-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WA6sQ/aK9mH8Xw8T5QHvtHtecFshayzfwCTY27f0oPq56QJvDbC9BxAeiel0Z5m4 vylG1gI/6fzQtv+qAWPgKA== 0000950130-00-001725.txt : 20000331 0000950130-00-001725.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950130-00-001725 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED PAN EUROPE COMMUNICATIONS NV CENTRAL INDEX KEY: 0001070778 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 980191997 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25365 FILM NUMBER: 584758 BUSINESS ADDRESS: STREET 1: FREDERIK ROESKESTRAAT 123 PO BOX 74763 STREET 2: 1070 BT AMSTERDAM CITY: NETHERLANDS STATE: P7 ZIP: 00000 10-K405 1 FORM 10-K405 FOR PERIOD ENDING 12/31/1999 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File No. 000-25365 UNITED PAN-EUROPE COMMUNICATIONS N.V. (Exact name of Registrant as specified in its charter) The Netherlands 98-0191997 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Fred. Roeskestraat 123, P.O. Box 74763 1070 BT Amsterdam, The Netherlands 1070 BT (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (31) 20-778-9840 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: American Depository Shares each representing one ordinary share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the last sales price of such stock, as of the close of trading on March 28, 2000 was USD26.1 billion. The number of shares outstanding of the Registrant's common stock as of March 28, 2000 was: 436,229,439 ordinary shares, including shares represented by American Depository Receipts =============================================================================== UNITED PAN-EUROPE COMMUNICATIONS N.V. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 Table of Contents ------------------
Page Number ------ PART I Item 1. Business................................................................... 1 Item 2. Properties................................................................. 31 Item 3. Legal Proceedings.......................................................... 31 Item 4. Submission of Matters to a Vote of Security Holders........................ 31 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 32 Item 6. Selected Financial Data................................................... 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................. 35 Item 7A. Quantitative and Qualitative Disclosure About Market Risk................. 56 Item 8. Financial Statements and Supplementary Data............................... 61 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................................... 113 PART III Item 10. Directors and Executive Officers of the Registrant........................ 114 Item 11. Executive Compensation.................................................... 118 Item 12. Security Ownership of Certain Beneficial Owners and Management............ 125 Item 13. Certain Relationships and Related Transactions............................ 126 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 130
PART 1 Item 1. Business -------- (a) General Development of Business ------------------------------- We own and operate broadband communications networks in 12 countries in Europe and in Israel. We provide communications services in many European countries through our business lines: cable television, DTH and programming, telephone and Internet/data services. Our subscriber base is the largest of any group of broadband communications networks operated across Europe. While we began business as cable television service providers, over the last few years we have been upgrading many of our networks so that they are capable of providing telephone and Internet/data access services as well as enhanced or more advanced video services. Our telephone service is branded "Priority Telecom" and has been launched in many of our markets in 1998 and 1999. Our chello broadband subsidiary has launched an Internet/access and portal service branded under its name in many of our systems during 1999. We have launched chello broadband services on broadband networks other than our own, including on systems owned by UnitedGlobalCom, Inc. ("United"), our majority shareholder. We operated from July 1995 to December 1997 as a 50/50 joint venture between United and Philips. In December 1997, we and United acquired the 50% of our ordinary shares held by Philips. Following this acquisition and until our initial public offering in February 1999, we became a wholly owned subsidiary of United, other than approximately 7% of our stock held by a foundation to support our stock option plans to employees. We have grown substantially since formation through acquisitions of cable television systems and related businesses in our existing and new markets. During 1999 we grew from a number of acquisitions. We expect to grow further from acquisitions. (b) Narrative Description of Business --------------------------------- We own and operate broadband communications networks in 12 countries in Europe, excluding our investment in Germany, and in Israel. We believe our leading position in providing video services across Europe helps our expansion and integration of our business lines: cable television, DTH and programming, telephone, and Internet/data services. Our goal is to enhance our position as a leading pan-European distributor of video programming services and to become a leading pan-European provider of telephone services and Internet/data services, offering a one-stop shopping solution for personal and business communication needs. Summary Operating and Financial Data In the tables below, the "UPC Ownership Interest" column shows the percentage we own of the operating systems in which we have an interest. Due to our business combinations in France and Romania that occurred after December 31, 1999, our ownership interests in our existing systems in these countries decreased. Due to our acquisition of the minority interest in our Hungarian system, Telekabel Hungary, subsequent to December 31, 1999, our ownership interest increased. When we refer to information as "UPC Equity in," we mean that we have multiplied the statistic for each operating system by our percentage ownership of that system. 1 Summary Operating Data 1999 The operating data set forth below reflects the aggregate statistics of the operating systems in which the Company has an ownership interest.
As at December 31, 1999 ------------------------------------------------------------------------------------ Homes in Two way UPC Service Homes Homes Basic Basic Paid-in Area Passed Passed Subscribers Penetration Ownership ------------- ------------ ----------- ------------- -------------- ------------ Multi-channel TV: Consolidated companies: Norway............................... 529,000 468,095 55,519 327,520 70.0% 100.0% Sweden............................... 770,000 421,624 167,700 243,006 57.6% 100.0% Belgium.............................. 133,120 133,000 130,835 125,082 94.0% 100.0% France............................... 1,265,827 927,000 95,174 334,609 36.1% 100.0% The Netherlands...................... 1,714,607 1,660,171 1,376,147 1,517,432 91.4% 100.0% Austria.............................. 1,081,100 906,340 753,050 470,543 51.9% 95.0% Poland............................... 1,950,000 1,756,200 - 1,023,822 58.3% 100.0% Hungary (Telekabel Hungary).......... 901,500 655,272 83,291 518,577 79.1% 79.3% Hungary (Monor)...................... 85,693 70,061 84,916 32,369 46.2% 95.1% Czech Republic....................... 817,138 736,462 10,000 374,332 50.8% 94.6-100.0% Romania.............................. 284,320 166,394 - 112,099 67.4% 51.0-100.0% Slovak Republic...................... 417,813 304,360 - 244,733 80.4% 94.6-100.0% Non-consolidated companies: Israel............................... 660,000 608,817 380,698 424,987 69.8% 46.6% Malta................................ 177,000 173,503 - 76,522 44.1% 50.0% ------------- ------------ ----------- ------------- Total........................... 10,787,118 8,987,299 3,137,330 5,825,633 ============= ============ =========== ============= Direct to Home (DTH): Consolidated companies: Poland............................ - - - 254,092 N/A 100.0% ------------- ------------ ----------- ------------- Total.......................... - - - 254,092 ============= ============ =========== ============= As as December 31, 1999 --------------------------------------- Equity in Equity in Equity in Homes in Homes Basic Service Area Passed Subscribers -------------- ---------- ----------- Multi-channel TV: Consolidated companies: Norway............................... 529,000 468,095 327,520 Sweden............................... 770,000 421,624 243,006 Belgium.............................. 133,120 133,000 125,082 France............................... 1,265,827 927,000 334,609 The Netherlands...................... 1,714,607 1,660,171 1,517,432 Austria.............................. 1,027,045 861,023 447,016 Poland............................... 1,950,000 1,756,200 1,023,822 Hungary (Telekabel Hungary).......... 714,439 519,303 410,972 Hungary (Monor)...................... 81,494 66,628 30,783 Czech Republic....................... 786,111 705,435 357,228 Romania.............................. 251,000 151,890 100,441 Slovak Republic...................... 412,791 299,523 241,836 Non-consolidated companies: Israel............................... 307,560 283,709 198,044 Malta................................ 88,500 86,752 38,261 ------------ ------------- ----------- ------------ ------------- ----------- Total........................... 10,031,494 8,340,353 5,396,052 ============ ============= =========== Direct to Home (DTH): Consolidated companies: Poland............................ - - 254,092 ------------- ------------ ----------- Total.......................... - - 254,092 ============= ============ ===========
2 Summary Operating Data 1999 (Continued)
As at December 31, 1999 ---------------------------------------------------------------------------- UPC Subscribers Lines UPC Equity in ------------------------ ------------------------ Paid-in Residential Residential Businesses Residential Businesses Ownership Subscribers ------------ ----------- ------------ ----------- --------- ------------- Cable Telephony Consolidated companies: Norway ....................................... 3,226 1 3,636 355 100.0% 3,226 France ....................................... 13,253 227 13,609 526 100.0% 13,253 The Netherlands .............................. 57,398 3 67,374 830 100.0% 57,398 Austria ...................................... 36,806 712 38,105 2,186 95.0% 34,966 ------- ------ ------- ------- ------- Total ................................... 110,683 943 122,724 3,897 108,843 ======= ====== ======= ======= ======= Non-Cable Telephony Consolidated companies: The Netherlands (Uniport Carrier Select) 20,265 8,527 -- -- 80.0% 16,212 Czech Republic ............................... 3,031 -- 3,051 -- 94.6% 2,867 Hungary (Monor) .............................. 64,696 3,128 66,828 6,393 95.1% 61,526 ------- ------ ------- ------- ------- Total ................................... 87,992 11,655 69,879 6,393 80,605 ======= ======= ======= ======= ======= Data services Consolidated companies: Norway ....................................... 3,268 3 n/a n/a 100.0% 3,268 Sweden ....................................... 5,243 - n/a n/a 100.0% 5,243 Belgium ...................................... 6,799 655 n/a n/a 100.0% 6,799 France ....................................... 3,234 43 n/a n/a 100.0% 3,234 The Netherlands .............................. 58,512 1,553 n/a n/a 100.0% 58,512 Austria ...................................... 40,770 1,371 n/a n/a 95.0% 38,732 Hungary (Telekabel Hungary) .................. 99 n/a n/a 79.3% 78 ------- ------- ------- ------- ------- Total ................................... 117,925 3,625 -- -- 115,866 ======= ======= ======= ======= ======= As at December 31, 1999 ------------------------------------------ UPC UPC UPC Equity in Equity in Equity in Business Residential Business Lines Subscribers Lines Served Served ----------- ------------ --------------- Cable Telephony Consolidated companies: Norway ....................................... 1 3,636 355 France ....................................... 227 13,609 526 The Netherlands .............................. 3 67,374 830 Austria ...................................... 676 36,200 2,077 ------- ------- ------- Total ................................... 907 120,819 3,788 ======= ======= ======= Non-Cable Telephony Consolidated companies: The Netherlands (Uniport Carrier Select) 6,822 -- -- Czech Republic ............................... -- 2,886 -- Hungary (Monor) .............................. 2,975 63,553 6,080 ------- ------- ------- Total ................................... 9,797 66,439 6,080 ======= ======= ======= Data services Consolidated companies: Norway ....................................... 3 n/a n/a Sweden ....................................... -- n/a n/a Belgium ...................................... 655 n/a n/a France ....................................... 43 n/a n/a The Netherlands .............................. 1,553 n/a n/a Austria ...................................... 1,302 n/a n/a Hungary (Telekabel Hungary) .................. -- n/a n/a ------- ------- ------- Total ................................... 3,556 -- -- ======= ======= =======
3 Summary Operating Data 1999 (1) (continued)
At December 31, For the twelve months period ending December 31, 1999 1999 ---------------------------------------------------------------------- --------------- Net Net Long- Operating Income/ Adjusted Capital Term Revenue Income/(loss) (loss) EBITDA (3) Expenditures Debt (4) ------- ------------- ------- ---------- ------------ --------------- Consolidated companies: Norway................................. 47,371 (22,973) (34,871) 7,900 54,403 130,843 Sweden ................................ 13,081 (13,857) (14,486) 332 11,903 28,843 Belgium................................ 17,235 (7,571) (8,604) 1,586 8,047 - France................................. 29,135 (30,608) (46,331) (9,537) 67,321 155,176 The Netherlands ....................... 149,349 (57,485) (95,475) 29,179 189,673 584,529 Austria................................ 98,936 (8,365) (12,682) 31,670 89,779 166,241 Hungary (Telekabel Hungary)............ 33,388 2,784 (1,239) 10,783 36,876 - Hungary (Monor) ....................... 19,174 7,459 3,212 13,420 3,386 33,280 Poland ................................ 35,694 (110,235) (135,522) (72,503) 40,450 284,310 Czech Republic ........................ 8,231 (4,466) (5,368) (629) 2,373 - Romania................................ 2,749 932 119 1,113 515 - Slovak Republic........................ 5,168 (4,165) (5,466) 1,111 4,473 - Non-consolidated companies: Israel................................. 158,321 17,828 (6,078) 71,837 32,129 205,786 Malta.................................. 15,078 3,188 741 5,218 9,594 27,497 The Netherlands (A2000) (2)............ 73,699 (23,998) (38,522) 15,512 49,525 N/A
4 Summary Operating Data 1998 The operating data set forth below reflects the aggregate statistics of the operating systems in which the Company has an ownership interest.
As at December 31, 1998 ---------------------------------------------------------------------------------------- UPC Homes in Two way UPC Equity in Service Homes Homes Basic Basic Paid-in Homes in Area Passed Passed Subscribers Penetration Ownership Service Area ----------- ----------- ----------- ----------- ----------- ---------- -------------- Multi-channel TV: Consolidated companies: Norway............................. 529,924 463,235 15,803 323,387 69.8% 100.0% 529,924 Belgium............................ 133,000 133,000 91,735 127,398 95.8% 100.0% 133,000 France............................. 150,000 74,623 74,623 29,107 39.0% 99.6% 149,400 The Netherlands (UTH) (5).......... 943,027 914,737 484,133 867,800 94.9% 51.0% 480,944 Austria............................ 1,073,297 900,350 516,700 454,957 50.5% 95.0% 1,019,632 Hungary (Telekabel Hungary) (6).... 901,500 510,622 - 442,567 86.7% 79.3% 714,439 Czech Republic..................... 229,531 151,716 - 54,153 35.7% 100.0% 229,531 Romania............................ 180,000 98,174 - 61,999 63.2% 51.0-100.0% 165,300 Slovak Republic.................... 67,959 37,641 - 21,044 55.9% 75.0-100.0% 62,499 Non-consolidated companies: Israel............................. 595,000 575,976 363,819 402,355 69.9% 46.6% 277,270 Malta.............................. 179,000 162,996 - 70,363 43.2% 50.0% 89,500 Hungary (Monor) ................... 85,000 68,339 - 30,623 44.8% 44.8% 38,080 The Netherlands (A2000)............ 578,500 572,936 386,109 529,067 92.3% 25.5% 147,518 ----------- ----------- ----------- ----------- ---------- Total......................... 5,645,738 4,664,345 1,932,922 3,414,820 4,037,037 =========== =========== =========== =========== ========== As at December 31, 1998 -------------------------- UPC UPC Equity in Equity in Homes Basic Passed Subscribers --------- ------------ Multi-channel TV: Consolidated companies: Norway............................. 463,235 323,387 Belgium............................ 133,000 127,398 France............................. 74,325 28,991 The Netherlands (UTH) (5).......... 466,516 442,578 Austria............................ 855,333 432,209 Hungary (Telekabel Hungary) (6).... 404,668 350,734 Czech Republic..................... 151,716 54,153 Romania............................ 84,209 51,282 Slovak Republic.................... 33,380 18,209 Non-consolidated companies: Israel............................. 268,405 187,497 Malta.............................. 81,498 35,182 Hungary (Monor) ................... 30,616 13,719 The Netherlands (A2000)............ 146,099 134,912 ---------- ----------- Total......................... 3,193,000 2,200,251 ========== ===========
5 Summary Operating Data 1998 The operating data set forth below reflects the aggregate statistics of the operating systems in which the Company has an ownership interest.
As at December 31, 1998 ----------------------------------------------------------------------------------------- UPC Subscribers Lines served UPC Equity in ------------------------------ ------------------------------- Paid-in Residentiale Residential Businesses Residential Businesses Ownership Subscribers ------------------ ----------- --------------- ------------- ----------- ------------- Cable Telephony Non-consolidated companies: The Netherlands (A2000) ........... 18,111 3 19,850 830 25.5% 4,618 Non Cable Telephony Consolidated companies: The Netherlands (UTH) (5) (7)...... 20,500 72 20,500 - 51.0% 10,455 Non-consolidated companies: Hungary (Monor) ................... - - 69,244 - 44.8% - -------------- ----------- --------------- ----------- -------------- Total......................... 38,611 75 109,594 830 15,073 ============== =========== =============== =========== ============== Data services Consolidated companies: Norway............................. 768 - n/a n/a 100.0% 768 Belgium............................ 1,869 284 n/a n/a 100.0% 1,869 The Netherlands (UTH) (5).......... 3,379 - n/a n/a 51.0% 1,723 Austria............................ 9,054 603 n/a n/a 95.0% 8,601 Non-consolidated companies: The Netherlands (A2000)............ 8,128 253 n/a n/a 25.5% 2,073 -------------- ----------- ------------- ---------- ------------- Total......................... 23,198 1,140 n/a n/a 15,034 ============== =========== ============= ========== ============= As at December 31, 1998 --------------------------------------------- UPC UPC UPC Equity in Equity in Equity in Business Residential Business Lines Subscribers Lines Served Served ------------- ---------------- ------------- Cable Telephony Non-consolidated companies: The Netherlands (A2000) ........... 1 5,062 212 Non Cable Telephony Consolidated companies: The Netherlands (UTH) (5) (7)...... 37 10,455 - Non-consolidated companies: Hungary (Monor) ................... - 30,987 - ----------- ---------------- -------------- Total......................... 38 46,504 212 =========== ================ ============== Data services Consolidated companies: Norway............................. - n/a n/a Belgium............................ 284 n/a n/a The Netherlands (UTH) (5).......... - n/a n/a Austria............................ 573 n/a n/a Non-consolidated companies: The Netherlands (A2000)............ 65 n/a n/a ----------- -------------- ------------- Total......................... 922 n/a n/a =========== ============== =============
6 Summary Operating Data 1998 (1) (continued)
At December 31, For the twelve months period ended December 31, 1998 1998 ------------------------------------------------------------- --------------- Net Net Long- Operating Income/ Adjusted Capital Term Revenue Income/(loss) (loss) EBITDA (3) Expenditures Debt (4) -------- --------------- ---------- ----------- ------------- ----------- Consolidated companies: Norway ............................. 42,052 (14,653) (30,460) 14,997 23,332 61,040 Belgium............................. 16,691 (4,001) (6,932) 6,018 10,162 - France ............................. 3,657 (4,361) (5,973) (2,304) 26,009 18,303 The Netherlands (UTH) (5)........... 44,980 (4,373) (22,405) 13,547 11,174 105,607 Austria............................. 80,388 691 (4,230) 36,762 39,081 96,883 Hungary (Telekabel Hungary) (6)..... 12,572 749 60 4,533 6,074 13,333 Czech Republic...................... 4,043 (4,841) (3,118) (856) 472 - Romania............................. 1,888 660 276 864 523 - Slovak Republic..................... 750 (1,392) (1,705) (788) 3,088 - Non-consolidated companies: Israel.............................. 140,053 30,682 4,330 77,460 29,161 228,364 Malta............................... 13,618 2,660 848 5,145 9,705 20,975 Hungary (Monor)..................... 16,176 6,652 1,787 10,233 4,489 35,640 The Netherlands (A2000) (2)......... 56,097 (18,142) (29,446) 14,531 51,871 212,110
(1) Financial data for new acquisitions are included from their effective date of consolidation. (2) A2000 includes operations for the twelve months period ended December 31, 1999 and 1998 respectively. Effective September 1, 1999, UPC started to consolidate A2000. A2000's results of operations, for the twelve month periods ended December 31, 1999 and 1998, respectively has been included in the financial data of UPC Nederland. (3) Adjusted EBITDA represents earnings before net interest expense, income tax expense, depreciation, amortization, stock based compensation charges, minority interest, share in results of affiliated companies (net), currency exchange gains (losses) and other non-operating income (expense) items. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. We believe Adjusted EBITDA helps investors to assess the cash flow from our operations from period to period and thus to value out business. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flow or for any other measure of performance or liquidity under generally accepted accounting principles or as an indicator of a company's operating performance. We are not entirely free to use the cash represented by our Adjusted EBITDA. Several of our consolidated operating companies are restricted by terms of their debt arrangements. Each company has its own operating expenses and capital expenditure requirements, which can limit our use of cash. Our representation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate Adjusted EBITDA in the same manner. (4) Excludes intercompany debt. (5) UTH was founded in August 1998. The 1998 financial information in the tables covers the period from inception through December 31, 1998. In 1999 the name was changed into UPC Nederland. (6) Telekabel Hungary was founded on June 30, 1998. The 1998 financial information in the tables covers the period from inception through December 31, 1998. (7) UTH's 80% subsidiary offers a carrier select telephony service. 7 UPC Video Services: Video Distribution and Programming Video Distribution Overview We own and operate established cable television systems and are expanding and upgrading those systems. As of December 31, 1999, our operating systems had approximately 5.8 million aggregate subscribers to their basic tier video services, excluding 254,075 subscribers who subscribe for our DTH service in Poland. Video distribution services accounted for approximately 81.2 % of our consolidated revenues 1999. We offer our subscribers some of the most advanced analog video services available today and a large choice of FM radio programs and plan to further increase our offerings through an integrated digital set-top box. In addition, because many of our operations are two-way capable, we have been able to add more interactive services. In many systems, for example, we have introduced impulse pay-per-view services, which enable subscribers to our expanded basic tier to select and purchase programming services, such as movies and special events, directly by remote control. We plan to continue increasing our revenue per subscriber by expanding our video services program offerings in the expanded basic tier service, pay-per- view and digital audio areas. We plan to continue improving our expanded basic tier offerings by adding new channels and, where possible, migrating popular commercial channels into an expanded basic tier service. Generally, basic tier pricing is regulated while the expanded basic tier is not price-regulated. In addition, we plan to offer subscribers additional choice by offering thematic groupings of tiered video services in a variety of genres and by increasing the number and time availability of pay-per-view offerings. Overview of our UPCtv Programming Business We have been involved in several country-specific programming ventures including those dedicated to creating channels for Spain, the Slovak Republic, Poland, Israel and Malta, as well as programming ventures for Hungary and the Czech Republic that we have sold. Together, these programming ventures have developed channels in key genres including sports, children, documentaries and movies, which are subtitled or dubbed in the local language. We believe that our programming ventures add value to our video distribution business by providing compelling content to our subscribers. We have launched six channels of various genres since May 1999. We plan to distribute our UPCtv channels to entities that are not affiliated with us and in countries where we do not currently operate. We have already reached agreement to distribute one or more of our channels to non-affiliated systems in Germany (6.0 million subscribers), Sweden (1.3 million subscribers), The Netherlands (1.5 million subscribers), Romania (0.1 million subscribers) and Turkey (0.1 million subscribers). In addition to the UPCtv channels created for our own systems, we own: . 80% of a company that provides Irish general entertainment programming to the UK market; and . 50% of another company that produces a movie channel, a documentary channel, a children's channel and a music channel independently, as well as a history channel in joint venture with A&E Networks for the Spanish and Portuguese markets. As of December 31, 1999, these two companies sold their channels to non-UPC cable and DTH operators serving an aggregate of approximately 2.8 million subscribers. 8 As of December 31, 1999, we owned 13.3% of SBS. In January 2000, we increased our ownership in SBS to 23.5%. We have recently announced our intention to offer to acquire the remaining shares of SBS. SBS creates, acquires, packages and distributes programming and other media content in many of our territories and elsewhere in Europe via television channels, radio stations and the Internet. SBS owns and/or operates ten television and 16 radio stations across ten European countries in addition to various promotional web- sites. In March 2000, SBS acquired a 33% interest in TVN, one of Poland's leading television stations. In March 2000, UPCtv and MTV Networks Europe formed a 50/50 joint venture partnership which will produce and distribute two new 24-hour music channels specifically targeted at the Polish marketplace: MTV Polska and VH1 Polska. In addition, the company will be responsible for creation and distribution of related MTV and VH1 branded web-sites, and will act as distribution agent in Poland for MTV Networks Europe's digital portfolio, including M2, MTV Extra, MTV Base and VH1 Classic. Both MTV Polska and VH1 Polska will be distributed via the UPC-owned Wizja TV DTH and PTK cable platforms and via other cable operators. System Upgrade and Digital Distribution Platform Over the past few years we have been upgrading our cable television systems to high-speed, two-way capacity. In addition to being able to offer telephone and Internet/data services, the upgraded network allows us to offer enhanced video services such as impulse pay-per-view. As of December 31, 1999, approximately 57% of the network in our Western Europe systems had been upgraded. We continue to evaluate upgrading our network in our other systems. We are constructing a satellite-based pan-European digital distribution platform, which we call Eurohits, that will enable digital distribution of our new channels and other television signals to our upgraded networks. We are scheduled to launch our digital distribution platform in the first quarter of 2000. When this digital distribution platform is constructed, we will convert our impulse pay-per-view services into a near video on demand service that would be able to provide up to 75 channels of programming. Near video on demand is achieved by broadcasting movies as frequently as every 15 minutes, thus enabling subscribers to choose a movie at a convenient start time. We are negotiating to acquire rights to broadcast first-run hit movies, adult programming and special events over this planned digital distribution platform. Full digitalization of our television signals, to be made possible by our network upgrade to full two-way capability, will provide our Western European systems with substantially more channel capacity. This increased channel capacity will enable subscribers to customize their subscriptions for our products and services to suit their lifestyles and personal interests. When the planned digital distribution platform is completed, we also intend to provide our subscribers with customizable programming guides that would enable them to program their favorite channels and also allow parents to restrict their children's viewing habits. The construction of the planned digital distribution platform will involve significant capital investment and the use of new technologies. We cannot assure you that we will be able to complete the construction of the digital distribution platform on the planned schedule. 