actually received by the Company from one or
more sales of Common Stock of the Company, at a Redemption Price (expressed as a
percentage of principal amount) of %, plus accrued and unpaid interest, if any,
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date that is on or prior to the Redemption Date to
receive interest due on the next succeeding Interest Payment Date); provided
that each such redemption occurs within 180 days of the related sales.
In the event that (i) the Company has become or would become
obligated to pay, on the next date on which any amount would be payable under or
with respect to the Notes, any Additional Amounts as a result of certain changes
affecting withholding tax laws, and (ii) the Company cannot reasonably arrange
for another obligor to make such payment so as to avoid the requirement to pay
such Additional Amounts, then the Company may redeem all, but not less than all,
the Notes at any time at 100% of the
<PAGE> 190
C-5
principal amount thereof, together with accrued interest thereon, if any, to the
redemption date.
Notice of any optional redemption will be made at least 30 days but
not more than 60 days before the Redemption Date. Notes in denominations larger
than DM 1,000 may be redeemed in part. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called for redemption,
unless the Company defaults in the payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment").
A notice of such Change of Control will be made within 30 days after
any Change of Control occurs. Notes in denominations larger than DM 1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in denominations of DM 1,000 and multiples of DM 1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer or exchange of any Notes selected for redemption.
Also, it need not register the transfer or exchange of any Notes for a period of
15 days before the day of the mailing of a notice of redemption of Notes
selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
<PAGE> 191
C-6
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its written request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or Federal Republic of
Germany Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount at maturity of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency and make any change that does not
adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates, suffer to exist or incur Liens,
Guarantee Indebtedness of the Company or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company shall deliver
<PAGE> 192
C-7
to the Trustee an Officers' Certificate stating whether or not the signers know
of any Default or Event of Default under such restrictive covenants.
13. Successor Persons.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
14. Defaults and Remedies.
An Event of Default is: a default in payment of principal on the
Notes; default in the payment of interest on the Notes and such default
continues for a period of 30 days (provided that a failure to make any of the
first six scheduled interest payments on the Notes in a timely manner will
constitute an Event of Default with no grace or cure period); failure by the
Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; and certain events of default on
other Indebtedness of the Company and/or one or more of its Significant
Subsidiaries.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes may declare all the Notes to be due and payable.
If a bankruptcy or insolvency default with respect to the Company occurs and is
continuing, the Notes automatically become due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
<PAGE> 193
C-8
16. No Recourse Against Others.
No incorporator or any past, present or future partner, shareholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person 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.
Each Holder by accepting a Note expressly waives and releases all such
liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. Governing Law.
The Notes shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws,
except as referred to in Section 10.11 of the Indenture.
19. 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).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Central European
Media Enterprises Ltd., 18 D'Arblay Street, London W1V 3FP, United Kingdom,
Attention: Legal Department.
<PAGE> 194
C-9
ASSIGNMENT FORM FOR REGISTERED NOTES
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
____________________________________________________
____________________________________________________
Print or type name, address and zip code of assignee and irrevocably appoint
_____________________________ , as agent, to transfer this Note on the books of
the Company.
The agent may substitute another to act for him.
Dated _______________ Signed__________________
____________________________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee(1)______________________________
- --------
1 The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 195
C-10
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.11 of the Indenture, as applicable, check the Box: |_|
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, as applicable, state
the amount to be purchased (in principal amount at maturity):
$ ____________.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, as applicable, please
provide instructions regarding delivery of and the Persons in whose name(s) the
unredeemed portion of such surrendered Note(s) should be registered, the address
of such Person(s) should be registered, the address of such Person(s) and
appropriate delivery instructions.
Date:_____________________
Your Signature:_______________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee(2):_____________________________
- --------
2 The Holder's signature must be guaranteed by a member of the Securities
Transfer Agents Medallion Program.
<PAGE> 196
C-11
SCHEDULE TO GLOBAL NOTE
Initial Principal Amount
DM[Insert initial principal amount]
<TABLE>
<CAPTION>
Amount of Principal
Amount of Increased (Decreased) Aggregate
Principal Upon Transfer Between Principal
Date Purchased Global Notes Amount
---- --------- ------------ ------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF CONYERS DILL & PEARMAN]
August 14, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
U.S.A.