9 Competition In areas where our cable television franchises are exclusive, our operating companies generally face competition only from DTH satellite service providers and television broadcasters. We have faced the most competition from DTH providers in France and Sweden. In those areas where our cable television franchises are non-exclusive, including France, Sweden and Poland, our operating companies face competition from other cable television service providers, DTH satellite service providers and television broadcasters. In the programming business, we compete with other programming suppliers for sales to systems other than our own. UPC Telephone Services: Priority Telecom We believe that our existing customer base and upgraded network give us a unique opportunity to provide telephone services in Europe. We offer local telephone services over our cable network, under the brand name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. We also have a traditional telephone network in Hungary. As of December 31, 1999, we had 192,600 telephone lines in service for our customers offering local, national and international voice services, as well as Data services to our business customers. We believe that our fiber and broadband, coaxial cable and cable-based subscriber relationships provide ready access to potential residential telephone subscribers. We believe our networks and facilities also provide the opportunity for cost-effective access to potential business telephone customers and an excellent starting point for expanding our competitive local exchange carrier ("CLEC") business within the UPC footprint. Priority Telecom has further expanded it's Pan-European CLEC network via recent acquisitions of networks in Spain and Norway. Market Overview & Positioning We believe there are significant growth opportunities in the European telecommunications market as a result of the January 1, 1998 liberalization of the telephone industry in most EU member countries and Norway. This liberalization allows new providers to offer telephone and other telecommunications services in markets that have historically been dominated by incumbent national operators. Priority Telecom is positioned as UPC's Pan-European CLEC. This position will be established via both organic growth and acquisitions. Priority Telecom will offer telephony services to the residential customers and package voice and IP Data in the small, medium and large business market. With a substantial amount of telephone-capable fiber optic cable already deployed in our Western European systems, we believe that Priority Telecom has an advantage over other new entrants in the CLEC Market. Currently, Priority Telecom has broadband, coaxial cable access to approximately 1.7 million homes and 120,000 businesses in ready-for-telephony service areas, with future access to approximately 5.8 million residential subscribers in its planned telephone markets. Implementation Network and Equipment. Traditional telephone service is carried over twisted copper pair in the local loop. The cable telephone technology that we are using allows telephone traffic to be carried over our upgraded network without requiring the installation of twisted copper pair. This technology only requires the addition of equipment at the master telecom center, the distribution hub and in the customer's home to transform voice communication into signals capable of transmission over the fiber and coaxial cable. We have installed telephone switches in our master telecom center in each of the countries in which we have launched Priority Telecom. We have supply agreements from multiple suppliers for the rest of the equipment. In new countries Priority Telecom will utilise alternative local loop solutions such as DSL, fiber and wireless to connect the customer premises with the regional and/or national backbone. Overview of our Priority Telecom Business Residential Market. We generally price our Priority Telecom offering in the residential market at a discount compared to services offered by incumbent telecommunications operators. Because of the relatively high European local tariff rates, we believe potential customers will be receptive to our telephone services at this price. In addition to offering competitive pricing, we offer a full complement of services to telephone subscribers including custom local access services, "CLASS," including caller ID, call waiting, call forwarding, call blocking, distinctive ringing and three-way calling. We are also able to provide voice mail and second lines. The introduction of number portability in some of our markets, including The Netherlands, Norway and France, provides an even greater opportunity as potential customers will be able to subscribe to our service without having to change their existing telephone numbers. Business Market. In the business market Priority Telecom offers product packages of traditional voice telephony and IP Data services to the small and medium sized business customers. For the large segment, tailor-made solutions are currently offered in the Netherlands and Priority Telecom aims at marketing these solutions on a Pan-European scale. Carrier's Carrier Market. Priority Telecom is building a Carrier's Carrier business through leveraging the existing AORTA backbone and the cable footprint. UPC's extensive coverage within the local loop and termination ability creates a strong competitive advantage for Priority Telecom compared to other wholesale operators. We intend to concentrate on building brand awareness for Priority Telecom as a Pan-European telecommunications brand, which may be co-branded with our existing local video services brands. We also plan to 10 integrate Priority Telecom's residential and small office/home office telephone products with our video services and chello broadband's Internet access services, thus enabling us to offer pricing packages designed to encourage multiple product purchases and minimize churn. We believe the residential and business market sectors represent a significant business opportunity for Priority Telecom. Simple marketing offers are being used to encourage rapid take-up by overcoming consumer inertia and increasing brand awareness of our products. The approach includes, for example, innovative offers and periodic deep discounts. Large and medium-sized business customers are marketed through a key account management direct sales force targeting specific industry sectors. Interconnection Agreements Each of our operating companies that offers telephone services has entered into an interconnection agreement with the incumbent national telecommunications service provider. In addition, certain of these operating companies have also entered into interconnection agreements with other telecommunications service providers, providing alternative routes and additional flexibility. Even though we have secured interconnection arrangements, we may still experience difficulty operating under them. In our Amsterdam system, for example, capacity constraints at the interconnection have lowered the quality of our telephone service, resulting in a higher rate of customer loss than our system has experienced before. In Austria, while we secured our interconnection arrangement with the support of the Austrian telecommunications regulator, the Austrian incumbent telecommunications operator is challenging the arrangement in the Austrian courts. Pan-European Backbone We are developing a pan-European backbone and telecommunications carrier business. This backbone is designed to link our major cable and telephone networks through a combination of leased capacity arrangements to allow us to capture more traffic between our operating areas and to leverage UPC's national assets to lower the termination cost, and thereby create a strong competitive cost advantage relative to other carriers. In October 1998, we entered into a contract with Hermes Europe Railtel for the purchase of high speed fiber optic- based transmission capacity. The first phase is expected to be in place for international telephone traffic by the first half of 2000. Traditional Telephone Systems, New Ventures & Acquisitions In addition to our cable telephone operations, our Monor system has offered traditional telephone services since December 1994 and as of December 31, 1999, had approximately 66,825 traditional telephone lines in the Budapest area. In December of 1999, Priority Telecom acquired a 50.1% stake in Munditelecom, a Spanish based voice and data company. Priority Telecom plans to develop a comprehensive range of voice and data services for the ISP and business markets. The company recently received a B1 telecommunications infrastructure license and will be building an advanced IP based network covering all 52 Spanish points of presence over the next 12 months. To further the development of Priority Telecom's CLEC business in Norway, the company has acquired 100% of the equity of El Tele Ostfold and Vestfold. The Norwegien acquisitions add approximately 300 kilometers of fibre network and 125 business customers to Priority Telecom. Competition In the provision of telephone services, Priority Telecom and our operating companies face competition from the incumbent telecommunications operator in each country. These operators have substantially more experience in providing telephone services and have greater resources to devote to the provision of telephone services. In many countries, our operating companies also face competition from other new telephone service providers like ourselves, including traditional wireline providers, other cable telephone providers, wireless telephone providers and indirect access providers. UPC Internet/Data Services: High Speed Access and chello broadband We initially launched our broadband internet business in a few of our operating systems in September 1997. While we directed the system architecture, each operating system was responsible for negotiating its own backbone connectivity, and developing its own caching, content and portal. In March 1998, we formed chello broadband for the purpose of developing a global broadband internet operation. chello launched its service in April 1999, and provides high-speed internet access and local portal and integrated broadband content to our local operating companies and non affiliated operating companies through a franchise agreement. Under the franchise agreement chello provides our affiliates and non affiliated local operators with high speed connectivity, caching, local language broadband portals, and marketing support for a fee based upon percentage of subscription an installation revenue. In the future the franchise agreement further provides that the local operator will receive a percentage of the revenue from chello e-commerce and advertising. The local operator is responsible for the local network including the upgrade, management and maintenance, sales and training, customer support and service, installation and cost of customer premise equipment. During 1999, substantially all of chello's revenues were subscription based and derived from our local operating companies. These intercompany revenues have been eliminated in our consolidated operating results. chello broadband is a leading international provider of broadband Internet services. chello broadband has long-term agreements for the distribution of Internet services to residential and business customers using cable television, fixed wireless and satellite infrastructure of local operators, including our operating companies, covering 14.9 million homes in Europe, Australia, New Zealand and Latin America. chello broadband currently provides its services through our operating companies in Austria, Belgium, France, The Netherlands, Norway and Sweden, and through local operators in Australia and New Zealand, covering a total of approximately 8.3 million homes. With respect to 2.1 million of these homes located in Australia and New Zealand, chello's agreement with Austar United, a subsidiary of United and chello broadband's local operator, is subject to the approval of Austar's shareholders, who are not affiliated with us. 11 chello broadband launched its services in March 1999 and at December 31, 1999, it had approximately 117,000 residential subscribers, as well as approximately 3,500 business subscribers. chello broadband was voted Best European Consumer ISP at the European ISP Awards in December 1999. In each of its existing markets, chello broadband offers high-speed Internet access and local language portals that integrate multimedia, locally relevant content and services specially designed for the broadband environment. Market There are significant growth opportunities in the Internet market both within and beyond Europe, and chello broadband's position as a leading provider of broadband Internet services in Europe gives us an opportunity to participate in one of the fastest growing and highest value-added Internet segments. The use of the Internet in Europe has grown substantially in recent years and while still less widespread than in the U.S., Internet usage in Europe is expected to increase and ultimately reach levels similar to those in the United States. Today, however, the total number of Internet users in Europe is relatively low. Operations chello broadband has been designed to be a leading provider of broadband Internet services to residential customers and small and medium-sized businesses. chello broadband has taken a comprehensive approach to broadband services that encompasses technological versatility and excellence across platforms, compelling content, customer network support with aggressive marketing and brand-building. The table below shows selected information for the countries in which chello broadband currently offers its services at December 31, 1999:
Country Homes in Homes passed Video Upgraded chello Date of operator's subscribers homes passed subscribers launch of area service - ----------------------------------------------------------------------------------------------------------- Europe - UPC 5,493,650 4,516,230 3,018,175 2,578,524 117,826 April - June systems June 1999 - ----------------------------------------------------------------------------------------------------------- Europe - 169,000 100,000 68,000 91,000 1,050 June 1999 non- UPC systems - ----------------------------------------------------------------------------------------------------------- Other (1) 2,226,000 2,179,000 398,000 2,180,145 Trials Trials - ----------------------------------------------------------------------------------------------------------- Total 7,888,650 6,795,230 3,484,175 4,849,669 118,876 - -----------------------------------------------------------------------------------------------------------
(1) chello broadband's services in Australia are provided through satellite and fixed wireless distribution technologies. The flow of Internet data from customers' homes to the Internet is transmitted via telephone lines. The number of upgraded homes passed in Australia refers to those homes passed that are able to upstream Internet data via their telephone lines. As of December 31, 1999 chello broadband's services in Australia and New Zealand are being tested with a limited number of users prior to full commercial launch. All data for Australia and New Zealand is as of December 31, 1999. chello broadband has agreements to launch its services on our networks in the Czech Republic, Hungary, Poland, and the Slovak Republic, and on those of United in Chile. At December 31, 1999, these networks had a total of 6.6 million homes in their service areas, 5.0 million homes passed, of which 355,000 were upgraded, and 2.6 million video subscribers. These agreements are for homes in addition to those in the table above. At December 31, 1999, chello broadband's total coverage rights included 14.9 million homes in the local operators' service areas, and 11.9 million homes passed (of which 5.2 million were upgraded). 12 See "Certain Transactions and Relationships - Relationship with chello broadband." chello broadband's agreements with local operating companies cover all the homes in their territory. Therefore, as local operating companies' networks expand, other than through acquisitions, chello broadband's exclusive rights to distribute its services expand as well. Residential Subscribers. chello broadband offers one of the most compelling consumer Internet experiences currently available in its markets. Upon installation, each new subscriber's personal computer is configured for chello broadband's services, which provides easy access to the chello broadband portals and the Internet. chello broadband offers residential subscribers the following significant benefits: . High-speed access; . Flat fee; . User friendly, always-on Internet access; . Higher quality services; and . Local language portals with compelling broadband content. chello broadband has developed nine local language portals with the objective of making them the leading broadband Internet portals in their markets. Each of these portals brings together locally relevant content with broadband content and is managed and supported locally by a chello office. chello broadband plans to offer an expanding variety of multimedia programming, e-commerce and services specifically designed to take advantage of the speed and versatility provided by broadband access. Currently, subscribers are able to listen to music and watch videos, news, and sporting events at near television- quality. Business Subscribers. chello broadband provides basic broadband Internet access to local area networks, or LANs, designed to support between one and twenty-five personal computers. This service, called Small LAN Connect, currently supports over 3,500 businesses. In addition, chello broadband is conducting trials of its service, called Remote LAN Connect, in Austria and Norway. This service offers, among other features, enhanced two-way security, Internet access for an unlimited number of personal computers and enhanced email. chello broadband Technology The main technologies designed to deliver content at high-speed include cable technologies using cable modems, telephone technologies, such as DSL and emerging fixed wireless technologies. We intend to offer subscribers a number of new ways to access chello broadband's services, including through television via digital set-top boxes. This market represents a significant market opportunity for us. chello broadband's technology, network and supporting systems play a central role in the design and delivery of its services. The primary components of the network used to deliver chello broadband's services are its network operations center, its backbone infrastructure named AORTA , its master and regional data centers and our local operating companies' networks. chello broadband uses its network operations center to monitor the quality of services. From this center in Amsterdam, which operates 24 hours per day, 7 days per week, chello broadband can manage AORTA, regional data centers, regional networks, headend facilities, servers and other components of the network infrastructure. AORTA allows Internet traffic to be routed or rerouted if parts of the network are congested or impaired. The core of AORTA connects Amsterdam, Stockholm, Vienna, Paris, Brussels and London. In addition, Oslo, New York, San Jose and Sydney are part of the AORTA network. chello broadband signed a capacity right of use agreement in August 1999 with GTS for a transatlantic fiber-optic cable link, which is to operate from London and Paris to New York. This link is planned to be operational by January 2001. chello broadband's agreement with GTS is for a minimum of 15 years. chello broadband's master data center in Amsterdam, as well as its regional and local data centers, act as service hubs for defined areas ranging from major metropolitan areas to smaller areas of an individual local operating companies' networks. They provide key services, including email, chat and news, to subscribers. They 13 also provide a cost-efficient infrastructure to cache and multicast data throughout a region and store local content and subscribers' web pages. Competition In the provision of Internet access, services and online content, chello broadband faces competition from incumbent telecommunications companies and other telecommunications operators, other cable-based Internet service providers, non-cable based Internet service providers and Internet portals. The Internet services offered by these competitors include both traditional dial-up Internet services and high-speed access services. Operating Companies We have operations in 12 countries in Europe and in Israel. While they all offer a basic video tier, their other services vary. We are currently upgrading the network in some countries but not in others. Western Europe and Israel Austria: Telekabel Group. We own 95% of the Telekabel Group, which provides communications services to the Austrian cities of Vienna, Klagenfurt, Graz, Baden and Wiener Neustadt and is the largest video distribution system in Austria with over 40% of the market. Telekabel Group's largest subsidiary, Telekabel Wien, which serves Vienna and represents approximately 87% of Telekabel Group's total subscribers, owns and operates one of the larger clusters of cable systems in the world in terms of subscriber numbers served from a single headend. We are capitalizing on Telekabel Group's strong market position and positive perception by its customers by aggressively expanding Telekabel Group's service offerings as its network is upgraded to full two-way capability. The upgraded network enabled Telekabel Group to launch an expanded basic tier, impulse pay-per-view services and Internet/data services in 1997. Telekabel Group also offers our Priority Telecom cable telephone services in Vienna. As of December 31, 1999, approximately 51.9% of the homes passed by Telekabel Group's network subscribed to its basic cable television services. Telekabel Group's service includes substantially all of the broadcast channels from Austria and Germany, as well as other popular channels not available by broadcast. Telekabel Group also offers subscribers an expanded basic tier of additional programming as well as an impulse pay-per-view service. The pay-per- view buy rate has grown to more than two movies per expanded basic tier subscriber per month, although Telekabel Group expects this average to decrease because high-demand customers subscribed early to the expanded basic tier and later subscribers will likely have a lower demand for pay-per-view services. TeleKabel Group launched Priority Telecom's cable telephone service in Vienna on a commercial basis in early 1999. As of December 31, 1999, Telekabel Group had subscribers for approximately 40,275 telephone lines. Telekabel Group launched an Internet access service in September 1997 and the chello broadband service in June 1999. Telekabel Group had approximately 42,125 Internet access subscribers as of December 31, 1999. Telekabel Group in 1999 averaged monthly additions of 2.625 customers for its Internet service. Telekabel Group consists of five Austrian corporations, each of which owns a cable television operating system. We own 95% of, and manage, each Telekabel Group company. Each of the respective cities in which the operating systems are located owns, directly or indirectly, the remaining 5% interest in each company. The cities do not own any interest in our Austrian chello broadband businesses. In connection with the UPC acquisition in December 1997, the City of Vienna and Philips agreed that Philips will continue to guarantee the capital level to be maintained by Telekabel Wien. Philips has also agreed to guarantee the continued fulfillment of the agreements that were originally concluded between the city and Philips and that were assigned by Philips to us. These agreements have a term until 2022, with an extension option. We have agreed to indemnify Philips for any liability under Philips' guarantee. Due to its position as a guarantor, 14 Philips has the right to appoint one member to our Supervisory Board. This Supervisory Director has a veto right that is limited to fundamental decisions and exceptional business matters, such as the sale or disposition of our interests in Telekabel Wien, if certain threshold values are met. See "Certain Transactions and Relationships-Relationship with Philips." The City of Vienna's approval is required for any change of control over us, which approval cannot be unreasonably withheld if the buyer is a reputable telecommunications and/or cable television operator. In the absence of such approval, the City of Vienna can require United to own Telekabel Wien separately from us. See "Certain Transactions and Relationships." Belgium: UPC Belgium. UPC Belgium, our 100% owned subsidiary, provides cable television and communications services in selected areas of Brussels and Leuven. We estimate that there are at present approximately 152.000 homes under license in UPC Belgium's franchise areas. UPC Belgium, which currently has 82.3% penetration in its franchise areas, plans to increase revenues through the introduction of new services that currently are not subject to the price regulations. UPC Belgium offers an expanded basic tier cable television as well as our chello broadband Internet access service. As UPC Belgium upgrades additional portions of its network to full two-way capability, it plans to introduce impulse pay-per-view in Brussels, which was implemented in Leuven in November 1999. UPC Belgium intends to provide cable telephone services beginning in the first half of 2001. As of December 31, 1999, UPC Belgium had approximately 125,050 basic subscribers and 6,425 expanded basic subscribers. UPC Belgium also distributes three premium channels, two in Brussels and one in Leuven, which are provided by Canal+. UPC Belgium began offering internet access services in September 1997 and introduced the chello broadband service in early 1999. As of December 31, 1999, UPC Belgium had 5,325 residential, 1,450 student and 650 business Internet access subscribers. France: UPC France. We have been constructing and operating cable television systems in France since 1996. Since March 1999, UPC France offers cable telephony and internet services as well. During 1999 we acquired several additional major cable television systems and UPC France is now one of the largest cable television providers in France. We currently own 92% of UPC France. As of December 31, 1999, UPC France's systems held franchises covering an aggregate of 1,265,800 homes, of which approximately 927,000 homes were passed by activated network. UPC France had an aggregate of 334,600 basic cable television subscribers as of the same date. UPC France's major operations are located in suburban Paris, the Marne-la-Vallee area east of Paris, Lyon and in other towns and cities throughout France. On February 23, 2000, we acquired Intercomm France Holding S.A. ("Intercomm"), a cable television operator with about 500,000 homes in its franchise area, 80,000 which are passed by Intercomm's activated cable network. The purchase price is Euro36 million plus an 8% interest in our combined French system. Mediareseaux, UPC France's initial system, has constructed its network with technology and capacity to offer integrated video, voice and Internet/data services. We are upgrading the networks of our recently acquired French systems to be able to offer these services as well. We expect this upgrade to be completed in 2002. To further expand our French operations, we are pursuing potential acquisition opportunities and plan to develop these franchises as one clustered system offering a full package of video, telephone and Internet/data services. Most of our French systems offer various tiers of cable television service. To increase its average monthly revenue per subscriber, Mediareseaux began offering pay-per-view services in May 1998, and to date, the pay-per-view buy rate is approximately 0.5 movies per expanded basic tier subscriber per month. As we integrate our recent acquisitions and complete upgrading their networks, we intend to offer similar revenue-generating services in these systems as well. 15 In June 1998, Mediareseaux obtained a 15 year telephone and network operator license for an area that includes 1.5 million homes in the eastern suburbs of Paris. Mediareseaux began offering telephone services in March 1999 within its cable television franchise area. We are planning to launch cable telephony services in suburban Lyon and Limoges by the end of the second quarter of 2000. Mediareseaux also offers chello broadband's Internet access services via its cable systems, and is carrying out a trial offering of broadband fixed wireless local loop service in two towns in the eastern suburbs of Paris under a temporary license. One of our recently acquired systems began offering Internet/data services at the end of 1997. We intend to launch chello broadband's internet access service in our systems in the suburban Lyon and Limoges area in the second quarter of 2000. UPC France owns between 100% and 97.5% of each of its systems. As a result of the Intercomm transaction that closed February 2000, our interest in UPC France is now 92%. Germany: PrimaCom. Since December 1999, we have purchased shares totaling approximately 18.2% of PrimaCom AG ("PrimaCom"), which owns and operates cable television networks in Germany. As of December 31, 1998, PrimaCom reported subscribers of approximately 877,150 subscribers. Subsequent to December 31, 1999, we increased our interest in Primacom to 24.9%. The Netherlands: UPC Nederland. Our Dutch systems, with 1,660,150 homes passed and 1,517,425 basic teir subscribers as of December 31, 1999, are our largest group of cable television systems. We have had operations in The Netherlands since we were formed in 1995, but substantially all of our operations in The Netherlands have come from acquisitions. Our systems are located in the regions of Brabant, Flevoland, Friesland and Gelderland, and include A2000, our 516,000-subscriber system located in Amsterdam. In August 1999, we won a bid to purchase the municipality-owned cable television network in Haarlem. We expect the Haarlem acquisition to close during the second quarter of 2000. As of December 31, 1999, this system passed approximately 70,000 homes and had approximately 66,000 basic cable television subscribers. In February 2000, we acquired Tebecai, which operates cable television networks in the eastern regions of the Netherlands. In March 2000, we acquired K&T Group, which owns and operates cable networks in Rotterdam, Dordrecht and the surrounding municipalities. These systems had approximately 588,000 basic tier subscribers and 43,000 serviceable businesses as of December 31, 1999. In addition, K&T Group has a glass fibre network covering approximately 100 kilometers in The Hague area. We began upgrading a portion of our Dutch networks in 1997 and we expect that all of our network in The Netherlands will be fully upgraded by the end of 2000. Due to the large number of current subscribers located in four large clusters in The Netherlands, we have constructed a fiber backbone to interconnect these region-wide networks. In addition to cable television services, UPC Nederland offers Internet and telephone services over its upgraded network. As of December 31, 1999, our Dutch systems had average cable television penetration rates of 91.4%. As a result of this high penetration and the rate regulation of the basic tier in many of UPC Nederland's franchise areas, we have focused our efforts on increasing revenue per subscriber in these system through the introduction of new video, telephone and Internet/data services. Many of our Dutch systems have offered an expanded basic tier as since late 1996. We launched impulse pay- per-view services in April 1997 in A2000 and in June 1998 in some of our other Dutch systems. In April 1999, A2000 and the municipality of Amsterdam reached an agreement on a large scale introduction of digital set-top boxes and a reduction of the rate regulated basic cable television package to 15 public channels. This agreement allows A2000 to migrate a number of popular commercial channels to its expanded basic tier. During the period preceding the introduction of and migration of channels to its digital platform, A2000 and the municipality of Amsterdam have agreed to increasing A2000's current 26 channel basic package to 32 channels with an increase in the monthly subscription fee. Once the digital set-top boxes are introduced, the price for the rate regulated 15 public channel basic service will be reduced and the price for the expanded basic tier will increase over 16 time until it becomes unregulated in 2001. The agreement requires A2000 to provide our integrated digital set- top box to customers requesting the expanded basic tier. Our set-top boxes will enable these customers to receive our chello broadband Internet service over a computer or a television. In addition, we will be able to offer subscribers IP telephone services through our set-top boxes in the future. We expect the introduction of the digital set-top boxes to occur in the fourth quarter of 2000. A similar agreement has been reached with the municipality of Haarlem, where the introduction of digital set-top boxes is planned in the fourth quarter of 2000. Our Amsterdam system launched its cable telephone service in July 1997. UPC Nederland launched Priority Telecom cable telephone service in many other parts of its network in May 1999. We expect to launch these services in 2000 in some of our more recently acquired systems. As of December 31, 1999, UPC Nederland had subscribers for approximately 68,200 telephone lines. In Amsterdam, where it has offered telephone services the longest, approximately 9% of the homes serviceable subscribe for telephone services. Some of our Dutch systems had Internet access services as early as 1997. We launched chello broadband's Internet/data services in some of UPC Nederland's systems in early 1999. The media launch of chello broadband services in the remainder of UTH's service areas took place in June 1999. We have been migrating all existing Internet customers to the chello broadband service. As of December 31, 1999, UPC Nederland had 58,500 residential and 1,550 business Internet/data services customers. Norway: UPC Norge. UPC Norge is Norway's largest cable television operator with approximately 42% of the total Norwegian cable television market as of December 31, 1999. UPC Norge's main network is located in Oslo and its other systems are located primarily in the southeast and along the southwestern coast. UPC Norge is upgrading its network to two-way capacity. The upgrade, which began in 1998, is scheduled to be completed in 2002/2003. During 1999, UPC Norge began offering subscribers chello broadband service and Priority Telecom's cable telephone service. Approximately 70.0% of the homes passed by UPC Norge's systems subscribe to our cable television service. We currently offer four tiers of video services. Approximately 32% of UPC Norge's subscribers subscribe for one or more higher tiers of service. Our goals for UPC Norge's cable television business are to continue to increase its penetration rate, to improve its revenue per subscriber generally by providing additional programming and services and to increase average revenue per subscriber in systems in which expanded basic tiers are more recent additions. UPC Norge introduced Priority Telecom's cable telephone service in April 1999 in the upgraded portions of its network. As of December 31, 1999, we had 3,225 telephone subscribers in Norway. UPC Norge launched an Internet access service in March 1998 and introduced chello broadband service in June 1999. We have migrated all of UPC Norge's existing Internet access subscribers to chello broadband. As of December 31, 1999, UPC Norge had 3,250 residential and 3 business chello broadband subscribers. Sweden: StjarnTVnatetAB ("Stjarn"). In July 1999, we acquired Stjarn. Stjarn operates cable television systems servicing the greater Stockholm area and leases a fiber optic network with 770,000 homes and 30,000 businesses in its franchise area. 17 As of December 31, 1999, Stjarn provided analog television services across its broadband network to approximately 243,000 paying subscribers out of a total of approximately 421,600 homes passed. Stjarn currently offers six tiers of programming. Upon upgrade of its network, it plans to offer additional tiers of programming. Stjarn launched Internet services in one area in the City of Stockholm in April 1999 and introduced chello broadband service in November 1999. As of December 31, 1999, Stjarn offered high speed Internet services to approximately 167,700 connected homes, of which 5,250 homes had at that date subscribed. Stjarn leases the fiber optic cables it uses to link to its main headend under agreements with Stokab, a city-controlled entity with exclusive rights to lay ducts for cables for communications or broadcast services in the City of Stockholm. The main part of the leased ducting and fiber optic cables is covered by an agreement which expires in January 2019. Additional fibers are leased under several short-term agreements, most of which have three year terms but some of which have ten year terms. Israel: Tevel Israel International Communications Ltd. Tevel has exclusive cable television broadcasting franchises for the entire Tel Aviv metropolitan area, the region of Ashdod- Ashkelon, which is 30 miles south of Tel Aviv, and the Jezreel Valley, which is 80 miles northeast of Tel Aviv. In April 1998, Tevel acquired 100% of Gvanim Cable Television Ltd. and has since fully integrated Gvanim's operations with its own. The Gvanim acquisition increased franchise area coverage to approximately 40% of the total homes in Israel. We currently own 46.6% of Tevel. Tevel is upgrading all of its systems to be able to provide additional cable television services, as well as cable telephone and Internet/data services. Should liberalization occur, Tevel may consider launching its own telephone and Internet/data services. See "Regulation-Israel." Tevel offers basic subscribers approximately 40 channels of programming, including a wide range of entertainment, news, sports, performing arts and educational channels. Five pay-per-view channels are also available in all of Tevel's areas other than the Gvanim franchise areas. Currently, over [30%] of Tevel's subscribers purchase at least one pay-per-view offering per month. Tevel has applied for a license to provide pay-per-view services in Gvanim's franchise areas. The Israeli Communications Ministry has indicated that it intends to change a number of terms of Tevel's pay-per-view license, and has offered Gvanim a pay-per-view license on terms incorporating these changes. Tevel is opposed to these term changes and is negotiating with the Communications Ministry over the terms of the extension of its pay-per-view license and Gvanim's pay-per-view license. Tevel's current pay-per-view license has been extended until March 2000. In addition to its cable operations, Tevel owns 50% of Globkol Communications Ltd. ("Globkol"), a telecommunications equipment company that designs, installs and maintains switching systems for businesses. As of December 31, 1999, Globkol served approximately 1,350 sites with a total of approximately 98,900 outlets. Tevel also owns 45% of Netvision, one of Israel's leading Internet service providers and has the right to increase its interest to 50%. Tevel, Gvanim and the other Israeli cable television operators own a programming company, ICP Israel Cable Programming Company Limited, that supplies much of their programming. ICP is considered a "restrictive arrangement" under Israeli Restrictive Trade Practices law and is regulated by an arrangement that was to expire in June 1999. The arrangement has been extended temporarily until February 1, 2000. See "Regulation--Israel." In November 1999, Tevel agreed to acquire 35% of Golden Channels, an Israeli system with approximately 330,000 subscribers as of November, 1999. This acquisition is subject to regulatory approvals and there is no assurance this acquisition will close. In December 1999, Tevel and the other cable operators in Israel filed an application with the Israeli courts for the merger of all of the companies. We are not certain whether we will consent to such merger or, even if we do consent, whether this merger will be consummated. 18 We indirectly own 46.6% of Tevel. An Israeli corporation owned by DIC Communication and Technology Ltd. and PEC Israel Economic Corporation, which we call the "Discount Group," owns 48.4% of Tevel and a private Israeli investor holds the remaining 5% of Tevel. Each of Tevel's shareholders has agreed to grant a right of first refusal to the other shareholders in the event of a transfer of any Tevel shares. If the other shareholders do not exercise this right, they are permitted to participate in the sale and may require the selling shareholder to include in the transferred shares such number of shares equal to each shareholder's pro rata amount. In addition, any shareholder of Tevel that holds more than a 30% interest may offer its shares to the other shareholders at a price based upon the appraised fair market value of Tevel. If the other shareholders do not accept the offer, the offering shareholder may require that all of the shares of Tevel be sold to a third party at the appraised value. If a third party sale does not occur within six months, the right to exercise the forced buyout option lapses and any shareholder that thereafter desires to exercise the forced buyout option must first offer to sell its shares to the other shareholder at fair market value based on a new appraisal. No shareholder may exercise this forced buyout option more than once in any 12-month period. We and the Discount Group have agreed not to exercise this forced buyout option while our loan from DIC is outstanding. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Debt Facilities." Central and Eastern Europe Czech Republic: KabelNet and Kabel Plus. KabelNet, our Czech Republic subsidiary, provides cable and "wireless" cable television services in the cities of Prague and Brno, the Czech Republic's second largest city. In October 1999, we acquired 94.6% of Kabel Plus, the leading provider of cable television services in the Czech Republic. Combined, these systems passed about 736,450 homes and served about 374,325 television subscribers in the Czech Republic as of December 31, 1999. Approximately 12% of these are served by our wireless MMDS network. We offer a number of tiers of programming services in the Czech Republic. We have no current plans to launch telephone or Internet/data services in our Czech systems. Hungary: UPC Magyarorszag. We have owned and operated systems in Hungary for nearly a decade. In June 1998, we combined our Hungarian operations with Kabeltel, Hungary's second largest operator of cable television systems, creating Telekabel Hungary, in which we retain a 79.25% interest. Telekabel Hungary's operating system, UPC Magyarorszag, passed about 655,250 homes and served about 518,550 television subscribers as of December 31, 1999. We are rebuilding our Budapest network to be able to provide new services. As of December 31,1999, approximately 68,970 homes were already served by the rebuilt network. Approximately 75.0% of all subscribers passed by our upgraded network subscribe to our expanded basic tier package. In March 2000, we acquired the remaining 20.75% of the ordinary share capital of Telekabel Hungary which we did not already own. Hungary: Monor. Monor, one of our Hungarian operating companies, has offered traditional telephone services since December 1994. Monor has the exclusive, local-loop telephone concession for the region of Monor, Hungary with a term through 2002. Monor has 85,000 homes in its franchise area. We have an economic ownership interest in Monor of approximately 97.14% and a voting interest of slightly less than 75%. Poland: @Entertainment, Inc. In August 1999 we acquired @Entertainment, which owns and operates the largest cable television system in Poland. @Entertainment's cable subscribers are located in regional clusters encompassing eight of the ten largest cities in Poland. @Entertainment expanded its distribution capacity with the launch of its DTH broadcasting service for Poland, targeted at homes outside of its cable network coverage area. 19 As of December 31, 1999, we had 1,023,800 traditional cable subscribers and 254,075 D-DTH subscribers. D-DTH subscribers receive Wizja TV, our multi-channel Polish-language DTH service, the first such service available in Poland. We are also trying to sell Wizja-TV programming to third party cable systems in Poland. The portions of @Entertainment's cable television networks currently being constructed are being constructed with the flexibility and capacity to be cost- effectively reconfigured to offer an array of interactive and integrated entertainment, telecommunications and information services. We intend to upgrade selected portions of @Entertainment existing cable to meet similar standards. The Company has applied for the data licence for the territory of Poland and plans to start providing internet services during year 2000. @Entertainment has been able to avoid constructing its own underground conduits in certain areas by entering into a series of agreements with TPSA (the Polish national telephone company) which permit @Entertainment to use TPSA's infrastructure for an indefinite period or for fixed periods up to 20 years. Over 80% of @Entertainment's cable television plant has been constructed using pre-existing conduits from TPSA. A substantial portion of these contracts to use TPSA conduit permits termination by TPSA without penalty upon breaches of specified regulations. Any termination by TPSA of such contracts could result in @Entertainment losing its permits, the termination of agreements with co-op authorities and programmers, and an inability to service customers with respect to the areas where its networks utilize the conduits that were the subject of such TPSA contracts. In addition, some conduit agreements with TPSA provide that cables can be installed in the conduits only for the use of cable television. If @Entertainment uses the cables for a purpose other than cable television, such as data transmission, telephone, or Internet access, such use could be considered a violation of the terms of certain conduit agreements, unless this use is expressly authorized by TPSA. There is no guarantee that TPSA would give its approval to permit other uses of the conduits. @Entertainment's DTH service is encoded and transmitted, or "uplinked," from its Maidstone, U.K. facility to geosynchronous satellites that receive, convert and amplify the digital signals and retransmit them to earth in a manner that allows individual subscribers to receive and be billed for the particular programming services to which they subscribe. @Entertainment has an eight-year contract with British Telecommunications for the provision and maintenance of its uplink equipment at Maidstone. @Entertainment leases transponders on Astra satellites 1E and 1F. @Entertainment offers cable subscribers two tiers of service. Some areas are offered a package of up to 70 channels. @Entertainment's DTH subscribers currently receive @Entertainment's Wizja TV programming, which consists of approximately 25 channels. For an additional monthly charge, certain of the Company's cable networks currently offer two premium television services - the HBO Poland service (a Polish-language premium movie channel owned in part by Home Box Office) and, since September 18, 1999, Wizja Sport, a Polish-language premium sport channel -to customers on a monthly basis in certain Company's cable systems. The Company plans to create additional pay-per-view channels that will also be offered to cable customers for an additional charge. Romania. We are currently involved in the operation of seven cable companies in Romania. Since 1993, when we first entered the Romanian market, we have widened our customer base through acquisition and marketing activities in conjunction with build out. Our Romanian systems offer subscribers two of three different tiers of programming. We currently have plans to launch telephone or Internet/data services in the Romanian systems. We recently entered into a joint venture with the owners of two Romanian cable television companies (collectively, "AST") to which our and AST's Romanian assets were contributed. We hold a 70% interest in the joint venture and the former owners of AST hold the remaining 30%. Together, the joint ventures systems have more than 250,000 subscribers. Slovak Republic: UPC Slovensko s.r.o. We entered the Slovak market in 1995 and in June, 1999 we completed the acquisition of additional cable systems in Bratislava, the capital of the Slovak Republic, and several other cities. This acquisition made us the largest cable operator in the Slovak Republic. We offer subscribers three 20 tiers of cable television service. We plan to introduce internet services in Bratislava in 2000 and in other Slovak cities by 2003. We intend to introduce telephone services in all systems by early 2003. Other Systems Malta: Melita. Melita, of which we own 50%, operates an exclusive franchise network in Malta. Melita currently offers general cable television services and is upgrading its system to be able to provide Internet access and other enhanced services. Pending litigation and recent legislation may, however, affect our ability to offer Internet/data services in Malta. We currently own 50% of Melita. Melita Cable Holdings owns the remaining 50%. New Businesses UPC Wireless Services: Priority Wireless In July of 1999, we created a new wireless subsidiary, which we have branded Priority Wireless. Priority Wireless' purpose is to exploit pending wireless opportunities across Europe as a means of distributing UPC products via wireless technology. During the first half of 1999, we conducted two trials, which confirmed that "wireless local loop" ("WLL") technology is an effective access medium for delivering telephony and Internet/data services. The trials were conducted in France and the Netherlands. In 1998, Priority Wireless obtained a 3.5 GHz national WLL license in Norway and after the 1999 trial launched commercial services in Oslo, Norway in January 2000. In March 2000, UPC acquired 26 GHz spectrum in Norway as a result of the acquisition of ElTele Ostfold and ElTele Vestfold. In March 2000, UPC was awarded a national 3.5 GHz license in Spain were it is part of a consortium called ALO' 2000. The consortium partners include RSL Com LTD, Dragados SA, and Hidroelectrica Del Cantabrico SA. Also in March 2000, in an auction, UPC won a national 3.5 GHz license in Switzerland and regional 26 GHz licenses in Geneva and Zurich. There are additional regional 26 GHz auctions occurring in Switzerland through April 2000. UPC has submitted applications for spectrum in France and Finland and is registered to participate in the WLL auction in Austria, starting April 10, 2000. Throughout the next 18 months additional WLL spectrum is being offered. UPC plans to participate in these offerings as they unfold. UPC, through Priority Wireless, is exploring opportunities in mobile telephony, including 3rd Generation/Universal Mobile Telephone System ("3G/UMTS") and Mobile Virtual Network Operator ("MVNO"). E-Ventures Fund UPC, together with chello broadband and United, announced their intention in March 2000, to form an E-ventures fund. The venture will be funded equally by the three parties and will source investment ideas primarily from the Internet and advanced technology sectors from the United/UPC global network. UPC intends to contribute its investment in Sorrento Networks Inc. of USD16.5 million as the first key investment in the fund. In March 2000, UPC invested in Sorrento Series A Convertible Preferred Stock, with the UPC investment representing 33% of the Convertible Preferred Stock sold by Sorrento. Based in California, Sorrento Networks is a subsidiary of Osicom Technologies Inc., a NASDAQ traded company. Sorrento is a developer of metro optical networking systems used in both the interoffice and access networks. The company's systems offer an all- optical end-to-end solution that improves bandwidth utilisation, reduces network costs and complexity and provides a scalable, efficient and dynamically manageable platform to meet rapidly growing and changing bandwidth demands. Central Europe DTH During the first quarter of 2000, we began an initiative to leverage off of our Polish DTH and programming businesses to other countries in Central Europe, including the Czech Republic, Slovakia and Hungary. We believe there is a significant demand for multi-channel television in these markets, which is not being met by cable television. Further, we believe that we can obtain operating efficiencies by leveraging off of our Polish DTH personnel, facilities and satellite distribution assets. We have budgeted approximately 62.0 million in 2000 for development and the launching of this business which is expected in the fourth quarter of 2000. SBS Tender Offer We own approximately 23.5% of the outstanding stock of SBS. On March 9, 2000 we announced our intention to commence a tender offer to acquire all the shares of SBS that we do not already own. SBS owns and operates television and radio broadcasting stations in Scandinavia and other European markets. SBS currently owns and operates television stations that broadcast into Norway, Sweden, Denmark, Flemish Belgium and the Netherlands, and together with two European partners, operates the first national private television network in Hungary. Additionally, SBS owns a minority interest in a national television network in Italy, operates a television station in Slovenia under the terms of a management and funding agreement and owns 50% of a Swiss company which in March 1999 was awarded a national terrestrial broadcasting license to broadcast in Switzerland. SBS also owns and operates radio stations, which broadcast in Denmark, Sweden and Finland. The supervisory boards of both companies have approved the transaction. We have agreed to initiate an exchange offer to acquire SBS's shares at a per share price of USD40 in cash plus 0.57144 of a share of our ordinary shares A, subject to adjustment. We will adjust the stock portion of the purchase price under certain circumstances so that SBS shareholders will receive not less than USD77.50 and not more than USD86.00 for each SBS share exchanged, based on our average closing share price prevailing on the trading days ending shortly prior to making the exchange offer. We intend that all shares not purchased in the exchange offer will be converted into the right to receive the same cash and stock consideration as provided in the exchange offer, in a second step transaction following consummation of the exchange offer. This transaction is subject to a number of conditions, including regulatory approval. 21 Other Information Employees As of December 31, 1999, we, together with our consolidated subsidiaries, had approximately 6,631 employees. Certain of our operating subsidiaries, including our Austrian, Dutch and Norwegian systems, are parties to collective bargaining agreements with some of their respective employees. We believe that our relations with our employees are generally good. Regulation The provision of video, telephone, Internet/data and broadcasting networks and services in the countries in which we operate is regulated. The scope of regulation varies from country to country, although in some significant respects regulation in our Western European markets is harmonized under the regulatory structure of the European Union ("EU"). Adverse regulatory developments could subject us to a number of risks. These regulations could limit our growth plans, limit our revenues, and limit the number and types of services we offer in different markets. In addition, regulation may impose certain obligations on our systems that subject them to competitive pressure, including pricing restrictions, interconnection obligations and open-network provision obligations. Failure to comply with current or future regulation could expose us to various penalties. Set forth below is an overview of the types of regulation that affects our video, telephone and Internet/data services as well as a summary of the regulatory environment in the EU and the countries in which we operate our major systems. Video Services -------------- In the provision of video services, our operating companies are generally required to either obtain licenses or permits from or notify or register with the relevant regulatory authorities. In some countries, including France and Israel, we pay annual franchise fees, based on the amount of our revenues. In most countries where we operate, we are required to transmit to subscribers certain "must carry" channels, which generally consist of public national and local channels. Certain countries have adopted additional programming requirements, for example, in the Netherlands and Israel. In The Netherlands, applicable statutes require cable operators to transmit at least 15 television channels, including "must carry" channels, to all subscribers and, pursuant to agreements with certain municipalities, we are obligated to transmit between 20 and 30 channels in our basic tier. In Israel, cable television providers must obtain an authorization from the regulatory authority to add or remove channels from their cable programming offerings and must spend at least 15 percent of their programming expenses on local programming. The regulatory authorities in many countries where we operate also impose pricing restrictions. Generally, basic tier price increases must be approved by the relevant local or national authority. In certain countries, price 22 increases will only be approved if the increase is justified by an increase in costs associated with providing the service or if the increase is less than or equal to the increase in the consumer price index. Telephone The liberalization of the telecommunications market in much of Europe allowed new entrants like us to enter the telephone services market. The regulatory situation in some markets in which we operate, including the Czech Republic, Israel and Romania, currently precludes us from offering telephone service. Generally, our operating companies are required to obtain licenses to offer telephone services, although, for example, in Norway, providers without significant market power need only register with the appropriate regulatory authority. Our operating companies have, to date, not been subject to telephone rate regulation but would become subject to such regulation in a number of jurisdictions upon becoming a significant market power. In Austria, although not subject to rate regulation, we must notify the regulatory authority of our tariff structure and any subsequent price increases. Incumbent telephone providers in each EU market are required to offer new entrants into the telephone market interconnection with their networks. Interconnection must be offered on a non-discriminatory basis and in accordance with certain principles set forth in the relevant EU directive, including cost- based pricing. In some countries, including Austria, the Netherlands and Norway, we have had to seek the intervention of the regulatory authority in interconnection agreement negotiations with the incumbent operators. Following regulatory intervention in Austria, the incumbent operator brought an action in the Austrian courts seeking to revise certain terms of its interconnection agreements with a number of other telephone service providers. This action is still pending before the Austrian Supreme Administrative Court. Internet/Data ------------- Our chello broadband subsidiary and most of our operating companies must comply with both EU regulation and with relevant domestic law in the provision of Internet access services and on-line content. In several countries, including Norway and Hungary, the provision of Internet/data services does not require any sort of license or notification to a regulatory body. Other countries, including Austria, Belgium and The Netherlands, require that providers of these services register with or notify the relevant regulatory authority of the services they provide and, in some cases, the prices charged to subscribers for such services. Our operating companies that provide Internet services must comply with both Internet-specific and general legislation concerning data protection, content provider liability and electronic commerce. As regulation in this area develops, it will likely have a significant impact on the provision of Internet services by our operating companies. Broadcasting In addition to national laws which implement the EU directives on broadcasting, various other types of national broadcasting regulations apply to SBS and @Entertainment's Wizja TV. Over-the-air, terrestrial television and radio broadcasters operate pursuant to licenses granted by national or local regulatory authorities that allow use of certain radio frequencies in a specified geographic area, generally for a limited duration which can be renewed. Broadcasters operate subject to various regulatory conditions, such as limitations on advertising, program content and ownership. 23 Competition Law and Other Matters EU directives and national consumer protection and competition laws in our Western European and certain other markets impose limitations on the pricing and marketing of integrated packages of services, such as video, telephone and Internet/data services. These limitations are common in developed market economies and are designed to protect consumers and ensure a fair competitive market. While we may offer our services in integrated packages in our Western European markets, we are generally not permitted to make subscription to one service, such as cable television, conditional upon subscription to another service, such as telephone, that a subscriber might not otherwise take. In addition, we must not abuse or enhance a dominant market position through unfair anti-competitive behavior. For example, cross-subsidization between our business lines that would have this effect would be prohibited. We have to be careful, therefore, in accounting for discounts in services provided in integrated packages. European Union Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom are all member states of the EU. As such, these countries are required to enact national legislation which implements directives issued by the EU Commission and other EU bodies. Although not an EU Member State, Norway is a member of the European Economic Area and has generally implemented or is implementing the same principles on the same timetable as EU member states. The Czech Republic, Hungary, Malta, Poland, Romania and the Slovak Republic, which are in the process of negotiations of their membership into the EU, started adjusting their regulatory system to EU requirements. As a result, most of the markets in which we operate or have pending acquisitions have been significantly affected by regulation initiated at the EU level. On November 10, 1999 the European Commission released a report proposing new EU policies for telecommunications regulation and requested comments on its proposals. The proposed regulatory framework would attempt, among other things, to decrease national variations in regulations and licensing systems and further increase market competition. These policies would seek to harmonize licensing procedures, reduce administrative fees, ease access and interconnection, and reduce the regulatory burden for telecommunications companies. The European Commission is also proposing to use competition laws rather than regulation to prevent dominant carriers from abusing their market power. The European Commission is proposing that communications networks and services be assigned by general authorizations (with specific authorizations for assignment of radio spectrum), and that the EU harmonize spectrum allocation and spectrum policy decisions. The proposals include facilitating transfers of radio spectrum. Video Services Conditional Access. EU member states regulate the offering of conditional access systems, such as program decoders used for the expanded basic tier services offered by many of our operating companies. Providers of such conditional access systems are required to make them available on a fair, reasonable and non-discriminatory basis to other video service providers, such as broadcasters. Broadcasting. Generally, broadcasts emanating from and intended for reception within a country have to respect the laws of that country. EU member states are required to allow broadcast signals of broadcasters in other member states to be freely transmitted within their territory so long as the broadcaster complies with the law of the originating member state. An EU directive also establishes quotas for the transmission of European-produced programming and programs made by European producers who are independent of broadcasters. Another major EU directive for broadcasting, requires member states to permit a satellite broadcaster to obtain the necessary copyright license for its programs in just one country (generally, the country in which the broadcaster is established), rather than obtaining copyright licenses in each country in which the broadcast is received. 24 Telephone and Internet/Data Services Liberalization of Telecommunications Services and Infrastructure. A central aim of the liberalization process has been to reduce the monopoly power of the incumbent telecommunications operators in order to introduce competition in the European telecommunications market. Liberalization measures have been adopted under the EU Treaty's competition rules and harmonization measures based on the principle that special and exclusive rights should be abolished and that public telecommunications networks have to be made accessible on the basis of objective, transparent, public and non-discriminatory conditions. Many measures apply only to providers of public telecommunications networks or services having significant market power in a particular market. The exclusive rights of incumbent operators in the EU to provide telecommunications services were gradually removed so that competing operators and service providers would be entitled to offer all telecommunications services other than public voice telephone. The incumbent telecommunications invariably owned the national networks, however, and the lack of an alternative infrastructure to provide such liberalized services operated as a major barrier to entry into the market by competitors. In an effort to overcome this barrier, the EU introduced a directive that required member states to remove existing restrictions on the use of cable television networks to provide telecommunications services. As a result of these directives, our Western European operating companies may establish and provide telecommunications networks and/or services, including public voice telephone and Internet/data services, through their cable networks, subject to obtaining the necessary licenses and authorizations. EU telecommunications operators that have exclusive rights to provide cable television network infrastructure in a given area and achieve an annual turnover in the relevant telecommunications market of more than Euro50 million must account separately for their telecommunications services and any cable television services. In The Netherlands and Belgium, this requirement applies to all telecommunications operators providing both cable television and other telecommunications services under national law irrespective of the above- mentioned requirements. Should any of our operating companies in the EU with exclusive rights to cable television infrastructure achieve the requisite turnover, they would become subject to these requirements. In June 1999, the European Commission adopted a directive requiring member states to enact legislation directing certain telecommunications operators to separate their cable television and telecommunications operations into distinct legal entities. This directive is intended to aid the development of the cable television sector and to encourage competition and innovation in local telecommunications and high speed Internet access. The directive includes competition safeguards to deter anticompetitive cross-subsidies or discrimination by incumbent telecommunications operators as they enter into cable television or broadband services. Interconnection. An EU directive sets forth the general framework for interconnection, including general obligations for telecommunications operators to allow interconnection with their networks. The directive requires member states to impose obligations on public telecommunications network operators to negotiate interconnection agreements on a non-discriminatory basis. Public telecommunications network operators with significant market power (which, although it may vary, is generally presumed when an operator has 25% or more of the relevant market) are subject to additional obligations. They must offer interconnection without discriminating between operators that offer similar services, and their interconnection charges must follow the principles of transparency and be based on the actual cost of providing the interconnection and carriage of telephone traffic. The directive also contains provisions on collocation of facilities, number portability with certain exceptions, supplementary charges to contribute to the costs of universal service obligations and other interconnection standards. As a result, if the principles in the directive are fully applied, our operating companies in the EU and Norway should be able to interconnect with the public fixed network and other major telecommunications networks on reasonable terms in order to provide their services. Licensing. EU member states are required to adopt national legislation so that providers of telecommunications services generally require either no authorization or a general authorization which is conditional upon "essential requirements," such as the security and integrity of the network's operation. Licensing conditions and procedures must be objective, transparent and non- discriminatory. Member states may issue individual licenses in certain situations. For example, the provision of public voice telephone services and the establishment or provision of public telecommunication networks may be subject to individual licenses. In addition, 25 telecommunications operators with significant market power may be required by member states to hold individual licenses carrying more burdensome conditions than the authorizations held by other providers. Significant market power is typically 25% of the relevant market. License fees can only include administrative costs except in the case of scarce resources where additional fees are allowed. Regulation of the Internet. Although Internet-specific regulations have not been issued, EU policy may develop harmonized principles of "responsibility of content" to apply to Internet access providers analogous to those applicable to publishing companies. We do not expect such regulations to materially adversely affect our Internet business plans. Austria Video Services. The city of Vienna's approval is required for changes in subscriber rates for basic tier service. Telephone Services. Telekabel Wien has received a license to provide public voice telephone services in the entire Republic of Austria and a license for the public offer of leased lines through its cable network. These licenses are granted for an unlimited period of time. In November 1998, Telekabel Wien entered into an interconnection agreement with TA, the incumbent operator. Difficulty and delay in negotiations and agreement led Telekabel Wien to seek the intervention of the Austrian telecommunications regulator, which determined the principal terms of the agreement. TA brought an action in the Austrian courts against some of the major carriers to revise the terms of the interconnection arrangement. The Supreme Constitutional Court ruled in March 1999 that the TA's constitutionally guaranteed rights were not infringed. However, the court left open the issue of whether the decree issued by the telecommunications regulator was otherwise lawfully issued. The case is now pending before the Austrian Supreme Administrative Court. Recently, the TA brought an action before the Austrian Supreme Administrative Court against a decision of the telecommunications regulator, which determined the principal terms of granting Telekabel Wien direct access to telephone customers. If the court decides in favor of TA, the telecommunications regulator will have to make a new decision and lay down new conditions for the direct access to the telephone customers. This may also lead to the payment of additional costs by Telekabel Wien for the direct access, even for past periods. Although there are no voice telephone pricing regulations currently applicable to Telekabel Wien, the Telekom Control Commission must be notified of the tariff structure and any subsequent rate increases. In addition, if Telekabel Wien were held to have significant market power (as defined in Austria's Telecommunications Act) with respect to the services offered, certain matters including tariffs would become subject to the approval of the Telekom Control Commission. Belgium Video Services. A cable operator needs to obtain a governmental authorization from the appropriate regional authorities to operate a cable television system. Special authorizations are also required for the distribution of non-EU programs, both in Flanders and in Brussels, and we have requested a special authorization in Brussels. Cable television operators are required to transmit particular local, national and other channels as part of their basic tier. Telephone Services. UPC Belgium holds a permanent license to build and operate a public telecommunications network and a license to offer voice services. 