Dear Sirs,
RE: CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. (THE "COMPANY")
[ ]% SENIOR NOTES DUE 2004
We have acted as special legal counsel in Bermuda to the Company in
connection with the Form S-3 registration statement (the "Registration
Statement") (Registration Number 333-24365), with respect to the registration
of $155,000,000 principal amount of [ ]% senior notes due 2004 (the "Notes").
For the purposes of giving this opinion, we have examined the following
documents:
(i) the forms of indentures between the Company and Bankers Trust
Company, as trustee (the "Indentures"); 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 July 1, 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.
<PAGE> 2
We have made no investigation of an 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 Indentures.
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.
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> 1
Exhibit 5.2
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
August 14, 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 Consideration -- 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 senior
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 materials respects.
We hereby consent to the use of our name under the caption "Certain Tax
Considerations -- United States Federal Income
<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/ James A. Guadiana
----------------------------
James A. Guadiana, A Partner
<PAGE> 1
EXHIBIT 12.1
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000S)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED DECEMBER MONTHS ENDED
31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
ACTUAL
Net income (loss) before provision for income
taxes*...................................... $(14,778) $ 4,095 $(12,526) $(2,923) $(35,643)
Add: Fixed charges (interest expense)......... 1,992 4,959 4,670 1,532 3,287
Add: Equity in loss of unconsolidated
affiliates.................................. 13,677 14,816 17,867 5,936 30,810
-------- ------- -------- ------- --------
Earnings (deficiency) available for fixed
charges..................................... 891 23,870 10,011 4,545 (1,546)
Fixed charges................................. 1,992 4,959 4,670 1,532 3,287
-------- ------- -------- ------- --------
Ratio of earnings to fixed charges............ N/A 4.8:1 2.1:1 3.0:1 N/A
======== ======= ======== ======= ========
Deficiency of earnings available to cover
fixed charges............................... $ (1,101) N/A N/A $ N/A $ (4,833)
======== ======= ======== ======= ========
PRO FORMA
Earnings (deficiency) available for fixed
charges -- actual........................... $ 891 $23,870 $ 10,011 $ 4,545 $ (1,546)
Pro forma fixed charges(A).................... 15,942 18,909 18,620 8,507 10,262
-------- ------- -------- ------- --------
Pro forma ratio of earnings to fixed
charges..................................... N/A 1.3:1 N/A 1.0:1 N/A
======== ======= ======== ======= ========
Pro forma deficiency of earnings available to
cover fixed charges......................... $(15,051) N/A $ (8,609) $(3,962) $(11,808)
======== ======= ======== ======= ========
(A) Calculation of Pro Forma Fixed Charges
Fixed charges -- actual....................... $ 1,992 $ 4,959 $ 4,670 $ 1,532 $ 3,287
Pro forma interest expense ($155,000 at
9.0%)....................................... 13,950 13,950 13,950 6,975 6,975
-------- ------- -------- ------- --------
Pro forma fixed charges....................... $ 15,942 $18,909 $ 18,620 $ 8,507 $ 10,262
======== ======= ======== ======= ========
</TABLE>
- ---------------
* Excludes minority interest in income (loss) of subsidiaries.
<PAGE> 1
EXHIBIT 23.3
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
August 14, 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 connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") on April 2, 1997 as amended by
Amendment No. 1 to the Registration Statement filed with the Commission on
April 18, 1997, Amendment No. 2 to the Registration Statement filed on July 31,
1997, and Amendment No. 3 to the Registration Statement filed with the
Commission on August 14, 1997, relating to the registration under the
Securities Act of 1933, as amended, of $155,000,000 aggregate principal amount
of Senior Notes due 2004 (the "Notes").
In rendering this opinion, we have examined the forms of Indentures between the
Company and Bankers Trust Company pursuant to which the Notes will be issued
(the "Indentures"), 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 Indentures, which are the subject of an opinion of Conyers,
Dill & Pearman, Bermuda counsel to the Company, which opinion is being filed as
an exhibit to Amendment No. 3 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 Indentures
have been duly executed and delivered and the Notes have been executed and
authenticated in accordance with the Indentures and have been issued, sold and
delivered in the manner and for the consideration stated in the Indentures and
the Underwriting Agreement between the Company and the underwriters named
therein, the forms of which have been filed as an exhibit to
<PAGE> 2
Amendment No. 3 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 thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws now 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