26 France Video Services. Cable television operators must obtain licenses granted by the Conseil Superieur de l'Audiovisuel and must also enter into agreements with local authorities covering public service delegation and/or public domain occupancy. Some of UPC France's agreements with local authorities require the local authorities' approval for a change of basic rates. Cable television operators are required to transmit particular channels as part of their basic tier service. Various other national laws also restrict the content of programming distributed by cable television operators. Telephone Services. Mediareseaux holds licenses granted by the Minister of Telecommunications for a public telecommunications network and voice telephony services in three French departments in the Paris region. Mediareseaux has applied for a nation-wide license. Mediareseaux was granted temporary licenses in December 1998 and April 1999 to conduct experimental business in the field of wireless local loop in the Champs sur Marne area. UPC France's other operating companies do not hold any telecommunications licenses. The Netherlands Video Services. Operators in The Netherlands do not require a license for the installation, maintenance or operation of a cable network. Network operators need only register with the Dutch Independent Post and Telecommunications Authority ("OPTA"). Cable television network providers must transmit to all its subscribers at least 15 programs for television and at least 25 programs for radio, including approximately seven television and nine radio "must carry" channels. Our Dutch operating companies often purchased their cable television networks from the local municipalities. Pursuant to the terms of the agreements with the municipalities, the Dutch operating companies were obligated to continue to provide basic tier services of between 20 and 30 television channels, including the 15 required under the media laws. In April 1999, A2000 and the municipality of Amsterdam reached an agreement on a large-scale introduction of digital decoders and a reduction of the basic cable television package to 15 channels. The agreement allows A2000 to migrate a number of popular commercial channels to its expanded basic tier. Once the digital decoders are introduced the price for the rate regulated 15 public channel basic fee will be reduced and the price for the expanded basic tier will increase over time until it becomes unregulated in 2001. The agreement will initially affect approximately 390,000 customers in the greater Amsterdam area. Negotiations with the remaining municipalities are in process. Telephone Services. Until recently, the fixed telecommunications infrastructure was a statutory monopoly of KPN. Cable television networks may now be used for the provision of all telecommunications services. Number portability was introduced in The Netherlands in 1999. UPC Netherlands has entered into a total of three interconnection agreements with KPN, WorldCom and Enertel networks. In a decision of November 29, 1999, OPTA ruled that the temporary tariffs (based on KPN's expected costs) that KPN can charge for interconnection for the period between July 1, 1999 and July 1, 2000 will be higher than the temporary tariffs that KPN was allowed to charge for the previous period. The costs for Priority Telecom for interconnection with KPN are therefore likely to rise. In its decision of December 16, 1999, OPTA ruled that the temporary interconnection tariffs that it set for the period of July 1, 1998 to July 1, 1999 will not be corrected pursuant to calculations based upon KPN's actual costs over that period. OPTA has therefore decided to consider these temporary interconnection tariffs as the definitive tariffs (although on the basis of the calculation that OPTA made, the tariffs for this period should be higher, it decided not to allow a raise since that would have a negative effect on the position of new entrants in the market). In the event that this decision of OPTA is challenged and the definitive tariffs are consequently determined on the basis of KPN's actual costs as calculated by OPTA, Priority Telecom may have to reimburse KPN on the basis of the difference between the temporary and the definitive tariff. 27 While Priority Telecom's telephone service is not currently subject to price regulation, the prices of its competitor, KPN, are. OPTA indicated that during 1999 KPN should reduce its end-user tariffs in accordance with principles of cost orientation as set forth by OPTA. The fact that KPN's end-user tariffs for all of its basic telephone services (with the exception of international calls but including ISDN) must be cost orientated may have a negative effect on Priority Telecom's ability to compete. Norway Video Services. Under Norway's Telecommunications Act, the installation and operation of the cable infrastructure and equipment must be authorized by and registered with the Norwegian Post and Telecommunications Authority on the basis of certain necessary technical qualifications. Cable television providers have "must-carry" obligations obliging them to include three national channels and typically one local television channel in their basic tier services. UPC Norge obtained in 1998 a three-year programming license to offer pay- per-view programming and some other services. At the expiration of this license, we expect to renew the license or to have authorization to engage in such activities without a license. Telephone Services. For telephone operators and service providers without significant market power, as is currently the case with UPC Norge, no license is required to offer voice telephone services. Such providers need only register with the Norwegian Post and Telecommunications Authority. UPC Norge has entered into an interconnection agreement with Telenor. Mediation proceedings before the Norwegian Post and Telecommunications Authority between UPC Norge and Telenor concluded in July 1999. The mediation related to certain changes UPC Norge that wished to make to its current interconnection agreement with Telenor. As a result of the mediation an amendment protocol was added to the interconnection agreement. According to this amendment protocol, UPC Norge and Telenor have agreed that the current interconnection agreement will remain in force until a new interconnection agreement has been negotiated. Negotiation of the new interconnection agreement commenced in September 1999. Sweden Video Services. Apart from certain limited rules governing program content, the Swedish cable television industry is fully deregulated. No license is required to operate cable television services in Sweden. Cable television operators are presently required to transmit three or four "must carry" channels. Telephone Services. Stjarn has a license to provide telephone services to a fixed termination point and has entered into an interconnection agreement with Telia, the Swedish incumbant telephone provider. Israel Video Services. As part of the liberalization policy adopted by the Israeli Communications Ministry, the telecommunications and cable television market in Israel is expected to undergo significant reforms beginning towards the end of 2000. We expect that these reforms will include opening the multi- channel television business to competition by granting licenses to direct to home satellite operators and opening the local telephone and Internet/data transmission markets to competition by granting licenses to independent operators, thereby allowing competition with Bezeq, the Israeli incumbent telecommunications operator. Upon expiration of the existing cable television licenses, the regulatory authorities may eliminate franchise exclusivity and permit other operators to apply for cable television licenses to compete in the cable television market. Pursuant to its franchise agreements, Tevel must provide within its basic tier five tape-delivered channels subtitled in Hebrew. Tevel and other Israeli cable operators own a company that supplies this programming. This ownership is considered a "restrictive arrangement" under Israeli competition law and is regulated by the Restrictive Trade Practices Tribunal. These cable operators have received various challenges on these arrangements from competitors and the tribunal is considering actions against these arrangements. 28 Cable operators must obtain authorization to add or remove channels from their service from the Ministry of Communications. Tevel currently is required to provide three "must-carry" off-air channels. Its current arrangement currently prohibits "tiering" of video services. The Communications Ministry made a preliminary determination approving "tiering" of cable television services upon the earlier of DTH satellite service providers achieving 250,000 subscribers (approximately 100,000 subscribers from the Tevel franchise areas) or a period of 9 months from the first day of commercial broadcast of DTH service. If adopted, the ministry's determination further provides that cable television operators must sell certain previously exclusive channels to DTH providers prior to the introduction of tiering. Restrictive Trade Practices Matters. On November 8, 1999, the Restrictive Trade Practices Tribunal announced its determination that all Israeli cable television operating companies, including Tevel and Gvanim, were monopolies in their respective franchise areas in the field of supplying multi-channel pay television. Tevel and Gvanim intend to contest this declaration, and they believe the other cable television operators will do likewise. The declaration would subject Tevel to the provisions of the Israel Anti-trust law applicable to monopolies. In addition, the Commissioner announced that he is considering (i) declaring Tevel and Gvanim monopolies in the fields of wide-band infrastructure in their respective franchise areas and (ii) declaring all of the cable companies monopolies in the field of content purchased for multi-channel television use. On November 30, 1999, Tevel was notified by the Restrictive Trade Practices Authority of the Authority's anti-trust investigation in connection with Tevel's provision of multi-channel television services to hotels and kibbutzim within its franchise areas. Telephone Services. As part of the proposed liberalization of the telecommunications market, Tevel and Gvanim expect to be permitted to provide Internet/data and voice telephone services in their franchise areas, and to interconnect with Bezeq on non-discriminatory terms with cost-based rates. There may be limits on a cable television system's ownership, operation or marketing with a provider of telecommunications services. Czech Republic Video Services. Cable television operators in the Czech Republic must obtain permits to establish and operate cable television networks. In addition, cable television operators must either obtain a license to broadcast television programming over the network or register to distribute television programming over the network, depending on the services provided and distribution technologies used. Telephone. In the Czech Republic, SPT TELECOM currently has exclusive rights for the provision of international and long-distance services, including local telephone services outside of delineated local networks. The liberalization of the telephone market in the Czech Republic is expected to begin on January 1, 2001, with full liberalization in place by December 31, 2002. Hungary Video Services. Cable operators in Hungary are not granted exclusive franchises; however, all cable operators must be properly registered with the appropriate government agency and must meet certain technical licensing requirements. Cable operators are required to carry certain "must carry" channels in their basic tier. A single cable operator may not provide service to homes exceeding in the aggregate one-sixth of the Hungarian population. Hungarian regulatory authorities are currently investigating whether Telekabel Hungary is in compliance with this rule. We expect the investigation to be concluded by early 2000. Telephone Services. MATAV and other local telephony providers, including Monor, have a monopoly in local voice telephony services in their respective service areas until 2002. Recent legislation restricts MATAV and other local telephony providers, including Monor, from acquiring additional cable assets. Poland Video Services. Cable television operators in Poland are required to obtain permits to install and operate cable television systems and must register certain programming that they transmit over their networks. 29 @Entertainment's subsidiaries have registered most of the programming that they transmit on their cable networks, except programming transmitted on networks for which they do not have permits. Most of the Wizja proprietary channels and all channels on the Wizja platform are currently licensed in the United Kingdom by the Independent Television Commission as satellite television services. As such, they are then retransmitted under the European Convention on Transfrontier Broadcasting to Poland and then distributed via cable and DTH in Poland. As its regulatory regime develops, Poland may seek to regulate the reception of DTH signals. Poland's regulatory environment is undergoing constant change. A new draft Telecommunications Law is currently under discussion in the Polish Parliament. We do not know how such change will impact our business. Telephone Services. @Entertainment will be required to obtain additional permits from the Minister of Communications to offer other telecommunications services such as Internet access or broadband transmission services. Foreign Ownership Restrictions. Cable television permits may only be issued to and held by Polish citizens, or companies in which foreign persons hold no more than 49% of the share capital, ownership interests and voting rights. In addition, a majority of the management and supervisory board of any cable television operator holding permits must be comprised of Polish citizens residing in Poland. Programming may be broadcast in Poland only by Polish entities in which foreign persons hold no more than 33% of the share capital, ownership interest and voting rights. The majority of the management and supervisory boards of any company holding a broadcasting license must be comprised of Polish citizens residing in Poland. We believe that the ownership structure of @Entertainment and its subsidiaries comply with Poland's regulatory restrictions on foreign ownership. Anti-Monopoly Act Matters. Many of the programming agreements that @Entertainment has entered into for its cable networks and its DTH service contain exclusivity clauses which restrict or prohibit the provider of such programming from providing such programming to other cable or DTH operators in Poland. Although such exclusivity clauses are not specifically prohibited under the Anti-Monopoly Act, such agreements may be found unlawful, and therefore unenforceable, if they restrict or hinder competition or otherwise involve the abuse of a dominant position. The Anti-Monopoly Office has issued four decisions against subsidiaries of @Entertainment in various local markets deciding the relevant subsidiary had achieved a dominant position and abused that dominant position in the respective market in which it operates. These decisions have been based on one or more of the following actions: . a lease operating arrangement of one of our Polish operating subsidiaries; . moving certain satellite channels to a new frequency without termination of agreements with subscribers whose television sets are not equipped to receive the new frequency; . increasing rates without providing subscribers a detailed basis for the price increases; . changing the programming line-up without sufficient notice to subscribers; . offering extended basic tier services in certain forms; and . certain rate increases and penalty charges. One of these decisions has been overturned by the Anti-Monopoly court and the other three are currently being appealed. United Kingdom The Independent Television Commission ("ITC") regulates almost all television services provided from the United Kingdom. The ITC currently licenses most of @Entertainment's channels, including all DTH channels, as satellite television services. @Entertainment's licenses place several conditions on @Entertainment's provision of services, including program content, program sponsorship and advertising. 30 Item 2. Properties ---------- We lease our corporate offices in Amsterdam and London. Our operating companies and subsidiaries generally lease their offices as well. We own small parcels of property in various countries that we use for our network equipment. In other countries, we have been able to obtain easements for this equipment. Item 3. Legal Proceedings ----------------- We and our operating companies are not parties to any material legal proceedings. From time to time, we and our operating companies may become involved in litigation relating to claims arising out of its operations in the normal course of business. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. 31 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters --------------------------------------------------------------------- Our ordinary shares A trade on the Amsterdam Stock Exchange ("AEX") under the symbol "UPC" and ADSs representing ordinary shares A trade on the Nasdaq National Market under the symbol "UPCOY." Both began trading on February 12, 1999, at the time of our initial public offering. The following table shows the range of high and low sales prices reported on the AEX and Nasdaq:
AEX NASDAQ -------------------- -------------------- High Low High Low ------- -------- -------- --------- (in Euros) (in US Dollars) Year ended December 31, 1999: First Quarter (from February 12, 1999)... 12.75 9.82 13.81 10.85 Second Quarter........................... 20.88 12.40 21.71 13.13 Third Quarter............................ 23.12 17.67 23.50 18.79 Fourth Quarter........................... 42.33 19.08 43.49 20.17
As of March 24, 2000, there were approximately 24 holders of record of our ADSs. We generally do not know who the owners of our ordinary shares A are since they are not held in bearer form. We have never paid cash dividends on our ordinary shares. In March 2000, at an extraordinary general meeting of shareholders, the shareholders approved the amendment of UPC's Articles of Association to (i) split each ordinary share A, priority share, preference share A and preference share B (as of December 31, 1999, with a nominal value of Euro2.00 each) into three shares with a nominal value of Euro1.00 each, (ii) split each ordinary share B (as of December 31, 1999, with a nominal value of Euro0.02 each) into three shares with a nominal value of Euro0.01 each and (iii) pay up an amount of Euro145.2 million on account of the share premium reserve of the Company. All share and per share amounts have been retroactively restated to reflect the share split from 3:1. 32 Item 6. Selected Financial Data ----------------------- SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for the years ended December 31, 1999, 1998, 1997 and 1996 and for the six months ended December 31, 1995 have been derived from our audited consolidated financial statements, as restated to include Monor Communications Group, Inc. and Tara Television Limited for all periods in which their operations were part of United's consolidated results. The following consolidated financial data for the six months ended June 30, 1995 have been derived from unaudited financial statements that, in our opinion, reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial data for such periods and as of such date. Due to the relative value of the assets contributed by United and Philips, the cable television properties contributed by Philips are deemed to be our predecessor. On December 11, 1997, United acquired the 50% of us that it did not already own from Philips. As a result of this acquisition and the associated push-down of United's basis on December 11, 1997, the financial information for the years ended December 31, 1999 and 1998 is presented on a "post-acquisition" basis. We adopted the Euro reporting currency effective December 31,1999. We have retroactively restated financial information for all periods presented using the exchange rate fixed on January 1, 1999 of Euro1.0 to 2.20371 Dutch Guilders. The data set forth below for us is qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements and notes thereto and also with "Management's Discussion and Analysis of Financial Condition and Results of Operations".
UPC Predecessor Interest -------------------------------------------------------- -------------------------- Six Months Six Months Year Ended December 31, Ended Ended -------------------------------------------------------- December 31, June 30, 1999 1998 1997 1996 1995 1995 ----------- ----------- ----------- ----------- ----------- ----------- (Euros, in thousands except per share data) Statement of Operations Data: Service and other revenue...... 447,501 185,582 153,040 111,257 45,459 41,339 Operating expense.............. (293,778) (62,830) (53,777) (37,409) (14,887) (10,437) Selling, general & administrative expense...................... (466,260) (218,587) (54,030) (36,836) (15,255) (10,709) Depreciation and amoritization. (266,070) (85,150) (60,302) (36,226) (15,417) (9,575) ----------- ----------- ----------- ----------- ----------- ----------- Net operating income (loss).... (578,607) (180,985) (15,069) 786 (100) 10,618 Interest income................ 28,064 3,357 2,955 1,251 2,906 - Interest expense............... (186,408) (47,355) (32,100) (17,459) (9,018) - Gain on sale of assets......... 1,501 - - - - - Provision for loss on investment related costs................ - (2,827) (8,571) - - - Foreign exchange gain (loss) and other expense................ (22,561) 1,221 (18,634) (9,620) (1,532) - ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) before income taxes and other items........ (758,011) (226,589) (71,419) (25,042) (7,744) 10,618 Shares in results of affiliated companies, net............... (29,760) (28,962) (11,552) (13,936) (14,410) (1,044) Minority interests in subsidiaries 1,651 523 69 (1,002) (87) - Income tax benefit (expense)... 1,822 (551) 748 (231) 70 - ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) ............. (784,298) (255,579) (82,154) (40,211) (22,171) 9,574 =========== =========== =========== =========== =========== =========== Basic and diluted loss per ordinary share........................ (2.08) (1.03) (0.30) (0.14) (0.08) n/a =========== =========== =========== =========== =========== Weighted-average number of ordinary shares outstanding 377,969,829 247,915,834 275,421,933 261,187,767 261,187,767 n/a =========== =========== =========== =========== ===========
33
Predecessor UPC Interest --------------------------------------------------------- ----------- Six Months Year Ended December 31, Ended --------------------------------------------------------- June 30, 1999 1998 1997 1996 1995 1995 ---------- ----------- ----------- ---------- ---------- ---------- (Euros in thousands except per share data) Selected Balance Sheet Data Non-restricted cash and cash equivalents..... 1,025,460 13,419 45,443 19,807 56,221 182 Other current assets......................... 311,202 61,735 38,762 37,784 78,362 4,538 Investments in affiliated companies 242,847 223,737 187,706 118,195 122,822 2,360 Property, plant and equipment................ 1,908,414 273,628 220,075 188,768 126,053 87,126 Intangible assets............................ 2,611,413 308,585 313,129 122,705 94,964 998 Total assets............................. 6,802,272 938,317 869,309 488,518 478,781 100,013 Short-term debt.............................. 213,532 159,664 116,855 204,152 201,207 - Other current liabilities.................... 565,207 110,956 84,150 54,748 42,008 60,035 Long-term debt............................... 3,903,410 533,078 438,397 125,153 107,156 - Total liabilities........................ 4,770,177 960,208 665,779 389,370 352,817 60,035 Total shareholders' equity (deficit)..... 2,020,200 (33,659) 199,575 97,081 125,329 39,343
34 Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward- looking statements may include statements concerning our plans, objectives and future economic prospects, expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements involve both known and unanticipated risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from what we say or imply with the forward-looking statements. These factors include, among other things, changes in television viewing preferences and habits by our subscribers and potential subscribers, their acceptance of new technology, programming alternatives and new video services we may offer. They also include our ability to complete announced transactions and to manage and grow our newer telephone and Internet/data services. These forward-looking statements apply only as of the time of this report and we have no obligation or plans to provide updates or revisions to these forward-looking statements or any other changes in events or circumstances on which these forward-looking statements are based. The following discussion and analysis of financial condition and results of operations covers the years ended December 31, 1999, December 31, 1998 and December 31, 1997, as restated to include Monor Communications Group, Inc., Tara Television Limited, and Ibercom, Inc. for all periods in which their operations were part of United's consolidated results, and should be read together with our consolidated financial statements and related notes included elsewhere herein. These consolidated financial statements provide additional information regarding our financial activities and condition. Introduction We own and operate broadband communications networks in 12 countries in Europe and in Israel. We provide communications services in many European countries through our business lines: cable television, telephone, DTH and programming, and Internet/data services. Our subscriber base is the largest of any group of broadband communications networks operated across Europe. We intend to continue to increase our presence in the European market through acquisitions as the European telecommunications market consolidates, and to implement our branded package of video, voice and Internet/data product offerings in systems we acquire. UPC commenced its present business in July 1995. Most of our operating systems have provided video services for a long time. During late 1997, we introduced Internet/data services as a product offering in our consolidated systems. During 1998, we began the development of several other new businesses including chello broadband, Priority Telecom and UPCtv. During 1998, the Internet/data service business and telephone business were developed at both local country operating companies and at the corporate pan-European level. 35 History of UPC Since formation, we have developed largely through acquisitions. The most recent acquisitions have resulted in significant growth in our consolidated revenues and expenditures. During 1998, significant transactions included our acquisition in January 1998, of 100% of the Combivisie cable television systems in the region surrounding our KTE system in The Netherlands for a purchase price of 82.0 million. Effective January 1, 1998, we combined the Combivisie and KTE systems to form CNBH, which we consolidated through July 1998. In August 1998, we and NUON combined all of our Dutch broadband cable television and telecommunications businesses to form UTH. We contributed 100% of CNBH and 50% of A2000 for our 51% interest in UTH. NUON contributed 100% of Telekabel Beheer. As a result of the creation of UTH, from August 1, 1998 through our acquisition of NUON's 49% interest in UTH in January 1999, we did not consolidate the results of CNBH and accounted for UTH using the equity method of accounting. In June 1998, we acquired from Time Warner Entertainment Company L.P. 50% of Kabelkom, the Hungarian cable television system holding company, increasing our existing 50% ownership to 100%. The purchase price was approximately USD27.5 million (26.3 million). Effective June 30, 1998, we combined our interests in Kabelkom with Kabeltel, a group of Hungarian cable television systems located in Budapest and other large Hungarian cities, forming Telekabel Hungary. We own 79.25% of Telekabel Hungary, Hungary's largest cable television operator, and started consolidating its results as of such date. During 1999, we have continued to grow through acquisitions. The following table summarizes our larger acquisitions during 1999. 36
Ownership Interest Closing Purchase Operating Companies Acquired Location Date Price - ------------------- --------- -------- ------- -------- UTH (1)........................ 49% The Netherlands February 1999 235.1 Gelrevision.................... 100% The Netherlands June 1999 106.1 SBS............................ 13.3% pan-European July/August 1999 93.0 Stjarn......................... 100% Sweden July 1999 371.1 Videopole...................... 100% France August 1999 126.8 Time Warner Cable France....... 100% France August 1999 80.3 @Entertainment................. 100% Poland August 1999 750.7 A2000 (2)...................... 50% The Netherlands September 1999 201.8 Kabel Plus..................... 94.6% Czech/Slovak Republics October 1999 141.9 Primacom AG.................... 18.2% Germany December 1999 230.4
(1) We acquired the 49% of UTH that we did not already own. (2) We acquired the 50% of A2000 that we did not already own. We have continued to make acquisitions during 2000. In February 2000, we closed the acquisition of Intercomm France Holding S.A., for approximately 36.0 million, plus an 8% interest in UPC France. In February 2000, we acquired an additional 10.2% of SBS for 162.5 million, increasing our ownership in SBS to 23.5%. In March 2000, we announced our intention to commence a tender offer to acquire all of the outstanding shares of SBS that we do not already own. We have agreed to initiate an exchange offer to acquire SBS's shares at a per share price of $40 in cash plus 0.57144 of a share of our ordinary shares A, subject to adjustment. We expect the SBS transaction to close in the third quarter of 2000. In March 2000, we closed the acquisition of K&T Group, a cable system in the Netherlands, for a purchase price of approximately 1,175.0 million. We have also increased our investment in Primacom AG to 24.9%. Adjusted EBITDA Management generally considers Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA represents earnings before net interest expense, income tax expense, depreciation, amortization, stock-based compensation charges, management fees, minority interest, share in results of affiliated companies (net), currency exchange gains (losses) and other non-operating income (expense) items. We believe Adjusted EBITDA helps investors to assess the cash flow from our operations from period to period and thus to value our business. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. We are not entirely free to use the cash represented by our Adjusted EBITDA as we please. Several of our consolidated operating companies are restricted by the terms of their debt arrangements. Each company has its own operating expenses and capital expenditure requirements, which can limit our use of cash. Our presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate EBITDA in the same manner. 37 The introduction of telephone services and Internet/data services had a significant negative impact on operating income (loss) and Adjusted EBITDA during 1999. We expected this negative impact due to the high costs associated with obtaining subscribers, branding, and launching these new services against the incumbent operator. This negative impact is expected to decline. We intend for these new businesses to be Adjusted EBITDA positive after two to three years following introduction of the service, but there can be no assurance this will occur. Stock based compensation expense results from our stock option and phantom stock option plans, including the plans of our subsidiary chello. Prior to our initial public offering, our stock option plan required variable plan accounting. Under variable plan accounting, increases in the fair market value of our shares result in compensation charges that are expensed for vested options. Decreases in fair market value would result in compensation credits. A compensation charge is generally a non-cash expense. Following our initial public offering, our stock option plan no longer requires variable plan accounting, however, our phantom stock option plan and the chello plans continue to require variable plan accounting. We currently classify our business into five segments, comprised of 1) cable television, 2) telephone (Priority Telecom and UPC affiliates), 3) Internet/data (chello and UPC affiliates), 4) programming and DTH and 5) corporate and other. The following table presents an overview of our revenue and adjusted EBITDA by segment for the years ended December 31, 1999, 1998 and 1997.
For the Years Ended December 31, ------------------------------------------------------- 1999 1998 1997 -------------- -------------- --------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Revenue: Cable.................................................. 363,348 171,446 145,409 Telephone.............................................. 40,273 241 - Internet/data.......................................... 25,055 4,295 347 Programming and DTH.................................... 11,370 611 45 Other.................................................. 7,455 8,989 7,239 ---------- ------------ ----------- 447,501 185,582 153,040 ========== ============ =========== Adjusted EBITDA: Cable.................................................. 116,509 76,600 60,155 Telephone.............................................. (42,099) (5,249) - Internet/data.......................................... (76,267) (11,281) 175 Programming and DTH.................................... (76,565) (4,570) (5,233) Other.................................................. (41,405) (4,933) (7,679) ---------- ------------ ----------- (119,827) 50,567 47,418 ========== ============ ===========
Overview of Our Activities To date, our primary source of revenue has been video entertainment services. For the years ended December 31, 1999, December 31, 1998 and December 31, 1997, our video services accounted for approximately 81.2%, 92.4% and 95.0%, respectively, of our consolidated revenues. For the same periods, our telephone services accounted for about 9.0%, 0.1% and 0%, respectively, of our consolidated revenue, our Internet/data service accounted for about 5.6%, 2.3% and 0.2%, respectively, and our DTH and programming revenues accounted for about 2.5%, 0.3% and 0%, respectively. We believe that an increasing percentage of our future revenues will come from telephone and Internet/data services. Within a decade, video services could account for half of our total revenue, as our other services increase. These are forward-looking statements and will not be fulfilled unless our new services grow dramatically. Our capital constraints, technological limitations, competition, lack of programming, loss of personnel, adverse regulation and many other factors could prevent our new services from growing as we expect. We believe that our new services will continue to have a negative impact on our operating income and EBITDA due to the one time costs associated with obtaining a customer. We have defined these costs as "customer acquisition costs" and have begun to track these costs. Customer acquisition costs consist of sales commissions and call-for-action type advertising. 38 Cable Television Our operating systems generally offer a range of video service subscription packages including a basic tier, which typically includes 26 to 32 channels, and an expanded basic tier, which typically includes 6 to 13 additional channels. In some systems, we also offer mini-tiers, premium programming, which typically includes 2 channels and pay-per-view programming, which includes 5 to 10 channels. Historically, video services revenue has increased as a result of: . acquisitions of systems, . subscriber growth from both well established and developing systems, and . increases in revenue per subscriber from basic rate increases and the introduction of expanded basic tiers and pay-per-view services. Pricing We usually charge a one-time installation fee when we connect video subscribers, a monthly subscription fee that depends on whether basic or expanded basic tier service is offered, and incremental amounts for those subscribers purchasing pay-per-view and premium programming, which are generally offered only to expanded basic tier subscribers. In our Western European markets, price controls by various local and national governmental agencies apply to the basic tier services. Expanded basic tier, pay-per-view and premium programming are subject to EU and national competition laws generally but are not subject to sector-specific price controls. Costs of Operations Video services operating costs include the direct costs of programming, franchise fees and operating expenses necessary to provide the service to the subscriber. Direct costs of programming are variable, based on the number of subscribers. The cost per subscriber is established by negotiation between us and the program supplier or rates negotiated by cable associations. Franchise fees, where applicable, are typically based upon a percentage of revenue and typically range from 3% to 5% in Belgium and are approximately 13.5% in Austria. Other direct operating expenses include operating personnel, service vehicles, maintenance and plant electricity. Selling, general and administrative expenses include personnel-related costs such as stock-based compensation expenses, marketing, sales and commissions, legal and accounting, office facilities and other overhead costs. Results of Operations - Cable Television The following table sets forth information from, or derived from, our consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997. 39
For the Years Ended December 31, ------------------------------------------------------- 1999 1998 1997 ---------------- ---------------- ---------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Service and other revenue........................................ 363,348 171,446 145,409 Operating expense................................................ (143,131) (55,718) (50,616) Selling, general and administrative expense...................... (103,708) (39,128) (34,638) ------------- ------------- ----------- 116,509 76,600 60,155 Adjustments: Stock-based compensation expense................................. - - - ------------- ------------- ----------- Adjusted EBITDA.................................................. 116,509 76,600 60,155 ============= ============= =========== As a percentage of revenue: Operating expense................................................ -39.49% -32.50% -34.81% ============= ============= =========== Selling, general and administrative expense...................... -28.54% -22.82% -23.82% ============= ============= =========== Adjusted EBITDA.................................................. 32.06% 44.68% 41.37% ============= ============= ===========
Revenue - Cable Television During the year ended December 31, 1999, our cable television revenue increased 191.9 million to 363.3 million from 171.4 million for the year ended December 31, 1998, a 112.0 % increase. The increase in cable television revenue resulted primarily from our acquisitions in 1999, which are included in our consolidated results of operations from their respective dates of acquisition. The increase in cable television revenue attributable to acquisitions made during 1999 totaled 160.8 million, or 83.7% of the total increase. Of this increase, acquisitions in the Netherlands represents 59.3%, acquisitions in France represent 12.7%, the acquisition in Poland represents 15.8% and the acquisition in Sweden represents 7.8%. The remaining increase in cable television revenue of approximately 16.3% came from subscriber growth, increased revenue per subscriber in Austria, Norway, our existing system in France, and our systems in Eastern Europe and the inclusion of a full year of operations in 1999 for acquisitions completed in 1998. During the year ended December 31, 1998, our cable television revenue increased 26.0 million to 171.4 million from 145.4 million for the year ended December 31, 1997, a 17.9 % increase. The increase in cable television revenue resulted primarily from the acquisition of Combivisie in January 1998 which was consolidated through July 31, 1998 and the consolidation of Telekabel Hungary effective July 1, 1998. Of the 26.0 million, approximately 21.6% was attributable to Combivisie and 48.5% was attributable to Telekabel Hungary. The balance of the increase in cable television revenue came from subscriber growth and in revenue per subscriber in Austria, Norway, our existing system in France, and our systems in Eastern Europe. Operating Expense - Cable Television During the year ended December 31, 1999, our cable television operating expense increased 87.4 million to 143.1 million from 55.7 million for the year ended December 31, 1998, a 156.9% increase. The increase in cable television operating expense primarily relates to our acquisitions in 1999, which are included in our consolidated results of operations from their respective dates of acquisition. The increase in cable television operating expense attributable to acquisitions made during 1999 totaled 64.5 million, or 73.8% of the increase. Of this increase, acquisitions in the Netherlands represents 50.8%, acquisitions in France represent 19.7%, the acquisition in Poland represents 18.4% and the acquisition in Sweden represents 7.0%. The remaining increase in cable television operating expense came from subscriber growth and development costs incurred in our systems in Eastern Europe. As a percentage of revenue, operating expense increased 6.9% from 32.5% for the year ended December 31, 1998 to 39.4% for the year ended December 31, 1999. This 21.2% increase is primarily due to higher operating costs as a percentage of revenue for systems we acquired during 1999. As a percentage of revenue, operating expenses in our new acquisitions was approximately 38.3%. We expect to reduce this percentage in future years through revenue growth and operating efficiencies. 40 During the year ended December 31, 1998, our cable television operating expense increased 5.1 million to 55.7 million from 50.6 million for the year ended December 31, 1997, a 10.1% increase. The majority of this increase was attributable to the acquisitions of Telekabel Hungary and Combivisie. The remaining increase comprised direct costs related to subscriber growth and development costs incurred in France and Eastern Europe. As a percentage of revenue, operating expense decreased 2.3% from 34.8% for the year ended December 31, 1998 to 32.5% for the year ended December 31, 1999. This 6.6% decrease is primarily attributable to our acquisition of Combivisie, which was consolidated in our results of operations from January 1998 through July 1998. Selling, General and Administrative Expense - Cable Television During the year ended December 31, 1999, our cable television SG&A expense increased 64.6 million to 103.7 million from 39.1 million for the year ended December 31, 1998, a 165.0% increase. The increase in cable television SG&A expense primarily relates to our acquisitions in 1999, which are included in our consolidated results of operations from their respective dates of acquisition. The increase in cable television SG&A expense attributable to acquisitions made during 1999 totaled 56.9 million, or 88.1% of the total increase. Of this increase, acquisitions in the Netherlands represents 48.3%, acquisitions in France represent 14.8%, the acquisition in Poland represents 24.4% and the acquisition in Sweden represents 6.0%. The increase in cable television SG&A related to 1999 acquisitions was partially offset by decreased cable television SG&A expense in our existing systems, as these systems reached a more developed stage. As a percentage of revenue, SG&A expense increased 5.7% from 22.8% for the year ended December 31, 1998 to 28.5% for the year ended December 31, 1999. This 25.0% increase is primarily due to higher SG&A expense as a percentage of revenue for systems we acquired during 1999. As a percentage of revenue, SG&A expense in our new acquisitions was approximately 33.7%. We expect to reduce this percentage in future years through revenue growth and operating efficiencies. During the year ended December 31, 1998, our cable television SG&A expense increased 4.5 million to 39.1 million from 34.6 million for the year ended December 31, 1997, a 13.0% increase. The majority of this increase was attributable to the acquisitions of Telekabel Hungary and Combivisie. As a percentage of revenue, SG&A expense decreased 1.0% from 23.8% for the year ended December 31, 1998 to 22.8% for the year ended December 31, 1999. This 4.2% decrease is primarily attributable to our acquisition of Combivisie, which was consolidated in our results of operations from January 1998 through July 1998. Telephone We began to offer cable telephone services in July 1997, through our equity investment in A2000. The service was launched under the brand name Nedpoint, now rebranded Priority Telecom. We currently offer local cable telephone services, under the brand name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. Priority Telecom launched its service on a trial basis in Vienna in November 1998 and in February 1999 launched its business and resedential service. Our Priority Telecom service was officially launched in an area of UPC France in March 1999, UPC Norge in April 1999, and a part of UPC Nederland's service area in May 1999. We also provide national and international long distance voice telephone services. In addition to our cable telephone operations, our Monor system offers traditional telephone services. Our operating systems offer a full complement of telephone services, including caller ID, call waiting, call forwarding, call blocking, distinctive ringing and three-way calling. Additionally, we have begun to offer business services, including dedicated leased lines, LAN inteconnection services and cable ISDN. Pricing In order to achieve high-growth from early market entry, we price our telephone service at a discount compared to services offered by incumbent telecommunications operators. Initially, we will also waive or substantially discount installation fees. Revenue from residential telephone consists of a flat monthly line rental and a usage charge based upon minutes. Other telephone revenue includes IP data services to the small and medium sized business customers, carrier select revenue, as well as lease line and other business revenues. 41 Costs of Operations Our telephone cost of operations include interconnect costs, number portability fees, network operations, customer operations and customer care. Interconnect costs are variable based upon usage as determined through negotiated interconnect agreements. Selling, general and administrative expenses includes branding, marketing and customer acquisition costs, personnel related costs, such as stock-based compensation expense, legal and accounting, human resources, office facilities and other overhead costs. Customer acquisition costs consist of sales commissions and call-for-action type advertising. Results of Operations - Telephone The following table sets forth information from, or derived from, our consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997.
For the Years Ended December 31, -------------------------------------------------------- 1999 1998 1997 ------------------- ------------------ --------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Service and other revenue...................... 40,273 241 - Operating expense.............................. (37,172) (621) - Selling, general and administrative expense.... (60,673) (8,216) - ------------------- ------------------ -------------- (57,572) (8,596) - Adjustments: Stock-based compensation expense............... 15,473 3,347 - ------------------- ------------------ -------------- Adjusted EBITDA................................ (42,099) (5,249) - =================== ================== ============== As a percentage of revenue: Operating expense.............................. -92.30% -257.68% 0.00% =================== ================== ============== Selling, general and administrative expense.... -150.65% -3409.13% 0.00% =================== ================== ============== Adjusted EBITDA................................ -104.53% -2178.01% 0.00% =================== ================== ==============
Revenue - Telephone During the year ended December 31, 1999, our telephone revenue increased 40.1 million to 40.3 million from 0.2 million for the year ended December 31, 1998. During 1999, we launched local telephone services, under the brand name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. In addition, A2000, which we consolidated effective September 1, 1999, had an existing telephone service from July 1997. During the year ended December 31, 1998, our telephone revenue was limited to revenue from trial launches in Austria and the Netherlands. We had no telephone revenue during the year ended December 31, 1997. Operating Expense - Telephone During the year ended December 31, 1999, our telephone operating expense increased 36.6 million to 37.2 million from 0.6 million for the year ended December 31, 1998. During 1999, we launched local telephone services, under the brand name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. In addition, A2000, which we consolidated effective September 1, 1999, had an existing telephone service from July 1997. 42 During the year ended December 31, 1998, our telephone operating expense was limited to activities from trial launches in Austria and the Netherlands. We had no telephone operating expense during the year ended December 31, 1997. Selling, General and Administrative Expense - Telephone During the year ended December 31, 1999, our telephone SG&A expense increased 52.5 million to 60.7 million from 8.2 million for the year ended December 31, 1998. Telephone SG&A expense for the year ended December 31, 1999 increased primarily due to the launch during 1999 of local telephone services, under the brand name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. The increase in telephone SG&A is also attributable to stock- based compensation expense, which was 15.5 million for the year ended December 31, 1999, compared to 3.3 million for the year ended December 31, 1998. In addition, during 1999 we continued to incur costs related to the development of the Priority Telecom brand. During the year ended December 31, 1998, our telephone SG&A expense was limited to activities from trial launches in Austria and the Netherlands, and development activities in Norway and France and personnel expenses, including stock-based compensation expense of 3.3 million. Also, during 1998 we incurred costs related to the development of the Priority Telecom brand. We had no telephone SG&A expense during the year ended December 31, 1997. Internet/Data Services We are in the early stages of executing our Internet/data business, and the profitability of both the internet as a mass market delivery vehicle and our business is unproven. Our expansion plans contemplate geographic coverage across several continents, with locally tailored content and products and services in multiple languages. We operate our internet/data business internationally through chello broadband and locally through our operating companies. Chello launched its service in April 1999, and provides high-speed internet access and local portal and integrated broadband content to our local operating companies and non-affiliated operating companies through a franchise agreement. Under the franchise agreement chello provides our affiliates and non-affiliated local operators with high speed connectivity, caching, local language broadband portals, and marketing support for a fee based upon a percentage of subscription and installation revenue. In the future the franchise agreement further provides that the local operator will receive a percentage of the revenue from chello generated e-commerce and advertising. The local operator is responsible for the local network including the upgrade, management and maintenance, sales and training, customer support and service, installation and cost of customer premise equipment. During 1999, substantially all of chello's revenues were subscription based and derived from our local operating companies. These intercompany revenues have been eliminated in our consolidated operating results. We believe we have an opportunity to grow non-affiliated revenue through the chello service in future years. We cannot predict whether our products and services, including broadband internet services in general, will become accepted or profitable in these markets. We have commercially launched or trial launched services in eight markets, five of which are our subsidiaries. In these markets, we offer high-speed internet access and local language portals that integrate multi-media, locally relevant content and services specially designed for the broadband environment. Pricing To date, virtually all of our revenues have been derived from monthly subscription fees of which chello receives approximately 40% for its services. Most local operators have chosen to waive installation charges. In the future, we expect to generate revenues from advertising and e-commerce as we develop our portals and our digital set-top box services. Currently, our services are offered to residential subscribers at flat subscription fees ranging from 27 to 40 per month, including VAT. Our flat fee is designed to be generally lower than the costs associated with dial-up internet access, including the access fees and phone charges with dial-up access. For business subscribers which receive services other than our standard broadband internet access services, we generally agree the pricing with local operators on a case by case basis, depending on the size and capacity requirements of the businesses. Cost of Operations Our operating expenses consist primarily of leased-line and network development and management costs associated with AORTA and our network generally. Additional costs of operations, includes portal design and development, local connectivity costs, and help desk and customer care costs. Stock-based compensation expenses related to personnel directly working in operations are also a part of our operating expense. Selling, general and administrative expenses include branding, marketing, customer acquisition costs, personnel-related costs, including stock-based compensation expenses, legal and accounting, office facilities and other overhead. Customer acquisiton costs include commissions and call-for-action type advertising. Results of Operations - Internet/Data The following table sets forth information from, or derived from, our consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997. 43
For the Years Ended December 31, --------------------------------------------------------- 1999 1998 1997 ------------------- ----------------- ---------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Service and other revenue.................... 25,055 4,295 347 Operating expense............................ (61,269) (3,473) (172) Selling, general and administrative expense.. (115,902) (17,047) - ------------------- ----------------- ---------------- (152,116) (16,225) 175 Adjustments: Stock-based compensation expense............. 75,849 4,944 - ------------------- ----------------- ---------------- Adjusted EBITDA.............................. (76,267) (11,281) 175 =================== ================= ================ As a percentage of revenue: Operating expense............................ -244.54% -80.86% -49.57% =================== ================= ================ Selling, general and administrative expense.. -462.61% -396.90% 0.00% =================== ================= ================ Adjusted EBITDA.............................. -304.41% -262.65% 50.43% =================== ================= ================
Revenue - Internet/Data During the year ended December 31, 1999, our internet/data revenue increased 20.8 million to 25.1 million from 4.3 million for the year ended December 31, 1998. The increase is primarily due to the launch of residential and business cable-modem high speed Internet access services, branded chello broadband in 1999. During the second quarter of 1999, we launched chello broadband, on the upgraded portion of our networks in Austria, Belgium, France, the Netherlands (with the exception of A2000) and Norway. We launched chello broadband in A2000 and Sweden in the fourth quarter of 1999. Internet/data revenue from 1998 primarily relates to revenue from Austria, Belgium and Norway, which provided Internet access service from 1997. In general, chello receives 40% of subscription-based revenue for its service from the local operator. Intercompany revenues are eliminated in our consolidated operating results. During the year ended December 31, 1998, our Internet/data revenue increased 4.0 million to 4.3 million from 0.3 million for the year ended December 31, 1997. Internet/data revenue from 1998 and 1997 primarily relates to revenue from Austria, Belgium and Norway, which provided Internet access service from 1997. Operating Expense - Internet/data During the year ended December 31, 1999, our Internet/data operating expense increased 57.8 million to 61.3 million from 3.5 million for the year ended December 31, 1998. The increase is primarily due to the launch of residential and business cable-modem high speed Internet access services, branded as of chello broadband in 1999. During the second quarter of 1999 we launched chello broadband, on the upgraded portion of our networks in Austria, Belgium, France, the Netherlands (with the exception of A2000) and Norway. We launched chello broadband in A2000 and Sweden in the fourth quarter of 1999. Included in the Internet/data operating expense for the year ended December 31, 1999 is 13.5 million of stock-based compensation expense related to chello broadband's phantom stock option plan, compared to nil for the year ended December 31, 1998. Internet/data operating expense in 1998 primarily relates to operating expense from Austria, Belgium and Norway, which provided Internet access service from 1997. In addition we incurred substantial start-up costs from the expansion of the chello business in Australia and New Zealand through trial launches which occurred during the fourth quarter. During the year ended December 31, 1998, our Internet/data operating expense increased 3.3 million to 3.5 million from 0.2 million for the year ended December 31, 1997. Internet/data operating expense for the years ended December 31, 1998 and 1997 primarily relates to operating expense from Austria, Belgium and Norway, which provided Internet access service from 1997. 44 Selling, General and Administrative Expense - Internet/data During the year ended December 31, 1999, our Internet/data SG&A expense increased 98.9 million to 115.9 million from 17.0 million for the year ended December 31, 1998. Included in the Internet/data SG&A expense for the year ended December 31, 1999 is 62.3 million of stock-based compensation expense, compared to 4.9 million for the year ended December 31, 1998. The increase is also attributable to the launch of residential and business cable-modem high speed Internet access services, branded as of chello broadband in 1999. During the second quarter of 1999 we launched chello broadband, on the upgraded portion of our networks in Austria, Belgium, France, the Netherlands (with the exception of A2000) and Norway. We launched chello broadband in A2000 and Sweden in the fourth quarter of 1999. During the year ended December 31, 1998, our Internet/data SG&A expense increased 17.0 million to 17.0 million from nil for the year ended December 31, 1997. The increase in Internet/data SG&A expense during the year ended December 31, 1998 primarily relates to increased development costs and start-up costs associated with the launch of chello broadband, in addition to expenses related to the further development of Internet/data services. Programming and DTH Our consolidated programming and DTH business has been created through internal development and through acquisitions. Historically, we have been and are involved in several country-specific programming ventures, including those dedicated to creating channels for Spain, Israel and Malta. We have developed and launched six channels of various genres since May 1999 and we are constructing a pan-European digital distribution platform that will enable digital distribution of our new channels and other signals to our upgraded networks. Through the acquisition of @Entertainment in August 1999, we have obtained a DTH platform serving the Polish market place, in addition to a Polish-language programming under the brand name Wizja TV. Both directly and through other joint ventures, Wizja TV produces television programming. We distribute our programming packages to third parties, as well as to affiliates. Subsequent to our acquisition of @Entertainment, we began to restructure the Polish DTH and programming business by separating them into distinct business lines. We have incurred significant start-up and restructuring costs in this endeavor. We believe that the DTH business will start to become EBITDA positive before subscriber acquisition costs during the second quarter of 2000. However, there can be no assurance that this will occur. We expect to incur substantial operating losses related to our programming and DTH businesses for the next two years, while we develop and expand our subscriber base. We are currently negotiating with two major cable associations in Poland in order to expand our distribution to other cable television providers. Pricing For our programming channels, including UPCtv and some Wizja TV channels, we charge cable operators on a per-subscriber fee basis. For our DTH services, we generally charge a one-time installation fee when we connect the subscriber, a monthly subscription fee for a basic service and additional monthly subscription fees for premium programming, which includes a movie channel and a sports channel. For the period from the date of acquisition of @Entertainment, August 6, 1999, to November 7, 1999, we sold our DTH reception systems to our customers at a price below cost due to promotional incentives. Subsequent to November 7, 1999 we have retained ownership of these systems. Costs of Operations Programming and DTH operating costs include the costs of programming rights, production costs, and distribution costs, including transponder fees and operating costs. A significant portion of these costs are fixed in nature through contracts commitments. For the period from the date of acquisition of @Entertainment, August 6, 1999, to November 7, 1999, we sold our DTH reception systems to our customers at a price below cost due to promotional incentives. Subsequent to November 7, 1999, we have retained ownership of these systems. Selling, general and administrative expenses include marketing and subscriber acquisition costs, legal and accounting, office facilities and other overhead costs. Results of Operations - Programming and DTH The following table sets forth information from, or derived from, our consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997. 45
For the Years Ended December 31, -------------------------------------------------------- 1999 1998 1997 ---------------- ---------------- ---------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Service and other revenue......................................... 11,370 611 45 Operating expense................................................. (51,254) (2,120) (2,990) Selling, general and administrative expense....................... (36,681) (3,061) (2,288) ---------------- ---------------- ---------------- (76,565) (4,570) (5,233) Adjustments: Stock-based compensation expense.................................. - - - ---------------- ---------------- ---------------- Adjusted EBITDA................................................... (76,565) (4,570) (5,233) ================ ================ ================ As a percentage of revenue: Operating expense................................................. -450.78% -346.97% -6644.44% ================ ================ ================ Selling, general and administrative expense....................... -322.61% -500.98% -5084.44% ================ ================ ================ Adjusted EBITDA................................................... -673.39% -747.95% -11628.89% ================ ================ ================
Revenue - Programming and DTH During the year ended December 31, 1999, our programming and DTH revenue increased 10.8 million to 11.4 million from 0.6 million for the year ended December 31, 1998. The increase is primarily due to our acquisition of @Entertainment, which we began consolidating in August 1999. Programming and DTH revenue from @Entertainment for the five months ended December 31, 1999 was 10.3 million. The balance of the increase in programming and DTH revenue for the year ended December 31, 1999 relates to programming revenue from Tara and UPCtv. We had no DTH revenue prior to the acquisition of @Entertainment. During the year ended December 31, 1998, programming revenue increased 0.6 million compared to programming revenue for the year ended December 31, 1997. The increase in programming revenue related to increased revenue from Tara and UPCtv. Operating Expense - Programming and DTH During the year ended December 31, 1999, our programming and DTH operating expense increased 49.1 million to 51.3 million from 2.1 million for the year ended December 31, 1998. The increase is primarily due to our acquisition of @Entertainment, which we began consolidating in August 1999. Programming and DTH operating expense from @Entertainment for the five months ended December 31, 1999 was 47.5 million. During the five months ended December 31, 1999, @Entertainment had non-recurring costs related to selling its DTH reception systems through November 7, 1999, totaling 8.3 million. @Entertainment also experienced increased programming costs. The balance of the increase in programming and DTH operating costs for the year ended December 31, 1999 relates to operating expense from from Tara and UPCtv. We had no DTH operating expense prior to the acquisition of @Entertainment. During the year ended December 31, 1998, programming operating expense decreased 0.9 million compared to programming operating expense for the year ended December 31, 1997. The decrease in programming expense relates to decreased operating expense from Tara and UPCtv. SG&A Expense - Programming and DTH During the year ended December 31, 1999, SG&A expense for our programming and DTH business expense increased 36.7 million to 35.1 million from 3.1 million for the year ended December 31, 1998. The increase is primarily due to our acquisition of @Entertainment, which we began consolidating in August 1999. @Entertainment's SG&A expense for programming and DTH for the five months ended December 31, 1999 was 29.9 million. The remaining increase in SG&A expense for programming and DTH for the year ended 46 December 31, 1999 relates to development activity from UPCtv, as well as increased SG&A expense from Tara. We had no SG&A expense from DTH prior to the acquisition of @Entertainment. During the year ended December 31, 1998, programming SG&A expense increased 0.8 million to 3.1 million for the year ended December 31, 1998 from 2.3 million for the year ended December 31, 1997. The increase in programming SG&A expense relates to increased SG&A expense from Tara and UPCtv. Results of Operations - Corporate and Other The following table sets forth information from, or derived from, our consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997.
For the Years Ended December 31, -------------------------------------------------------- 1999 1998 1997 ------------------ ----------------- ----------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) (Euros, in thousands) Service and other revenue...................... 7,455 8,989 7,239 Operating expense.............................. (951) (898) - Selling, general and administrative expense.... (149,297) (151,135) (17,104) ----------------- ----------------- ---------------- (142,793) (143,044) (9,865) Adjustments: Stock-based compensation expense............... 101,388 138,111 2,186 ----------------- ----------------- ---------------- Adjusted EBITDA................................ (41,405) (4,933) (7,679) ================= ================= ================ As a percentage of revenue: Operating expense.............................. -12.76% -9.99% 0.00% ================= ================= ================ Selling, general and administrative expense.... -2,002.39% -1,681.33% -236.28% ================= ================= ================ Adjusted EBITDA................................ -555.31% -54.88% -106.08% ================= ================= ================
Revenue - Corporate and Other During the year ended December 31, 1999, our corporate and other revenue decreased 1.5 million to 7.5 million from 9.0 million for the year ended December 31, 1998. Corporate and other revenue is mainly related to management fees which we receive from certain of our non-consolidated investments. The decrease in corporate and other revenue during 1999 is primarily due to the consolidation of UTH effective February 1, 1999 and A2000 effective September 1, 1999. During the year ended December 31, 1998, our corporate and other revenue increased 1.8 million to 9.0 million from 7.2 million for the year ended December 31, 1998. The increase in corporate and other revenue is primarily related to management fees we received from UTH. Operating Expense - Corporate and Other During the year ended December 31, 1999, our corporate and other operating expense increased 0.1 million to 1.0 million from 0.9 million for the year ended December 31, 1998. During the year ended December 31, 1998, our corporate and other operating expense increased 0.9 million from nil for the year ended December 31, 1997. 47 Selling, General and Administrative Expense - Corporate and Other During the year ended December 31, 1999, our corporate and other SG&A expense decreased 1.8 million to 149.3 million from 151.1 million for the year ended December 31, 1998, a 1.2% decrease. During 1999, we incurred an increase in development costs, such as costs related to the development of our digital set top box, as well as costs incurred for the pan-European branding of the UPC identity. Increased systems' costs related to the planning and preparation for implementing pan-European financial and customer care systems were incurred during the year ended December 31, 1999, as well as costs incurred for the year 2000 readiness of existing systems. We also incurred costs in 1999 related to the development of our regulatory office, as well as additional staffing costs for communications, legal, finance, treasury, investor relations and corporate development. These increases in corporate and other SG&A expenses were offset by a decrease in the stock-based compensation cost for the year ended December 31, 1999. During the year ended December 31, 1998, our corporate and other SG&A expense increased 134.0 million to 151.1 million from 17.1 million for the year ended December 31, 1997, an 783.6% increase. The increase in corporate and other SG&A expense primarily relates to stock-based compensation expense of 138.1 million for the year ended December 31, 1998, compared to 2.2 million stock- based compensation expense for the year ended December 31, 1997. Depreciation and Amortization During the year ended December 31, 1999, our depreciation and amortization expense increased 180.9 million to 266.1 million from 85.2 million for the year ended December 31, 1997, a 212.3% increase. Of this increase, 82.4 million relates to increased amortization expense for goodwill created in connection with acquisitions completed during 1999. Amortization related to acquisitions made in the Netherlands and Poland represents 41.4% and 31.3%, respectively. Depreciation expense also increased due to the acquisitions made during 1999 which we have consolidated, as well as additional depreciation expense on capital expenditures to upgrade the network in our Western European systems and new-build for developing systems. During the year ended December 31, 1998, our depreciation and amortization expense increased 24.9 million to 85.2 million from 60.3 million for the year ended December 31, 1997, a 41.3% increase. 11.9 million of this increase is attributable to the application of push-down accounting, including goodwill created in connection with the acquisition of UPC. The remaining increase comprised additional depreciation related to the acquisition of Combivisie and acquisition of Telekabel Hungary, additional capital expenditures to upgrade the network in our Western European systems and new-build for developing systems. Interest Income During the year ended December 31, 1999, interest income increased 24.7 million to 28.1 million from 3.4 million, a 726.5% increase. During 1999, we earned interest income on the cash received from our initial public offering in February 1999, our debt offerings in July 1999 and October 1999, and our secondary equity offering in October 1999. During the year ended December 31, 1998, interest income increased 0.4 million to 3.4 million from 3.0 million for the year ended December 31, 1997, a 13.3% increase. Interest Expense During the year ended December 31, 1999, interest expense increased 139.0 million to 186.4 million from 47.4 million during the same period in 1998, a 293.2% increase. This increase was primarily due to our offering of senior notes and senior discount notes in July 1999 and October 1999. In addition, interest expense related to the @Entertainment senior discount notes is consolidated in our results effective August 1, 1999. See "-- Liquidity and Capital Resources". During the year ended December 31, 1998, interest expense increased 15.3 million to 47.4 million from 32.1 million during the same period in 1997, a 47.7% increase. This increase was due primarily to increases in indebtedness related to the UPC Acquisition in December 1997, the acquisition of Combivisie in January 1998 and the acquisition of Telekabel Hungary in June 1998. See "-- Liquidity and Capital Resources". 48 Provision for Loss on Investment Related Costs The provision for loss on investment-related costs totaled nil, 2.8 million and 8.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. During 1998, Tara wrote-off its deferred development costs. During 1997, we made a strategic decision to sell our interest in our Portuguese system due to competitive pressures beyond our control. After receiving several offers for the sale of our Portuguese system substantially less than the carrying value of our investment, we recorded a permanent impairment on the investment. The system was subsequently sold in January 1998. Foreign Exchange Gain (Loss) and Other Expense Foreign exchange gain (loss) and other expense reflected a loss of 22.6 million for year ended December 31, 1999 as compared to a gain of 1.2 million for the same period in 1998. The foreign exchange loss during 1999 was due primarily to our dollar denominated senior discount notes, as the U.S. dollar strengthened against the Euro at the end of 1999. Foreign exchange gain (loss) and other expense reflected a gain of 1.2 million for year ended December 31, 1998 as compared to a loss of 18.7 million for the same period in 1997. The foreign exchange gain during 1998 was due primarily to a more stable Dutch guilder in relation to the U.S. dollar during 1998 as compared to 1997. Subsequent to December 31, 1998, we repaid a significant portion of our remaining U.S. dollar-denominated indebtedness with proceeds from our initial public offering. Share in Results of Affiliated Companies, Net The table below sets forth our share in results of affiliated companies for the applicable periods.
For The Years Ended December 31, -------------------------------------- 1999 1998 1997 ---------- ----------- ------------ (Euros, in thousands) A2000 ........................................... (15,622) (12,085) (11,552) UTH.............................................. (1,339) (10,337) - Hungary (Kabelkom, programming and cable television).......................... (38) (3,617) 2,011 UII Partnership (Israel, Ireland, Malta) (1)..... - (302) 4,805 Tevel (1)........................................ (7,836) - - Melita (1)....................................... (641) - - Monor ........................................... 1,520 (1,988) (4,371) Xtra Music....................................... (2,346) - - SBS.............................................. (5,183) - - IPS.............................................. 2,290 (153) (2,354) Other ........................................... (565) (480) (91) ---------- ------- ------- Total............................................ (29,760) (28,962) (11,552) ========== ======= =======
(1) Historically, we held our interests in Israel, Ireland and Malta in UII, a general partnership. In November 1998, we acquired our partner's interest in Tevel and Melita and sold our interest in PHL. For the year ended December 31, 1999, our share in net losses of affiliated companies increased to 29.8 million from 29.0 million for the year ended December 31, 1998, a 2.8% increase. The increase was primarily due to increased losses from A2000, Tevel, and Xtra Music for the year ended December 31, 1999. We also recognized losses on our 13.3% investment in SBS, which we acquired in July/August of 1999, including our amortization of excess basis. These increases were partially offset by the consolidation of UTH effective February 1, 1999, when our ownership increased to 100%, sale of our Hungarian programming and cable 49 television investment in the first quarter of 1999, as well as gains from Monor and IPS and other for the year ended December 31, 1999. For the year ended December 31, 1998, our share in net losses of affiliated companies increased to 29.0 million from 11.6 million for the year ended December 31, 1997, a 150.0% increase. A substantial portion of the increase in share in net losses was attributable to additional amortization of goodwill related to the new basis of accounting established in the step acquisition of us by United, which was allocated to A2000, Kabelkom, and UII. A2000 also had increased losses as it began to introduce telephone services during this period. The loss in the UII Partnership resulted from additional amortization as discussed above, in addition to losses incurred by Tevel during the last quarter of the year of which our share increased from 23.3% to 46.6%. These losses resulted from goodwill amortization and financing expense related to Tevel's acquisition of Gvanim Cable Television Ltd. Statements of Cash Flows We had cash and cash equivalents of 1,025.5 million as of December 31, 1999, an of increase of 1,012.0 million from 13.4 million as of December 31, 1998. Cash and cash equivalents as of December 31, 1998 represents a decrease of 32.0 million from 45.4 million as of December 31, 1997.
For The Years Ended December 31, ------------------------------------------ 1999 1998 1997 ----------- -------------- --------- (Euros, in thousands) Cash flows from operating activities................... (111,710) 33,126 60,095 Cash flows from investing activities................... (2,872,645) (278,325) (182,574) Cash flows from financing activities................... 3,996,582 214,145 148,151 Effect of exchange rates on cash....................... (186) (970) (32) ----------- -------------- --------- Net increase (decrease) in cash and cash equivalents... 1,012,041 (32,024) 25,640 Cash and cash equivalents at beginning of period....... 13,419 45,443 19,803 ----------- -------------- --------- Cash and cash equivalents at end of period............. 1,025,460 13,419 45,443 =========== ============== =========
Cash Flows from Operating Activities During the year ended December 31, 1999, net cash flow from operating activities decreased 144.8 million to a use of 111.7 million from a source of 33.1 million for the comparable period in 1998, a 437.5% decrease. This decrease was primarily related to increased cash needs for working capital related to entities acquired during 1999, and start-up costs for Internet/data and telephony and development activities. During the year ended December 31, 1998, net cash flow from operating activities decreased 27.0 million to 33.1 million from 60.1 million for the comparable period in 1997, a 44.9% decrease. This decrease was primarily related to increased cash needs for working capital. Cash Flows from Investing Activities We used approximately 2,872.6 million of cash in investing activities during the year ended December 31, 1999, compared to 278.3 million for the year ended December 31, 1998. During the year ended December 31, 1999, cash was used principally for acquisitions, including UTH, for 223.0 million, net of cash acquired, GelreVision for 106.0 million, net of cash acquired, Stjarn for 274.1 million, net of cash acquired, @Entertainment for 692.6 million, net of cash acquired, A2000 for 213.6 million, net of cash acquired and other acquisitions totaling 418.0 million, net of cash acquired. Capital expenditures for property, plant and equipment represented 583.3 million. During the year ended December 31, 1999, we had a net increase in restricted cash of 3.4 million from the release of 13.7 million of restricted cash upon pay-off of the bridge bank facility and the escrow of 17.1 million related to the RVC facility for the acquisition of Time Warner Cable France. During this period we made a net investment in affiliates of 120.2 million, including our acquisitions of interests in SBS for 94.8 with direct costs incurred. We also acquired shares in Primacom AG for 226.4 million and made a net investment in @ Entertainment bonds of 28.7 million. We received proceeds from the sale of our Hungarian programming assets of 16.6 million. 50 We used approximately 278.3 million of cash in investing activities during the year ended December 31, 1998, compared to 182.6 million for the year ended December 31, 1997. During the year ended December 31, 1998, cash was used principally for new acquisitions including the acquisitions of Combivisie for 82.0 million, net of cash acquired and other acquisitions for 13.3 million, net of cash acquired. Capital expenditures for property, plant and equipment, including other tangible assets such as system upgrade and new-build activities, represents 127.8 million. Also during 1998 we acquired an additional 23.3% and 25% interest in Tevel and Melita, respectively, for approximately 77.2 million, acquired the remaining minority interest in Janco Multicom and sold our investment in PHL. Both the acquisition of the minority interest in Janco Multicom, through the release of escrowed funds, and the sale of PHL provided funds to us which offset our other investing activities. During the year ended December 31, 1997, cash was used for the acquisition of Janco and other acquisitions, which represented 58.0 million, net of cash acquired, and a cash-funded letter of credit to purchase the remaining interest in Janco Multicom, which represented 21.3 million. Capital expenditures for property, plant and equipment, including other tangible assets such as system upgrade and new-build activities, represents 66.1 million. During 1997 we also acquired United stock, which represents 30.3 million. Other uses of cash include an increase in restricted cash of 10.8 million and net investments in affiliates of 1.8 million, which was partially offset by sale of an affiliated company for 5.0 million. Cash Flows from Financing Activities We had 3,996.6 million of cash flows from financing activities during the year ended December 31, 1999. Principal sources of cash include net proceeds from our initial public offering in February 1999 of 1,206.8 million, gross proceeds from our offerings in July 1999 and October 1999 of senior notes and senior discount notes of 2,393.5 million and net proceeds from our secondary equity offering in October 1999 of 851.5 million. Additional sources of cash were from long-term and short-term borrowings of 723.9 million and 13.1 million, respectively. Long-term borrowings include borrowings under the UPC Senior Revolving Credit Facility of 50.0 million, borrowings under the New Telekabel Facility of 245.0 million, borrowings under the Mediareseaux Facility of 30.5 million, borrowings under the UPC Senior Credit Facility of 357.5 million and other borrowings of 54.1 million. Concurrent with the initial public offering, DIC exercised its option to acquire our shares for proceeds of 40.7 million, which we used to pay 39.8 million of the DIC Loan. We used proceeds from the initial public offering to pay 281.3 million of the UPC Senior Revolving Credit Facility, 50.0 million of the UPC Bridge Bank Facility and 71.4 million of the United Loan. As part of the acquisition of UTH in February 1999, we also paid a loan to NUON of 15.0 million. In March 1999, UTH paid off its existing credit facility of 281.3 million with proceeds from the New Telekabel Facility and funding from UPC. In July 1999, we paid off the UPC Senior Revolving Credit Facility of 207.8 million with proceeds from the UPC Senior Credit Facility. In connection with our acquisition, @Entertainment was required to offer to repurchase any notes which note holders tendered. @Entertainment repurchased 140.3 million of its notes. We paid down other long-term and short-term loans of 54.2 million, including 18.9 million for the Telekabel Hungary Bridge Facility. We used proceeds from the sale of our programming assets in Hungary to pay the Time Warner Note totaling 16.5 million. During the year ended December 31, 1999, we incurred deferred financing costs of 75.2 million. We had 214.1 million of cash flows from financing activities during the year ended December 31, 1998, as compared to 148.2 million for the year ended December 31, 1997. Principal sources of cash during that period included gross proceeds from long-term debt, which represented 240.3 million, including additional borrowings from our senior revolving credit facility and CNBH's major facility, a loan from our primary partners in the Israeli operating system of 77.2 million and borrowings from United, which represented 79.9 million. We repaid long-term and short-term borrowings of approximately 114.6 million during the same period, including 59.5 million of our bridge bank facility and 29.5 million under a KTE bank facility. Cash flows from financing activities during the year ended December 31, 1997 were 148.2 million. Principal sources of cash from financing activities during that period included gross proceeds of 636.2 million from short-term and long-term debt, including 401.1 million under our senior revolving credit facility, 114.6 million under our bridge bank facility, bank loans and other obligations of 29.5 million in The Netherlands and other sources primarily related to the acquisition of Janco and the refinancing of Norkabel, which represented 91.1 million. During the same period, we repaid approximately 266.8 million of short-term borrowings, including Dutch credit facilities of 174.6 million, short-term debt assumed in the acquisition of Norkabel of 62.8 million, other short-term credit arrangements of 10.0 million and other long-term debt of 11.23 million. In December 1997, we also repaid 77.3 million of the pay-in-kind convertible notes and purchased 132.8 million of ordinary shares from Philips as part of the acquisition of UPC. 51 Consolidated Capital Expenditures Since 1995, we have been upgrading our existing cable television system infrastructure and constructing our new-build infrastructure with two-way high capacity technology to support digital video, telephone and Internet/data services. Capital expenditures for the upgrade and new-build construction can be reduced at our discretion, although such reductions require lead-time in order to complete work-in-progress and can result in higher total costs of construction. We recently entered into agreements with Philips and General Instruments for the development and purchase of an integrated digital set-top box for video and Internet/data services, as well as for Internet-based telephone. A2000 has agreed with the City of Amsterdam to deploy during the year 2000, a significant number of digital set-top boxes to our existing customers who elect to take our expanded tier service. In addition to the network infrastructure and related equipment and capital resources described above, development of our newer businesses, chello broadband, Priority Telecom, including CLEC, our digital distribution platform and DTH, including expansion into Central Europe, requires capital expenditures for construction and development of our pan-European distribution and programming facilities, including our origination facility, network operating center, near video on demand server complex and related support systems and equipment. For the year ended December 31, 2000 we have budgeted 1,800 million for capital expenditures, including capital expenditures for several of our new acquisitions. Liquidity and Capital Resources Historically, we have financed our operations and acquisitions primarily from: . cash contributed by United upon our formation, . debt financed at the UPC corporate level and project debt financed at the operating company level, . equity raised in our initial public offering and secondary offering, debt raised in our July 1999, October 1999 and January 2000 offering of senior notes and senior discount notes, and . operating cash flow. We have both well-established and developing systems. In general, we have used the cash contributed by United upon formation and debt and equity raised at the UPC corporate level to fund acquisitions, developing systems and corporate overhead. We have financed our well-established systems and, when possible, our developing systems, with project debt and operating cash flow. Well-established systems generally have stable positive cable cash flows that are used to partially offset funding necessary for new product offerings, including telephony and Internet/data. Developing systems are at various stages of construction and development and generally depend on us for some of the funding for their operating needs until project financing can be secured. We and our consolidated and unconsolidated affiliates had the following principal long-term and short-term debt facilities outstanding as of December 31, 1999. Debt denominated in currencies other than Euros has been translated to Euros for the outstanding balance at of December 31, 1999. Several of the debt facilities listed below have financial covenants and other restrictions which could limit access to funds. See our notes to consolidated financial statements for additional detail. 52
Facility Size or Outstanding Final Principal At December 31, Description (Borrower) Maturity Interest Rate Amount 1999 --------------------- -------- ------------- ------ ---- (in millions) (in millions Euro) UPC and Consolidated Subsidiaries: Long-Term Debt Senior Notes 2007 EURIBOR + 4.80% and 9.92% Euro190.7 190.7 2007 10.875% Euro100.0 100.0 2009 EURIBOR + 4.80% and 9.92% Euro240.2 238.4 2009 11.25% Euro101.0 100.3 2009 EURIBOR + 4.15% and 8.54% Euro754.7 754.7 2009 10.875% Euro300.0 300.0 Senior Discount Notes 2009 12.50% USD735.0 (2) 419.1 2009 13.375% USD478.0(2) 254.2 2009 13.375% Euro191.0(2) 102.2 PCI Notes 2003 9.875% per annum USD130.0(2) 16.4 @Entertainment 1998 Senior Discount Notes 2008 14.5% per annum USD224.2(2) 115.3 @Entertainment 1999 Senior Discount Notes 2009 14.5% per annum USD235.5(2) 140.9 @Entertainment 1999 Series C 2008 7% per annum on USD36.0(2) 11.8 Senior Discount Notes principal at maturity UPC Senior Credit Facility 2006 EURIBOR/LIBOR + 0.75% to Euro1,000.0 357.5 2.0% per annum New TeleKabel Facility 2007 EURIBOR + 0.75% to 2.0% per Euro340.0 255.3 annum CNBH Facility 2008 AIBOR + 0.6% to 1.6% per NLG274.0 121.6 annum A2000 Group Facilities (1) 2005-2006 AIBOR + 0.7/0.75% or a fixed NLG458.0 207.8 rate advance + 0.7/0.75% Mediareseaux Facility 2007 LIBOR + 0.75% to 2.0% FFR680.0 44.9 RCF Credit Facility Dec 2005 PIBOR +1.5% FFR252.4 31.7 Rhone Vision Cable Facility June 2002 LIBOR + 1% FFR680.0 61.0 Videopole Facility 2006 6.60% per annum FFR65.0 7.7 DIC Loan 2000 8.0% per annum + 6.0% of USD45.0 39.1 principal amount at maturity Monor Facility 2006 6.66% / 7.79% USD42.0 33.3 Short-Term Debt Stjarn Facilities March 2000 NBU + 0.60% / STIBOR + 1.25% SEK521.0 39.1 Stjarn Seller's Note August 2000 8.0% per annum USD 100.0 99.4 A2000 Working Capital Facility (1) 2000 4.85% per annum NLG52.0 20.5 Unconsolidated Affliates: Tevel Facilities 2007-2010 Fixed rate ranging from NIS977.5 205.8 -5.5% 6.00% Melita Facility 2007 6.75% - 7.50% Lm14.0 27.5
(1) Subsequent to December 31, 1999 A2000 replaced these facilities by a new credit facility. See Note 15. (2) At maturity. 53 Restrictions under our July and October Indentures Our activities are restricted by the covenants of our indentures dated July 30, October 29, 1999 and January 20, 2000, under which senior notes and senior discount notes were issued. Among other things, our indentures place certain limitations on its ability, and the ability of its subsidiaries, to borrow money, issue capital stock, pay dividends in stock or repurchase stock, make investments, create certain liens, engage in certain transactions with affiliates, and sell certain assets or merge with or into other companies. Under the terms of our July and October indentures, if we raise additional equity, UPC will be permitted to incur additional debt. Restrictions under United Indentures As a subsidiary of United, our activities are restricted by the covenants in United's indenture dated February 5, 1998 and April 29, 1999. The United indentures generally limit the additional amount of debt that we or our subsidiaries or controlled affiliates may borrow, or preferred shares that we or they may issue. Sources of Capital We had approximately 1,025.5 million of unrestricted cash and cash equivalents on hand as of December 31, 1999. In addition, we had additional borrowing capacity at the corporate and project debt level. In 1999 we raised over Euro 5.0 billion from a combination of banks, bonds, and equity markets. We intend to continue accessing these sources of capital, as well as other less traditional sources including vendor financing, equity partners, and leasing structures. On January 20, 2000, we closed an offering of our 11 1/2% senior notes due 2010, our 11 1/4% senior notes due 2010 and our 13 3/4% senior discount notes due 2010. The offering generated gross proceeds of approximately USD1.6 billion (Euro1.6 billion). Proceeds from the bond offering will be used for working capital and other general corporate purposes, including future acquisitions of businesses and other possible investments, including our acquisition of K&T Group. Certain Dutch Property Tax Issues One of our Dutch systems was assessed for a transfer tax on immovable property in the amount of 0.8 million for the purchase of a cable network. We have always regarded our cable networks as movable property and not subject to such transfer tax. We are appealing this tax assessment. Should we be unsuccessful, our Dutch systems may be assessed for taxes on similar transactions. We cannot predict the extent to which the taxes could be assessed retroactively or the amount of tax that our systems may be assessed for, although it may be substantial, being 6% of the value attributable to our systems at the date of transfer. Because we own 100% of UPC Nederland, any tax liabilities assessed against our Dutch systems will be consolidated with our results. We believe that, if our appeal is unsuccessful, most cable television companies and other utilities in The Netherlands would become subject to similar tax liabilities. If this happens, we expect these entities would lobby the Dutch tax authorities with us against such tax assessments. We cannot assure that such lobbying would be successful. In October 1999, the Dutch tax authorities issued an assessment on the 1995 tax return of one of our subsidiaries. The assessment, on a taxable amount of approximately 36.3 million, resulted in a tax payable of approximately 12.7 million. The Dutch tax authorities indicated that this assessment was issued to reserve the rights of the Dutch tax authorities pending expiration of time under the statute of limitations. The assessment does not express an opinion of the Dutch tax authorities on the taxes due and is still subject to discussion. We filed an appeal against the assessment, to defend our tax filing position, if necessary. 54 Inflation and Foreign Currency Exchange Rate Losses To date, we have not been impacted materially by inflation. The value of our monetary assets and liabilities is affected by fluctuations in foreign currency exchange rates as accounts payable for certain equipment purchases and certain operating expenses, such as DTH and programming expenses, are denominated in currencies other than the functional currency of the entity making such payments. We and some of our operating companies have notes payable and notes receivable that are denominated in, and loans payable that are linked to, a currency other than their own functional currency, exposing us to foreign currency exchange risks on these monetary assets and liabilities. Historically, we and our operating companies have not hedged our exposure to foreign currency exchange rate operating risks. Accordingly, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. In connection with our offerings of senior notes in July 1999, October 1999 and January 2000 we entered into cross-currency swap agreements, exchanging dollar denominated notes for Euro denominated notes. The functional currency for our operations generally is the applicable local currency for each operating company. We have consolidated operations in countries outside of the European Monetary Union including Norway, Sweden, Poland, Ireland, Hungary, Romania, Slovak Republic and operations which report in US dollars. Assets and liabilities of foreign subsidiaries are translated at the exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into Euros result in unrealized gains or losses referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of shareholders' equity. Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are reflected in income as unrealized, based on period- end translations, or realized upon settlement of the transactions. Cash flows from our operations in foreign countries are translated based on their reporting currencies. As a result, amounts related to assets and liabilities reported on the condensed consolidated statements of cash flows will not agree to changes in the corresponding balances on the condensed consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line below cash flows from financing activities. New Accounting Principles The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under this statement, accounting for changes in fair value of a derivative depends on its intended use and designation. In June 1999, the FASB approved Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of SFAS 133, which will now be effective for our first quarter 2001. We are currently assessing the effect of this new standard. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 is effective second quarter of 2000. We have evaluated SAB 101 and believe there is no effect on our revenue recognition policies currently in place. European Economic and Monetary Union On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the Euro. The participating countries adopted the Euro as their common legal currency on that day. The Euro trades on currency exchanges and is available for non-cash transactions during the transition period between January 1, 1999 and January 1, 2002. During this transition period, the existing currencies are scheduled to remain legal tender in the participating countries as denominations of the Euro and public and private parties may pay for goods and services using either the Euro or the participating countries' existing currencies. During the transition period, all operating companies' billing systems will include amounts in Euro as well as the respective country's existing currency. All of our accounting and management reporting systems currently are multi- currency. We do not expect the introduction of the Euro to affect materially our operations. However, we do believe the introduction of the Euro will reduce our exposure to risk from foreign currency and interest rate fluctuations. Year 2000 Conversion Our cable television operation is heavily dependent upon computer systems and other technological devices with embedded chips. Such computer systems and other technological devices did not experience any problems related to recognizing dates of January 2000 and thereafter. In all material respects, our multi- channel television and telephony systems or programming services continued to operate during the period December 31, 1999 to March 30, 2000. Year 2000 Program In response to possible Year 2000 problems, the Board of Directors of United established a task force to assess the impact that potential Year 2000 problems might have on company-wide operations, including us and our operating companies, and to implement necessary changes to address such problems. The task force reported directly to the United Board. In creating a program to minimize Year 2000 problems, the task force identified certain critical operations of our business. These critical operations were identified as service delivery systems, field and headend devices, customer service and billing systems and corporate management and administrative operations (e.g., cash flow, accounts payable and accounts receivable, payroll and building operations). The Task Force established a three-phase program to address potential Year 2000 problems: (a) Identification Phase: identify and evaluate computer systems and other devices (e.g., headend devices, switches and set top boxes) on a system by system basis for Year 2000 compliance. (b) Implementation Phase: establish a database and evaluate the information obtained in the Identification Phase, determine priorities, implement corrective procedures, define costs and ensure adequate funding. (c) Testing Phase: test the corrective procedures to verify that all material compliance problems will operate on and after January 1, 2000, and develop, as necessary, contingency plans for material operations. The task force completed these Phases on substantially all critical operations prior to year-end 1999. As a result, we believe all material corporate operations are in compliance for Year 2000 and do not require material remediation or replacement. During the period December 31, 1999 to March 30, 2000, our operations continue to function in the ordinary course in all material respects. We experienced no material business interruptions or material problems, with respect to our operations arising from Year 2000 issues. We know of no remaining contingencies. Third Party Dependencies Although we believed our largest Year 2000 risk was our dependency upon third- party products, we experienced no Year 2000 issues as a result of such dependency. To our knowledge, no further significant contingencies exist based on our dependency upon third party products. We cannot, however, give any assurance concerning compliance of our equipment because our responses from third-party vendors have been limited and cannot be independently verified. Costs of Compliance The task force is not able to determine the full cost of its Year 2000 program and its related impact on our financial condition. In the course of our business, we have made substantial capital adjustments over the past few years in improving our systems, primarily for reasons other than Year 2000. Because these upgrades also resulted in Year 2000 compliance, replacement and remediation costs have been low. Therefore, the task force's estimate of the cost of the Year 2000 program at Euro4.0 million remains unchanged. Included in such costs is approximately Euro2.0 million spent on billing systems for Year 2000. The task force accelerated these expenditures to 1999 to insure Year 2000 compliance; otherwise these costs would have been incurred over approximately two to three years. Such costs do not, however, include internal costs because we did not separately track the internal costs incurred for the Year 2000 program. The costs incurred for Year 2000 compliance issues did not have a material financial impact on the Company. We anticipate no additinal significant expenditures for the Year 2000 program. 55 Item 7A. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- Investment Portfolio As of December 31, 1999, UPC has cash and cash equivalents of approximately 1,025.5 million. UPC has invested this cash in highly liquid instruments which meet high credit quality standards with original maturities at the date of purchase of less than three months. These investments will be subject to interest rate risk and foreign exchange fluctations (with respect to amounts invested in currencies outside the European Monetary Union), however, the Company does not expect any material losses with respect to its investment portfolio. Impact of Foreign Currency Rate Changes We are exposed to foreign exchange rate fluctuations related to our monetary assets and liabilities, including those of our operating subsidiaries, which are denominated in currencies outside of the European Monetary Union. Our exposure to foreign exchange rate fluctuations also arises from intercompany charges. The tables below provides information about UPC's and its consolidated subsidiaries' foreign currency exchange risk for cash and debt which is denominated in foreign currencies outside of the European Monetary Union as of December 31,1999, including cash flows based on the expected repayment date and related weighted-average interest rates for debt. The information is presented in Euro equivalents, which is the Company's reporting currency. The instruments' actual cash flows are denominated in US Dollars, Polish Zloty and British Pounds.
Amount Outstanding as of December 31, 1999 --------------------------- Book Value Fair Value ------------ ----------- Cash and Cash Equivalents - ------------------------- US Dollar 28,623 28,623 Polish Zloty 4,388 4,388 British Pound 2,000 2,000
56
Amount Outstanding Expected Repayment as of December 31, 1999 as of December 31, ---------------------------- ---------------------------------------- Book Value Fair Value 2000 2001 2002 2003 2004 ---------- ----------- ------ ----- ------ ------- ----- Dollar Denominated Facilities DIC Loan 39,121 39,121 39,121 - - - - 8.0% per annum + 6.0% of principal at maturity Stjarn Seller's Note 99,378 99,378 99,378 - - - - 8.0% per annum UPC USD Senior Discount Notes, 2009 419,123 412,691 - - - - - 12.5 % per annum UPC USD Senior Discount Notes, 2009 254,195 270,765 - - - - - 13.375 % per annum PCI Notes 16,355 16,355 - - - 16,355 - 9.875% per annum @Entertainment 115,263 115,263 - - - - - 1998 Senior Discount Notes 14.5% per annum @Entertainment 140,925 140,925 - - - - - 1999 Senior Discount Notes 14.5% per annum @Entertainment 11,767 11,767 - - - - - 1999 Series C Senior Discount Notes 7.0% per annum on the principal amount at maturity Monor Facility 33,280 33,280 33,280 - - - - 6.6% per annum
Historically, we and our operating companies have not executed hedge transactions to reduce the Company's exposure to foreign currency exchange rate risk related to our. Accordingly, the Company may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. In connection with our offering of senior notes in July 1999 and October 1999, we entered into cross- currency swap agreements, exchanging dollar denominated notes for Euro denominated notes. Interest Rate Sensitivity The table below provides information about the our financial instruments that are sensitive to changes in interest rates as of December 31,1999, including cash flows based on the expected repayment dates and the related weighted-average interest rates. The information is presented in Euro equivalents, which is the Company's reporting currency. 57
Amount Outstanding Expected Repayment as of December 31, 1999 as of December 31, -------------------------------------------------------------------------- Book Value Fair Value 2000 2001 2002 2003 2004 ---------- ---------- ----- ------ ----- ----- ------ Variable Rate Facilities - ------------------------ UPC Euro Senior Notes, 2009 754,717 771,141 - - - - - EURIBOR+4.15% and 8.54%, average rate in 1999 of 7.15% and 8.54% UPC 10 7/8% USD Senior Notes due 2007 190,658 205,240 - - - - - EURIBOR+4.8% and 9.92%, average rate in 1999 of 8.3% and 9.92% UPC USD Senior Notes due 2009 238,412 260,450 - - - - - EURIBOR+4.8% and 9.92%, average rate in 1999 of 8.3% and 9.92% UPC Senior Credit Facility 357,482 357,482 - - 58,604 73,256 91,569 EURIBOR/LIBOR + 0.75% to 2.0%, average rate in 1999 of 5.67% New Telekabel Facility 255,263 255,263 - - 12,750 25,500 51,000 EURIBOR + 0.75% to 2.0%, average rate in 1999 of 4.9% CNBH Facility 121,556 121,556 1,029 8,400 15,600 21,600 22,800 AIBOR + 0.6% to 1.6% average rate in 1999 of 4.5% Gelrevision Facility 3,345 3,345 3,345 - - - - EURIBOR+1.5%, average rate in 1999 of 6.0% Mediareseaux Facility 44,912 44,912 - 44,912 - - - LIBOR +0.75% to 2.0%, average rate in 1999 of 4.88% RCF Facility 31,654 31,654 31,654 - - - - PIBOR + 1.5%, average rate in 1999 of 4.35% RVC Facility 60,979 60,979 - 60,979 - - - LIBOR + 1.0%, average rate in 1999 of 3.72% A2000 Facility (1) 207,831 207,831 207,831 - - - - AIBOR + 0.7% to 0.75%, or fixed rate advance + 0.7% to 0.75%, average rate in 1999 of 5.9%
(1) A2000 replaced these facilities by a new credit facility. See Note 9. 58
Amount Outstanding Expected Repayment as of December 31, 1999 as of December 31, ------------------------- ----------------------------------------------- Book Value Fair Value 2000 2001 2002 2003 2004 ----------- ----------- -------- --------- ------- ------- ------- Fixed Rate Facilities - --------------------- DIC Loan 39,121 39,121 39,121 - - - - 8.0% per annum + 6.0% of principal at maturity Videopole Facility 7,704 7,704 7,704 - - - - 6.60% per annum UPC Euro Senior Notes, 2009 300,000 303,750 - - - - - 10.875% per annum UPC USD Senior Discount Notes, 2009 419,123 412,691 - - - - - 12.5 % per annum UPC USD Senior Discount Notes, 2009 254,195 270,765 - - - - - 13.375 % per annum UPC Euro Senior Discount Notes, 2009 102,207 106,005 - - - - - 13.375 % per annum UPC Euro Senior Notes, 2007 100,000 102,000 - - - - - 10.875 % per annum UPC Euro Senior Notes, 2007 100,267 103,020 - - - - - 11.25 % per annum PCI Notes 16,355 16,355 - - - 16,355 - 9.875% per annum @Entertainment 1998 Senior Discount Notes 115,263 147,028 - - - - - 14.5% per annum @Entertainment 1999 Senior Discount Notes 140,925 145,099 - - - - - 14.5% per annum @Entertainment 1999 Series C Senior Discount Notes 11,767 11,767 - - - - - 7.0% per annum on the principal amount at maturity Stjarn Seller's Note 99,378 99,378 99,378 - - - - 8.0% per annum Monor Loan DEM 59 & USD 6.3 33,280 33,280 33,280 - - - - 6.66% per annum
Equity Prices As of December 31, 1999, we are exposed to equity price fluctuations related to our investments in United and Primacom stock, which are classified as an investments available for sale. Changes in the price of the stock are reflected as unrealized gains (losses) in our statement of shareholders' equity, until such time as the stock is sold and any unrealized gain (loss) will be reflected in the statement of operations.
Fair Value as of Number of Shares December 31, 1999 ---------------------------------------------------- (Stated in thousands of Euros, except share amounts) United 5,569,240 390,881 Primacom AG 3,599,858 230,441
59 As of December 31, 1999, we are also exposed to equity price fluctuations related to our debt which is convertible into our ordinary shares. The table below provides information about our convertible debt, including expected cash flows and related weighted-average interest rates.
Amount Outstanding Expected Repayment as of December 31, 1999 as of December 31, ------------------------ ------------------ Convertible Debt Book Value Fair Value 2000 2001 - ---------------- ---------- ---------- ------ ------- DIC Loan 39,121 39,121 39,121 - 8.0% per annum + 6.0% of principal at maturity Stjarn Seller's Note 99,378 99,378 99,378 - 8.0% per annum
Cross-Currency Swap Concurrent with the closing of our senior notes offering in July 1999, we entered into a cross-currency swap, swapping the USD800.0 million, 10 7/8% fixed rate senior notes into fixed and variable rate Euro notes with a notional amount totaling Euro754.7 million. One half of the Euro notes (Euro377.35 million) have a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to a variable interest rate of EURIBOR + 4.15%. The remaining Euro377.35 million have a variable interest rate of EURIBOR + 4.15% through August 1, 2009. The cross- currency swap provides the bank with the right to terminate the swap at fair value commencing August 1, 2004 with the payment of a call premium equal to the call premium which we would pay to the USD800.0 million senior note holders if the notes are called on or after August 1, 2004. We accounted for the cross- currency swap by bifurcating the instrument into two components, (1) the swap of USD fixed rate debt for Euro variable and fixed rate debt through August 1, 2004 (the earliest call date) and (2) the residual portion of the cross-currency swap. The swap of USD fixed rate debt for Euro variable and fixed rate debt is accounted for as a hedge, and accordingly we carry the Euro denominated debt on the balance sheet and recognize interest expense according to the provisions of the Euro debt. The residual portion of the cross-currency swap is marked to fair value at each reporting period through the statement of operations. The fair value of the Euro debt at December 31, 1999 is equal to the fair value of the USD800.0 million senior notes adjusted for the fair value of the swap component, which was a gain of Euro35.8 million at December 31, 1999. The fair value of the residual portion of the cross-currency swap was a loss of Euro3.6 million at December 31, 1999. October 1999 Senior Notes Offering Concurrent with the closing of our senior notes in October 1999, we entered into a cross-currency swap, swapping the USD252.0 million, 11 1/4% fixed rate senior notes into fixed and variable rate Euro notes with a notional amount totaling Euro240.2 million. One half of the Euro notes (Euro120.1 million) have a fixed interest rate of 9.92% through November 1, 2004, thereafter switching to a variable interest rate of EURIBOR + 4.80%. The remaining Euro120.1 million have a variable interest rate of EURIBOR + 4.80% through November 1, 2009. The cross-currency swap provides the bank with the right to terminate the swap at fair value commencing November 1, 2004 with the payment of a call premium equal to the call premium which we would pay to the USD252.0 million senior note holders if the notes are called on or after November 1, 2004. We accounted for the swap as described above. The fair value of the Euro debt at December 31, 1999 is equal to the fair value of the USD252. million senior notes adjusted for the fair value of the swap component, which was a gain of Euro1.7 million at December 31, 1999. The fair value of the residual portion of the cross-currency swap was a gain of Euro0.5 million at December 31, 1999. January 2000 Senior Notes Offering In January 2000, we closed a bond offering consisting of four tranches: USD300.0 million of senior notes due 2010 with a 11 1/2% coupon; USD600.0 million and Euro200.0 million of senior notes due 2010 with a 11 1/4% coupon; and USD1,000.0 million aggregate principal amount of ten year 13 3/4% senior discount notes due 2010. The USD300.0 million of senior notes were swapped into euro notes with a fixed rate below 10%. 60 Item 8. Financial Statements and Supplementary Data ------------------------------------------- The financial statement schedules and separate financial statements of significant equity investees required by regulation S-X are filed under Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-K". 61 Report of Independent Public Accountants To the Shareholders of United Pan-Europe Communications N.V.: We have audited the accompanying consolidated balance sheets of United Pan-Europe Communications N.V. (a N.V. registered in The Netherlands) and subsidiaries as of December 31, 1999 and December 31, 1998 (post acquisition - see Note 1) and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years ended December 31, 1999, December 31, 1998 (post acquisition - see Note 1) and December 31, 1997 (pre-acquisition - - see Note 1). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the Company's parent company (United International Holdings, Inc.) acquired the remaining 50% interest in the Company effective December 11, 1997. Accordingly, the assets, liabilities and shareholders' equity acquired have been adjusted to reflect its parent's basis in the underlying net assets of the Company as of December 11, 1997. The proportional assets and liabilities acquired were recorded based upon their relative fair market values at the date of acquisition. Accordingly, the pre-acquisition and post-acquisition consolidated financial statements are not comparable in certain significant respects since these consolidated financial statements report the financial position, results of operations and cash flows on two separate accounting bases. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Pan-Europe Communications N.V. as of December 31, 1999 and December 31, 1998 (post- acquisition - see Note 1) and the results of its operations and its cash flows for the years ended December 31, 1999, December 31, 1998 (post-acquisition - see Note 1) and December 31, 1997 (pre-acquisition - see Note 1) in conformity with accounting principles generally accepted in the United States of America. ARTHUR ANDERSEN Amstelveen, The Netherlands, March 28, 2000. 62
UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED BALANCE SHEETS (Stated in thousands of Euros, except share and per share amounts) As of As of December 31, December 31, 1999 1998 ------------ ------------ ASSETS: Current assets Cash and cash equivalents........................................................................... 1,025,460 13,419 Restricted cash..................................................................................... 17,135 13,733 Subscriber receivables, net of allowance for doubtful accounts of 16,754 and 4,202, respectively.... 59,860 5,847 Costs to be reimbursed by affiliated companies, net of allowance for doubtful accounts of 63 and 0, respectively........................................................................ 10,500 12,378 Other receivables................................................................................... 84,379 11,728 Inventory........................................................................................... 66,403 10,946 Prepaid expenses and other current assets........................................................... 72,925 7,103 --------- ------- Total current assets.............................................................................. 1,336,662 75,154 Other Investments..................................................................................... 623,341 45,876 Investments in and advances to affiliated companies, accounted for under the equity method, net....... 242,847 223,737 Property, plant and equipment, net of accumulated depreciation of 194,205 and 39,800, respectively.... 1,908,414 273,628 Goodwill and other intangible assets, net of accumulated amortization of 133,667 and 17,747, respectively...................................................................................... 2,611,413 308,585 Deferred financing costs, net of accumulated amortization of 5,937 and 4,215, respectively............ 77,861 9,830 Other assets.......................................................................................... 1,734 1,507 --------- ------- Total assets....................................................................................... 6,802,272 938,317 ========= ======= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT): Current liabilities Accounts payable, including related party payables of 2,785 and 7,111, respectively................. 250,858 64,399 Accrued liabilities................................................................................. 273,141 25,793 Subscriber prepayments and deposits................................................................. 41,208 20,764 Short-term debt..................................................................................... 163,241 28,734 Note payable to shareholder......................................................................... - 79,417 Current portion of long-term debt................................................................... 50,291 51,513 --------- ------- Total current liabilities......................................................................... 778,739 270,620 Long-term debt........................................................................................ 3,903,410 533,078 Deferred taxes........................................................................................ 15,961 3,928 Deferred compensation................................................................................. 52,702 148,588 Other long-term liabilities........................................................................... 19,365 3,994 --------- ------- Total liabilities................................................................................. 4,770,177 960,208 --------- ------- Minority interests in subsidiaries.................................................................... 11,895 11,768 Shareholders' equity (deficit) (As adjusted for stock splits, see Note 10) Priority stock, 1.0 par value,300 shares authorized, 300 and 0 shares issued, respectively........ - - Ordinary stock, 1.0 par value,600,000,000 shares authorized, 435,604,497 and 276,856,812 shares issued, respectively...................................................................... 435,605 83,057 Additional paid-in capital.......................................................................... 2,371,951 249,797 Deferred compensation............................................................................... (47,425) - Treasury stock, at cost, 0 and 27,594,405 shares of ordinary stock, respectively.................... - (50,091) Accumulated deficit................................................................................. (1,114,219) (329,921) Other cumulative comprehensive income............................................................... 374,288 13,499 --------- ------- Total shareholders' equity (deficit).............................................................. 2,020,200 (33,659) --------- ------- Total liabilities and shareholders' equity (deficit).............................................. 6,802,272 938,317 ========= =======
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 63 UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENTS OF OPERATIONS (Stated in thousands of Euros, except share and per share amounts)
For the Years Ended December 31, ------------------------------------------------------------ 1999 1998 1997 ----------------- ------------------ ----------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) Service and other revenue......................................... 447,501 185,582 153,040 Operating expense................................................. (293,778) (62,830) (53,777) Selling, general and administrative expense....................... (466,260) (218,587) (54,030) Depreciation and amortization..................................... (266,070) (85,150) (60,302) ----------- -------- ------- Net operating loss.......................................... (578,607) (180,985) (15,069) Interest income................................................... 28,064 3,357 2,955 Interest expense.................................................. (185,220) (41,888) (19,057) Interest expense related party.................................... (1,188) (5,467) (13,043) Gain on sale of assets............................................ 1,501 - - Provision for loss on investment related costs.................... - (2,827) (8,571) Foreign exchange gain (loss) and other income (expense), net...... (22,561) 1,221 (18,634) ----------- ----------- ----------- Net loss before income taxes and other items................ (758,011) (226,589) (71,419) Share in results of affiliated companies, net..................... (29,760) (28,962) (11,552) Minority interests in subsidiaries................................ 1,651 523 69 Income tax benefit (expense)...................................... 1,822 (551) 748 ----------- ----------- ----------- Net loss.................................................... (784,298) (255,579) (82,154) =========== =========== =========== Basic and diluted net loss per ordinary share(1).................. (2.08) (1.03) (0.30) =========== =========== =========== Weighted-average number of ordinary shares outstanding(1).................................................. 377,969,829 247,915,834 275,421,933 =========== =========== ===========
(1) As adjusted for the stock splits. See Note 10. The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 64 PAGE> UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Stated in thousands of Euros, except share amounts)
Additional Priority Stock Ordinary Stock Paid-In Deferred ------------------ ------------------------- ----------- ------------- Shares Amount Shares (2) Amount Capital Compensation -------- -------- ------------- --------- ----------- ------------- Balances, December 31, 1996 (Pre-Acquisition)....... - - 276,187,767 82,856 75,577 Contribution by United of additional investment affiliate....................................... - - - - 5,446 - Gain on sale of stock by subsidiary................. - - - - 1,486 - Change in cumulative translation adjustments........ - - - - - - Net loss for the period from January 1, 1997 to December 10, 1997............................... - - - - - - Total comprehensive (loss).......................... - - - - - - -------- -------- ------------- --------- ----------- ------------- Balances, December 10, 1997 (Pre-Acquisition)....... - - 276,187,767 82,856 82,509 Buyout of shareholder's interest.................... - - - - - - Reissuance of shares upon conversion of PIK........ - Notes........................................... - - - - (5,571) - Application of push-down accounting and............ - step-up in basis................................ - - - - 233,587 - Elimination of historical accumulated deficit of UPC attributable to Philips..................... - - - - (70,193) - Net loss for the period from December 11, 1997 to December 31, 1997........................... - - - - - - Total comprehensive income (loss)................... - - - - - - -------- -------- ------------- --------- ----------- ------------- Balances, December 31, 1997 (Post-Acquistion)....... - - 276,187,767 82,856 240,332 Issuance of shares for acquisition of receivable.... - - 669,045 201 973 - Contribution by United of additional investment in affiliate.................................... - - - - 3,530 - Issuance of convertible debt........................ - - - - 4,962 - Unrealized gain on investment....................... - - - - - - Gain on sale of investment.......................... - - - - - - Change in cumulative translation adjustments........ - - - - - - Net loss............................................ - - - - - - Total comprehensive income (loss)................... - - - - - - -------- -------- ------------- --------- ----------- ------------- Balances, December 31, 1998 (Post-Acquisition)...... - - 276,856,812 83,057 249,797 - ======== ======== ============= ========= =========== ============= Other Cumulative Comprehensive Treasury Stock Accumulated Income --------------------------- Shares (2) Amount Deficit (Loss)(1) Total ------------ ---------- ------------- -------------- ---------- Balances, December 31, 1996 (Pre-Acquisition)....... - - (62,382) 1,030 97,081 Contribution by United of additional investment affiliate....................................... - - - - 5,446 Gain on sale of stock by subsidiary................. - - - - 1,486 Change in cumulative translation adjustments........ - - - (210) (210) Net loss for the period from January 1, 1997 to December 10, 1997............................... - - (78,004) - (78,004) ---------- Total comprehensive (loss).......................... - - - - (78,214) ------------ ----------- ------------- -------------- ========== Balances, December 10, 1997 (Pre-Acquisition)....... - - (140,386) 820 25,799 Buyout of shareholder's interest.................... (73,135,188) (132,759) - - (132,759) Reissuance of shares upon conversion of PIK Notes........................................... 45,540,783 82,668 - - 77,097 Application of push-down accounting and step-up in basis................................ - - - - 233,587 Elimination of historical accumulated deficit of UPC attributable to Philips..................... - - 70,193 - - Net loss for the period from December 11, 1997 to December 31, 1997........................... - - (4,149) - (4,149) ---------- Total comprehensive income (loss)................... - - - - (4,149) ------------ ----------- ------------- -------------- ========== Balances, December 31, 1997 (Post-Acquistion)....... (27,594,405) (50,091) (74,342) 820 199,575 Issuance of shares for acquisition of receivable.... - - - - 1,174 Contribution by United of additional investment in affiliate.................................... - - - - 3,530 Issuance of convertible debt........................ - - - - 4,962 Unrealized gain on investment....................... - - - 20,068 20,068 Gain on sale of investment.......................... - - - (829) (829) Change in cumulative translation adjustments........ - - - (6,560) (6,560) Net loss............................................ - - (255,579) - (255,579) ---------- Total comprehensive income (loss)................... - - - - (242,900) ------------ ----------- ------------- -------------- ========== Balances, December 31, 1998 (Post-Acquisition)...... (27,594,405) (50,091) (329,921) 13,499 (33,659) ============ =========== ============= ============== ==========
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 65 UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Stated in thousands of Euros, except share amounts)
Priority Stock Ordinary Stock Additional ----------------- --------------------- Paid-In Deferred Shares Amount Shares (2) Amount Capital Compensation ------ ------ ---------- ------ ---------- ------------ Balances, December 31, 1998.................. - - 276,856,812 83,057 249,797 - Change in par value of ordinary shares.......................... - - - 193,800 (193,800) - Issuance of priority shares................. 300 - - - - - Issuance of ordinary shares in public offering, net of offering costs........................... - - 106,205,595 106,206 1,050,462 - Issuance of ordinary shares in public offering, net of offering costs........................... - - 45,000,000 45,000 806,457 - Issuance of convertible debt................ - - - - 13,162 - Issuance of ordinary shares upon exercise of DIC option................................... - - 4,675,962 4,676 36,005 - Issuance of ordinary shares for acquisition of Videopole............................. - - 2,866,128 2,866 58,298 - Conversion of United Loan to equity......... - - - - 6,559 - Issuance of warrants........................ - - - - 29,223 - Change in stock option plan due to public offering................................. - - - - 140,717 (14,418) Deferred compensation expense related to stock options, net....................... - - - - 175,071 (154,598) Amortization of deferred compensation............................. - - - - - 121,591 Unrealized gain on investment............................... - - - - - - Change in cumulative translation adjustments................. - - - - - - Net loss................................... - - - - - - Total comprehensive income (loss).......... - - - - - - ------ ------- ------------ ------- --------- ------- Balances, December 31, 1999.................. 300 - 435,604,497 435,605 2,371,951 (47,425) ====== ======= ============ ======= ========= ======= Cumulative Comprehensive Treasury Accumulated Income -------------------- Shares (2) Amount Deficit (Loss) (1) Total ----------- ------ ----------- ------------- -------------- Balances, December 31, 1998.................. (27,594,405) (50,091) (329,921) 13,499 (33,659) Change in par value of ordinary shares.......................... - - - - - Issuance of priority shares................. - - - - - Issuance of ordinary shares in public offering, net of offering costs........................... 27,594,405 50,091 - - 1,206,759 Issuance of ordinary shares in public offering, net of offering costs........................... - - - - 851,457 Issuance of convertible debt................ - - - - 13,162 Issuance of ordinary shares upon exercise of DIC option................................... - - - - 40,681 Issuance of ordinary shares for acquisition - - - - 61,164 of Videopole............................. Conversion of United Loan to equity......... - - - - 6,559 Issuance of warrants........................ - - - - 29,223 Change in stock option plan due to public offering................................. - - - - 126,299 Deferred compensation expense related to stock options, net....................... - - - - 20,473 Amortization of deferred compensation............................. - - - - 121,591 Unrealized gain on investment............................... - - - 351,026 351,026 Change in cumulative translation adjustments................. - - - 9,763 9,763 Net loss................................... - - (784,298) - (784,298) --------- Total comprehensive income (loss).......... - - - - (423,509) ----------- ------- ---------- ------- ========= Balances, December 31, 1999.................. - - (1,114,219) 374,288 2,020,200 =========== ======= ========== ======= =========
(1) As of December 31, 1997, Other Cumulative Comprehensive Income (Loss) represents foreign currency translation adjustments. As of December 31, 1998, Other Cumulative Comprehensive Income represents foreign currency translation adjustments of (5,740) and unrealized gain on investment of 19,239. As of December 31, 1999, Other Cumulative Comprehensive Income represents foreign currency translation adjustments of 4,023 and unrealized gain on investment of 370,265. (2) As adjusted for the stock splits. The change in nominal value is reflected in the year ended December 31, 1999. See Note 10. The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 66
UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands of Euros) For the Years Ended December 31, 1999 1998 1997 ----------------- ------------------ ----------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) Cash flows from operating activities: Net loss....................................................... (784,298) (255,579) (82,154) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization.............................. 266,070 85,150 60,302 Amortization of deferred financing costs................... 10,463 4,190 291 Accretion of interest...................................... 37,151 - - Share in results of affiliated companies, net.............. 29,760 28,962 11,552 Compensation expense related to stock options.............. 192,710 146,402 2,186 Minority interests in subsidiaries......................... (1,651) (523) (69) Exchange rate differences in loans......................... 41,360 (5,742) 19,713 Gain on sale of investment................................. (6,637) (829) - Loss on repayment of DIC loan.............................. 2,274 - - Provision for loss on investment related costs............. - 2,827 8,571 Other...................................................... (5,223) 789 444 Changes in assets and liabilities: - Increase in receivables.................................. (75,185) (8,957) 10,937 Increase in inventories.................................. (26,260) (3,934) (1,011) Increase in other non-current assets..................... (18,512) (909) (1,154) Increase in other current liabilities.................... 217,844 35,028 31,561 Increase (decrease) in deferred taxes and other long-term liabilities................................. 8,424 6,251 (1,074) -------- -------- -------- Net cash flows from operating activities....................... (111,710) 33,126 60,095 -------- -------- -------- Cash flows from investing activities: Restricted cash (deposited) released, net...................... (3,409) (3,650) (10,083) Purchase of parent company's stock............................. - - (30,316) Investment in securities, net.................................. (255,133) - - (Investments in and advances to) repayment from ............... affiliated companies, net.................................. (120,165) (90,903) (1,756) Capital expenditures........................................... (583,253) (127,820) (66,084) New acquisitions, net of cash acquired......................... (1,927,333) (95,312) (58,030) Release to acquire minority interest in subsidiary............. - 21,328 (21,328) Sale of affiliated companies................................... 16,648 18,032 5,023 -------- -------- -------- Net cash flows from investing activities....................... (2,872,645) (278,325) (182,574) -------- -------- -------- Cash flows from financing activities: Proceeds from initial public offering, net..................... 1,206,759 - - Proceeds from secondary public offering, net................... 851,457 - - Proceeds from senior notes..................................... 2,393,451 - - Proceeds from exercise of DIC option........................... 40,681 - - Proceeds from short-term borrowings............................ 13,118 13,337 118,237 Proceeds from long-term borrowings............................. 723,915 240,336 518,008 Deferred financing costs....................................... (75,154) (4,548) (11,156) Repayments of long and short-term borrowings................... (1,069,704) (114,645) (266,791) (Repayments) borrowings on note payable to shareholder......... (71,442) 79,901 - Dividends paid to minority shareholder......................... - (236) (78) Redemption of convetible loans................................. - - (77,311) Purchase shares from shareholder............................... - - (132,758) Repayments on short-term note.................................. (16,499) - - --------- -------- -------- Net cash flows from financing activities....................... 3,996,582 214,145 148,151 --------- -------- -------- Effect of exchange rates on cash............................... (186) (970) (32) --------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,012,041 (32,024) 25,640 Cash and cash equivalents at beginning of period............... 13,419 45,443 19,803 --------- -------- -------- Cash and cash equivalents at end of period..................... 1,025,460 13,419 45,443 ========= ======== ========
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 67 UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENTS OF CASH FLOWS (2) (Stated in thousands of Euros)
For the Years Ended December 31, --------------------------------------- 1999 1998 1997 ------------- ------------- ------------ Non-cash investing and financing activities: Unrealized gain (loss) on investment.............. 351,026 19,239 - ============ ============== =========== Issuance of warrants.............................. 29,223 - - ============ ============== =========== Purchase Money Note Payable to Sellers............ - 16,663 ============ ============== =========== Stjarn Seller's Note.................................. 93,479 - - ============ ============== =========== Contribution of net assets of Dutch cable systems..... to new joint venture.............................. - 117,599 - ============ ============== =========== Conversion of share holder loan to equity............. 6,559 - - ============ ============== =========== Shares issued for Videopole acquisition............... 61,164 - - ============ ============== =========== Supplemental cash flow disclosures: Cash paid for interest............................ (79,979) (27,574) (16,640) ============ ============== =========== Cash received for interest........................ 26,085 1,606 1,046 ============ ============== =========== Acquisition of 49% of United Telekabel Holding N.V.: Property, plant and equipment..................... (185,835) - - Investments in affiliated companies............... (41,439) - - Goodwill.......................................... (227,190) - - Long-term liabilities............................. 214,613 - - Net current liabilities........................... 4,765 - - ------------ -------------- ----------- Total cash paid............................... (235,086) - - Cash acquired................................. 12,060 - - ------------ -------------- ----------- (223,026) - - ============ ============== =========== Acquisition of Dutch Cable assets: Property, plant and equipment and other assets.... - (48,101) - Goodwill.......................................... - (33,926) - ------------ -------------- ----------- Total cash paid............................... - (82,027) - ============ ============== =========== Acquisition of 100% of GelreVision: Property, plant and equipment..................... (47,754) - - Goodwill.......................................... (65,083) - - Long-term liabilities............................. 4,094 - - Net current liabilities........................... 2,592 - - ------------ -------------- ----------- Total cash paid............................... (106,151) - - Cash acquired................................. 132 - - ------------ -------------- ----------- (106,019) - - ============ ============== =========== Acquisition of 100% of Stjarn: Property, plant and equipment..................... (40,356) - - Goodwill.......................................... (413,264) - - Long-term liabilities................................. 30,164 - - Net current liabilities........................... 52,345 - - ------------ -------------- ----------- Total purchase price.................................. (371,111) - - Seller's Note......................................... 93,479 - - ------------ -------------- ----------- Total cash paid............................... (277,632) - - Cash acquired................................. 3,545 - - ------------ -------------- ----------- (274,087) - - ============ ============== ===========
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. UNITED PAN-EUROPE COMMUNICATIONS N.V. CONSOLIDATED STATEMENT OF CASH FLOWS (3) (Stated in thousands of Euros)
For the Years Ended December 31, --------------------------------------------- 1999 1998 1997 -------------- --------------- ------------ Acquisition of 100% of @ Entertainment, Inc: Property, plant and equipment.................. (182,495) - - Goodwill....................................... (917,983) - - Other assets................................... (19,847) - - Net current assets............................. (47,665) - - Long-term liabilities.......................... 417,279 - - -------------- --------------- ------------ Total cash paid.............................. (750,711) - - Cash acquired................................ 58,147 - - -------------- --------------- ------------ (692,564) - - ============== =============== ============ Acquisition of 50% of A2000: Property, plant and equipment.................. (90,243) - - Goodwill....................................... (256,469) - - Net current liabilities........................ 23,429 - - Long-term liabilities.......................... 121,446 - - -------------- ---------------- ------------ (201,837) - - Receivables assumed.......................... (12,211) - - Total cash paid.............................. (214.048) - - Cash acquired................................ 487 - - -------------- ---------------- ------------ (213.561) - - ============== =============== ============
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. The accompanying notes are an integral part of these consolidated financial statements. 68 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (Monetary amounts stated in thousands of Euros, except share and per share amounts) 1. Organization and Nature of Operations United Pan-Europe Communications N.V., formerly known as United and Philips Communications B.V. ("UPC" or the "Company"), was formed for the purpose of acquiring and developing multi-channel television and telecommunications systems in Europe. On July 13, 1995, UnitedGlobalCom, Inc. (formely known as United International Holdings, Inc. ("United")), a United States of America corporation, and Philips Electronics N.V. ("Philips"), contributed their respective ownership interests in European and Israeli multi-channel television systems to UPC. On December 11, 1997, United acquired Philips' 50% interest in UPC (the "UPC Acquisition"), thereby making it an effectively wholly-owned subsidiary of United (subject to certain employee equity incentive compensation arrangements). Through its broadband communications networks in 12 countries in Europe and in Israel, UPC currently offers communication services in many European countries through its business lines: cable television, telephone, internet/data services and direct-to-home ("DTH") and programming. As part of the UPC Acquisition, (i) UPC purchased the 6,338,302 shares of Class A Common Stock of United held by Philips (30,313), (ii) United purchased 77,097 of the accreted amount of UPC's PIK Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to Philips the remaining 77,311 accreted amount of the PIK Notes (154,195), (iv) United purchased 39,364,812 shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining equity interest in UPC (73,135,188 shares). The UPC Acquisition was financed with proceeds from a long-term revolving credit facility through UPC with a syndicate of banks (138,494), a bridge bank facility through a subsidiary of UPC USD111,200 (101,647) and a cash investment by United of 148,568. Approximately 217,360 drawn on the Senior Revolving Credit Facility was used to repay existing debt of UPC in conjunction with the UPC Acquisition. United's acquisition of Philips' interest in UPC was accounted for as a step acquisition under purchase accounting. As a result of UPC becoming effectively wholly owned by United, such purchase accounting adjustments, along with existing basis differences, were pushed down to the financial statements of UPC and a new basis of accounting was established for the UPC net assets acquired by United. As of December 11, 1997, the proportional net assets of UPC acquired by United were recorded at fair market value based on the purchase price paid by United, along with additional basis differences at the United level existing as of that date. The total consideration paid to Philips for their 50% interest in UPC, the resulting amount paid in excess of Philips' proportionate share of UPC's net assets at that date, plus United's existing basis in excess of their proportionate share of UPC's net assets is summarized below. In addition, the table below presents how such total excess was allocated to UPC's underlying assets as of December 11, 1997. 69 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDAzTED FINANCIAL STATEMENTS, continued UPC's net asset value at December 10, 1997............................................ 19,758 Cash paid to Philips by UPC for 73,135,188 shares in UPC.............................. (132,758) Conversion by United of PIK notes acquired from Philips at cost to 45,540,783 of UPC's shares....................................................................... 77,097 -------- UPC's net asset value prior to application of push down accounting.................... (35,903) United's proportionate share of UPC's net assets at December 10, 1997................. 9,879 United's existing basis difference related to their original interest in UPC dating back to July 1995 formation of UPC (as adjusted through December 10, 1997)......... 39,265 Cash paid to Philips by United for 39,364,812 shares in UPC........................... 71,443 Conversion by United of PIK notes acquired from Philips at cost to 45,540,783 of UPC's shares.......................................................................... 77,097 -------- 197,684 -------- Total purchase accounting adjustment 233,587 ======== The total purchase accounting adjustments were allocated to UPC's underlying assets as follows: Property, plant and equipment......................................................... 8,292 Investment in and advances to affiliates.............................................. 58,874 Goodwill.............................................................................. 166,421 -------- Total................................................................................. 233,587 ========
As a result of the UPC Acquisition and the associated push-down of United basis on December 11, 1997, the consolidated balance sheets as of December 31, 1999 and 1998 as well as the consolidated statements of operations and cash flows subsequent to December 31, 1997 are presented on a "post-acquisition" basis. The primary difference in the consolidated statement of operations presented on a "post-acquisition" basis compared to a "pre-acquisition" basis consists of additional depreciation and amortization on the above purchase accounting adjustments. The consolidated statements of operations and cash flows for the year ended December 31, 1997 include the post-acquisition results of the Company for the period from December 11, 1997 through December 31, 1997, which reflects 898 of new basis depreciation and amortization resulting from push-down accounting as well as approximately 1,831 of interest expense from purchase related indebtedness. Due to immateriality, the entire fiscal year ended December 31, 1997 is presented as "pre-acquisition" in the accompanying consolidated statements of operations and cash flows. The following unaudited pro forma consolidated operating results for the year ended December 31, 1997 give effect to the UPC Acquisition as if it had occurred at the beginning of the period presented. This pro forma consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. 70
UNITED PAN-EUROPE COMMUNIATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued For the Year Ended December 31, 1997 ----------------- Historical Pro Forma (1) ---------- ------------- Service and other revenue......................................... 153,040 153,040 Operating expense................................................. (53,777) (53,777) Selling, general and administrative expense....................... (54,030) (54,030) Depreciation and amortization..................................... (60,302) (72,115) ----------- ----------- Net operating income (loss)....................................... (15,069) (26,882) Interest income................................................... 2,955 2,955 Interest expense.................................................. (19,057) (37,764) Interest expense, related party .................................. (13,043) - Provision for loss on investment related costs.................... (8,571) (8,571) Foreign exchange loss and other expense........................... (18,634) (14,803) ----------- ----------- Net loss before income taxes and other items...................... (71,419) (85,065) Share in results of affiliated companies, net..................... (11,552) (15,259) Minority interests in subsidiaries................................ 69 69 Income tax benefit (expense)...................................... 748 748 ----------- ----------- Net loss.......................................................... (82,154) (99,507) =========== =========== Basic and diluted net loss per ordinary share..................... (0.30) (0.40) =========== =========== Weighted-average number of ordinary shares outstanding............ 274,600,143 248,593,362 =========== ===========
(1) Includes additional depreciation and amortization related to the step-up in basis in tangible assets, investments in and advances to affiliated companies and new goodwill, interest expense from the Senior Revolving Credit Facility and the Bridge Bank Facility, net of elimination of historical interest expense on the PIK Notes and refinanced credit facilities, and foreign exchange loss on the U.S. dollar-denominated Bridge Bank Facility, net of elimination of historical foreign exchange loss on the PIK Notes. 71 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued The following chart presents a summary of the Company's significant investments in multi-channel television, DTH and programming, Internet/data and telephony operations as of December 31, 1999: Austria: Telekabel Group ......................................................... 95.0% Belgium: UPC Belgium (formerly Radio Public N.V./S.A.)............................ 100.0% Czech Republic: KabelNet................................................................. 100.0% Kabel Plus............................................................... 94.6% France: UPC France (1)........................................................... 99.6% Hungary: UPC Magyarorszag (formerly Telekabel Hungary) (2)........................ 79.25% Monor Communications Group, Inc. ("Monor")............................... 97.14% Ireland: Tara Televison Limited ("Tara").......................................... 80.0% Israel: Tevel Israel International Communications Ltd. ("Tevel")................. 46.6% Malta: Melita Cable TV P.L.C. ("Melita")........................................ 50.0% The Netherlands: UPC Nederland (formerly United Telekabel Holding N.V.) (3)............... 100.0% Priority Telecom N.V..................................................... 100.0% chello Broadband N.V. ("chello")......................................... 100.0% UPC Programming B.V. ("UPCtv")........................................... 100.0% Norway: UPC Norge AS ("UPC Norge") (formerly Janco Multicom ).................... 100.0% Poland: @Entertainment, Inc. ("@Entertainment").................................. 100.0% Romania: Eurosat.................................................................. 51.0% Multicanal Holdings...................................................... 100.0% Control Cable Ventures................................................... 100.0% Diplomatic International, srl............................................ 100.0% Selektronic.............................................................. 100.0% Slovak Republic: Trnavatel................................................................ 95.0% Kabeltel................................................................. 100.0% UPC Slovensko s r.o. (formerly SKT spol s r.o.).......................... 100.0% Spain: Iberian Programming Services ("IPS")..................................... 50.0% Sweden: StjarnTVnatet AB ("Stjarn").............................................. 100.0% United Kingdom: Xtra Music Ltd........................................................... 41.0% Other: SBS Broadcasting SA ("SBS").............................................. 13.3% PrimaCom................................................................. 18.2%
(1) The minority shareholder holds warrants giving it the right to purchase for a nominal amount new shares corresponding to 4.6% of UPC France's share capital. Accordingly, UPC has a 95% economic interest in UPC France. Our investment in RCF, Time Warner Cable France and Videopole is held through UPC France. Subsequent to December 31, 1999, UPC's interest decreased to 92%. See Note 15. (2) Subsequent to December 31, 1999, UPC's interest increased to 100%. See Note 15. (3) Our investments in GelreVision and A2000 are held through UPC Nederland. 72 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 2. Summary of Significant Accounting Policies Change in Reporting Currency to the Euro Effective December 31, 1999, UPC changed its reporting currency to the Euro. Prior to December 31, 1999, UPC's reporting currency was the Dutch guilder. As of January 1, 1999, the exchange rate between the Dutch guilder and the Euro was fixed at 2.20371 Dutch guilders to 1 Euro. UPC has restated its prior year consolidated financial statements by retroactively applying the fixed exchange rate of 2.20371 to the Dutch guilder amount previously reported. The comparative financial statements reported in Euros depict the same trends as would have been presented if UPC had continued to present its financial statements in Dutch guilders. The consolidated financial statements of UPC for periods prior to January 1, 1999 will not be comparable to the financial statements of other companies that report in Euros and restated the amounts from a currency other than the Dutch guilder. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles. The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In February 1999 and December 1998, UPC acquired telephony and programming assets from United through the issuance of new shares (see Note 3). As the acquisitions were between entities under common control, the transactions were accounted for at historical cost, similar to pooling of interests accounting. It is generally accepted that, consistent with a pooling-of-interests accounting, prior period financial statements of the transferee are restated for all periods in which the transferred operations were part of parent's consolidated financial statements. Accordingly, we have restated all periods presented as if UPC had acquired the telephony and programming assets from United as of the date of United's initial investment. Principles of Consolidation The accompanying consolidated financial statements include the accounts of UPC and all subsidiaries where it exercises a controlling financial interest through the ownership of a majority voting interest, except for UTH for the period from August 1, 1998 through January 30, 1999, where because of certain minority shareholders rights the Company accounts for its investment in UTH using the equity method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents Cash and cash equivalents include cash and investments with original maturities of less than three months. Allowance for Doubtful Accounts The allowance for doubtful accounts is based upon the Company's assessment of probable loss related to overdue accounts receivable. Upon disconnection of the subscriber, the account is fully reserved. The allowance is maintained on the books until receipt of payment, the account is deemed uncollectable or a maximum of three years. 73 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Restricted Cash Cash held as collateral for letters of credit and other loans is classified based on the expected expiration of such facilities. Costs to be Reimbursed by Affiliated Companies The Company incurs costs on behalf of affiliated companies, such as salaries and benefits, travel and professional services. These costs are reimbursed by the affiliated companies. Marketable Equity Securities The Company classifies its investments in marketable equity securities as available-for-sale and reports such investments at fair market value. Unrealized gains and losses are charged or credited to equity, realized gains and losses and other than temporary declines in market value are included in operations. Investments in and Advances to Affiliated Companies, Accounted for under the Equity Method For those investments in companies in which the Company's ownership interest is 20% to 50%, its investments are held through a combination of voting common stock, preferred stock, debentures or convertible debt and/or the Company exerts significant influence through board representation and management authority, or in which majority control is deemed to be temporary, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's proportionate share of net earnings or losses of the affiliates, limited to the extent of the Company's investment in and advances to the affiliates, including any debt guarantees or other contractual funding commitments. The Company's proportionate share of net earnings or losses of affiliates includes the amortization of the excess of its cost over its proportionate interest in each affiliate's net tangible assets or the excess of its proportionate interest in each affiliate's net tangible assets in excess of its cost. As of December 31, 1999, the Company accounted for its 13.3% investment in SBS under the equity method based on its influence through board representation. Subsequent to December 31, 1999, the Company increased its investment in SBS to 23.5%. See Note 15. Property, Plant and Equipment Property, plant and equipment is stated at cost. Additions, replacements, installation costs and major improvements are capitalized, and costs for normal repair and maintenance of property, plant and equipment are charged to expense as incurred. Assets constructed by subsidiaries of UPC incorporate overhead expense and interest charges incurred during the period of construction; investment subsidies are deducted. Depreciation is calculated using the straight-line method over the economic life of the asset, taking into account the residual value. The economic lives of property, plant and equipment at acquisition are as follows: Cable distribution networks....................... 7 - 20 years Subscriber installation costs and converters...... 5 years MMDS distribution facilities...................... 7 - 20 years DTH............................................... 5 years Office equipment, furniture and fixtures.......... 3 - 8 years Building and leasehold improvements............... 20 - 33 years Other............................................. 3 - 10 years
Goodwill and Other Intangible Assets The excess of investments in consolidated subsidiaries over the net tangible asset value at acquisition is amortized on a straight-line basis over 15 years. Licenses in newly-acquired companies are recognized at the 74 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued fair market value of those licenses at the date of acquisition. Licenses in new franchise areas include the capitalization of direct costs incurred in obtaining the license. The license value is amortized on a straight-line basis over the initial license period, up to a maximum of 20 years. Recoverability of Tangible and Intangible Assets The Company evaluates the carrying value of all tangible and intangible assets whenever events or circumstances indicate the carrying value of assets may exceed their recoverable amounts. An impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on fair value of the asset computed using discounted cash flows if the asset is expected to be held and used. Measurement of an impairment loss for an asset held for sale would be based on fair market value less estimated costs to sell. Deferred Financing Costs Costs to obtain debt financing are capitalized and amortized over the life of the debt facility using the effective interest method. Revenue Recognition Revenue is primarily derived from the sale of cable television services to subscribers and is recognized in the period the related services are provided. Initial installation fees are recognized as revenue in the period in which the installation occurs, to the extent installation fees are equal to or less than direct selling costs, which are expensed. To the extent installation fees exceed direct selling costs, the excess fees are deferred and amortized over the average contract period. All installation fees and related costs with respect to reconnections and disconnections are recognized in the period in which the reconnection or disconnection occurs because reconnection fees are charged at a level equal to or less than related reconnection costs. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large number of customers and their dispersion across many different countries in Europe. Stock-Based Compensation In accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", stock-based compensation is recognized using the intrinsic value method for the Company's stock option plan and that of its subsidiary, chello, which results in compensation expense for the difference between the grant price and the fair market value at each new measurement date. In addition both the Company and chello have stock-based compensation plans which are equivalent to stock appreciation rights. Accordingly, variable plan accounting is used, recognizing compensation expense and deferred compensation based on the difference between the grant price and the fair market value at each financial statement date. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation." See Note 10. Income Taxes The Company accounts for income taxes under the asset and liability method which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions which have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and income tax basis of assets, liabilities and loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Net deferred tax assets are then reduced by a valuation allowance if management believes it is more likely than not they will not be realized. Withholding taxes are taken into consideration in situations where the income of subsidiaries is to be paid out as dividends in the near future. Such withholding taxes are generally charged to income in the year in which the dividend income is generated. 75 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Basic and Diluted Loss Per Share Basic loss per share is determined by dividing net loss available to ordinary shareholders by the weighted-average number of ordinary shares outstanding during each period. "Diluted loss per share" includes the effects of potentially issuable common stock, but only if dilutive. Therefore, the Company's stock option plans and convertible securities are excluded from the Company's diluted loss per share for all periods presented because their effect would be anti-dilutive. Foreign Operations and Foreign Exchange Rate Risk The functional currency for the Company's foreign operations is the applicable local currency for each affiliate company. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated at exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into Euros that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of shareholders' equity included in Other Comprehensive Income (Loss). Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from the Company's operations in foreign countries are translated based on their functional currencies. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not agree to changes in the corresponding balances on the consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line below cash flows from financing activities. The Company and certain of its operating companies have notes payable and notes receivable that are denominated in a currency other than their own functional currency. In general, the Company and the operating companies do not execute hedge transactions to reduce the Company's exposure to foreign currency exchange rate risks. Accordingly, the Company may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. On January 1, 1999, eleven of the fifteen member countries of the European Union fixed their conversion rates between their existing sovereign currencies and the Euro, eliminating the foreign exchange rate fluctuation exposure of UPC related to its operating subsidiaries in the eleven countries (includes UPC's subsidiaries in The Netherlands, Austria, Belgium, France and Spain). UPC's investments in countries outside the eleven countries which have adopted the Euro include Norway, Sweden, Poland, Hungary, Romania, Slovak Republic, Czech Republic, Ireland, Israel, Malta and operations which report in US Dollars. New Accounting Principles The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under SFAS 133, accounting for changes in fair value of a derivative depends on its intended use and designation. In June 1999, the FASB approved Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and hedging activities-Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of SFAS 133, which will now be effective for our first quarter 2001. The Company is currently assessing the effect of this new standard. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 is effective second quarter of 2000. The Company has evaluated SAB 101 and believes there is no effect on the revenue recognition policies currently in place. 76 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 3. Acquisitions and Dispositions Combivisie Effective January 1, 1998, UPC acquired certain assets, including The Netherlands cable systems of Stichting Combivisie Regio (''Combivisie''), for 82,026. The purchase was funded with a 27,227 draw on the Senior Revolving Credit Facility and 54,799 of bank financing. Details of the net assets acquired were as follows: Property, plant and equipment and other assets......... 48,101 Goodwill............................................... 33,926 ------ Total cash paid...................................... 82,027 ======
The following unaudited pro forma condensed consolidated operating results for the year ended December 31, 1997 give effect to the acquisition of Combivisie as if it had occurred at the beginning of the period presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable.
For the Year Ended December 31, 1997 ------------------------------- Historical Pro Forma -------------- -------------- Service and other revenue......... 153,040 166,187 =========== =========== Net loss.......................... (82,154) (80,384) =========== =========== Basic and diluted net loss per ordinary share................. (0.30) (0.30) =========== =========== Weighted-average number of ordinary shares outstanding.... 275,421,933 275,421,933 =========== ===========
Telekabel Hungary On June 29, 1998, UPC acquired Time Warner Entertainment Company's ("TWE") interest in its Hungarian multi-channel television system assets for USD9,500 (8,794) in cash and a non-interest bearing promissory note in the amount of USD18,000 (16,663) (the ''Time Warner Note''). UPC and TWE retained their respective percentage interests in the programming assets in Hungary. UPC has granted TWE an option to acquire UPC's interest in such programming assets as well as TV Max in consideration for the cancellation of the Time Warner Note. On June 30, 1998, UPC merged its 100%-owned Hungarian multi-channel television systems (''Kabelkom'') with Hungary's second largest multiple system operator to form the new joint venture Telekabel Hungary. UPC retains a 79.25% ownership interest in the new entity. In March 1999, Time Warner exercised their option to acquire UPC's interest in the programming assets and TV Max. United Telekabel Holding N.V. On August 6, 1998, UPC merged its Dutch cable television systems with those of NUON, forming a new company, United Telekabel Holding N.V. ("UTH") (the "UTH Transaction"), which was accounted for as the formation of a joint venture with NUON's and UPC's net assets recorded at their historical carrying values. Following the merger, UPC held 51% of UTH. The agreement provided UPC with a call option to acquire an additional interest in UTH and NUON a put option to require UPC to purchase part of NUON's interest in UTH. The UTH shareholder agreement provided for essentially joint governance by NUON and UPC on almost all significant participating and protective type rights, accordingly, because of joint governance on most significant operating decisions, UPC accounted for its investment in UTH using the equity method of accounting. 77 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued On February 17, 1999, the Company acquired the remaining 49% of UTH from NUON (the "NUON Transaction") for 235.1 million. In addition, UPC repaid NUON and assumed from NUON a 15.1 million subordinated loan, including accrued interest, dated December 23, 1998, owed by UTH to NUON. The purchase of NUON's interest and payment of the loan were funded with proceeds from UPC's initial public offering. Effective February 1, 1999, UPC began consolidating its investment in UTH. Details of the net assets acquired, based on preliminary purchase price allocations using information currently available, were as follows: Property, plant and equipment ........ 185,835 Investments in affiliated companies... 41,439 Goodwill.............................. 227,190 Long-term liabilities................. (214,613) Net current liabilities............... (4,765) ----------- Total cash paid....... 235,086 ===========
The following unaudited pro forma condensed consolidated operating results for the years ended December 31, 1999 and 1998 give effect to the UTH Transaction and the NUON Transaction as if they both had occurred at the beginning of the periods presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transactions had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable.
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ----------------------------- ----------------------------- Historical Pro Forma Historical Pro Forma ------------- ------------ ------------ ---------- Service and other revenue.................... 447,501 456,506 185,582 241,587 =========== =========== ============ =========== Net loss..................................... (784,298) (789,099) (255,579) (273,466) =========== =========== ============ =========== Weighted-average number of ordinary shares outstanding.............. 377,971,563 381,313,555 247,915,834 256,448,573 =========== =========== ============ =========== Basic and diluted net loss per ordinary share...................... (2.08) (2.07) (1.03) (1.07) =========== =========== ============ ===========
UII In November 1998, the Company (i) acquired from TINTA its indirect 23.3% and 25% interests in the Tevel and Melita systems for USD91.5 million (77.8 million), doubling the Company's respective ownership in these systems to 46.6% and 50%, respectively, (ii) purchased an additional 5% interest in Princes Holdings and 5% of Tara in consideration for 769,062 shares of United held by UPC, and (iii) sold the 5% interest in Princes Holdings, together with its existing 20% interest, to TINTA for USD20.5 million (17.4 million). The net payment of USD71.0 million (60.4 million) to TINTA (USD68.0 million (57.8 million) after closing adjustments) was funded with the proceeds of a USD90.0 million (76.5 million) promissory note made by a subsidiary of the Company to its primary partners in the Tevel system. See Note 9 - DIC Loan. Purchase of Certain Telephony and Programming Assets from United In December 1998, in exchange for 18,991,020 newly-issued ordinary shares of UPC (as adjusted for UPC's 3:1 stock split in March 2000), United sold to UPC their: . 44.75% economic interest in Monor, a traditional telephony and cable television system in the Monor region of Hungary; 78 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued . 75% interest in Tara, a company providing Irish programming to the U.K. markets. In February 1999, in exchange for 14,865,792 newly-issued ordinary shares, United sold to the Company their approximately 33.5% interest in IPS, a group of programming entities focusing on the Spanish and Portuguese-speaking markets. Because these transactions represented an exchange between entities under common control, the Company has restated its financial statements for all periods in which the operations of Monor, Tara and IPS were part of United's consolidated financial statements. See Note 2. In May 1999, the Company acquired a further 16.5% interest in IPS from an unaffiliated party for approximately USD7.6 million (7.1 million), increasing its ownership to 50%. Acquisition of SKT spol s r.o. In June 1999, UPC completed the acquisition of SKT spol s r.o., which operates a cable television system in Bratislava, the capital of the Slovak Republic. The purchase price was USD43.25 million (41.2 million) and was accounted for under purchase accounting. Acquisition of GelreVision In June 1999, UPC acquired, through UPC Nederland, 100% of the GelreVision multi-channel television systems in The Netherlands. The Company paid 106.2 million for GelreVision. These systems are contiguous to UPC's A2000 and TeleKabel Beheer operations. The acquisition was accounted for under purchase accounting. Effective June 1, 1999, UPC began consolidating its investment in GelreVision. Details of the net assets acquired, based on preliminary purchase price allocations using information currently available, were as follows: Property, plant and equipment ................... 47,754 Goodwill......................................... 65,083 Long-term liabilities............................ (4,094) Net current liabilities.......................... (2,592) -------- Total cash paid.................. 106,151 ========
The following unaudited pro forma condensed consolidated results for the years ended December 31, 1999 and 1998 give effect to the acquisition of GelreVision as if it had occurred at the beginning of the periods presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable.
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 --------------------------- --------------------------- Historical Pro Forma Historical Pro Forma -------------- ----------- ------------ ------------- Service and other revenue..................... 447,050 452,692 185,582 197,641 =========== =========== =========== =========== Net loss........................................ (784,298) (787,842) (255,579) (264,511) =========== =========== =========== =========== Weighted-average number of ordinary shares outstanding............. 377,969,829 379,480,605 247,915,834 251,768,703 =========== =========== =========== =========== Basic and diluted net loss per ordinary share............................ (2.08) (2.08) (1.03) (1.05) =========== =========== =========== ===========
79 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Acquisition of Reseaux Cables de France In June 1999, UPC acquired through UPC France, 95.7% of Reseaux Cables de France, which operates cable television systems throughout France. The purchase price was approximately FFR172.0 million (26.2 million) and was accounted for under purchase accounting. At closing UPC began consolidating RCF, including its debt, which was 37.7 million. Acquisition of 13.3% of SBS Broadcasting SA In July 1999, UPC closed the purchase of approximately 4.8% of SBS for cash of USD24.3 million (22.7 million). In August 1999, UPC acquired an additional 8.5% of SBS for USD75.9 million (70.2 million), increasing its ownership to 13.3%. UPC's investment in SBS is accounted for under the equity method of accounting. In February 2000, UPC acquired an additional 10.2% interest in SBS. In March 2000, UPC announced an offer to tender for the remaining ownership of SBS. See Note 15. Acquisition of StjarnTVnatet AB In July 1999, UPC acquired Stjarn, which operates cable television systems serving the greater Stockholm area, for a purchase price of USD397.0 million (371.1 million). USD100.0 million (93.5 million) of the purchase price was paid in the form of a one year note with interest at 8% per annum and the balance of the purchase price was paid in cash. Upon maturity of the note, UPC will have the option to pay the note in either cash or its shares. The Stjarn acquisition was structured as a purchase of shares of Stjarn's parent holding company, NBS Nordic Broadband Services AB ("NBS Nordic"). The acquisition was accounted for under purchase accounting. At closing, effective August 1, 1999, UPC began consolidating Stjarn, including its debt, which was 78.4 million. Details of the net assets acquired, based on preliminary purchase price allocations using information currently available, were as follows: Property, plant and equipment ......... 40,356 Goodwill............................... 413,264 Long-term liabilities.................. .. (30,164) Net current liabilities................ (52,345) ----------- Total purchase price................ 371,111 Seller's note....................... (93,479) ----------- Total cash paid..................... 277,632 ===========
The following unaudited pro forma condensed consolidated results for the years ended December 31, 1999 and 1998 give effect to the acquisition of Stjarn as if it had occurred at the beginning of the periods presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. NBS Nordic acquired Stjarn on May 6, 1998. As NBS Nordic had no substantial operations of its own prior to the acquisition of Stjarn, Stjarn is deemed to be the predecessor to NBS Nordic. The pro forma condensed consolidated results for the years ended December 31, 1998 include Stjarn, as if NBS Nordic had acquired Stjarn on January 1, 1998. 80 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ------------------------- ------------------------ Historical Pro Forma Historical Pro Forma ---------- --------- ---------- --------- Service and other revenue......... 447,501 465,227 185,582 214,243 =========== =========== =========== =========== Net loss.......................... (784,298) (827,897) (255,579) (313,742) =========== =========== =========== =========== Weighted-average number of ordinary shares outstanding... 377,969,829 377,969,829 247,915,834 247,915,834 =========== =========== =========== =========== Basic and diluted net loss per ordinary share........... (2.08) (2.19) (1.03) (1.27) =========== =========== =========== ===========
Acquisition of @Entertainment In August 1999, UPC acquired 100% of @Entertainment for USD807.0 million (750.7 million). The @Entertainment acquisition was accounted for under purchase accounting. At closing UPC began consolidating @Entertainment, including its debt, which was 419.3 million. Effective August 1, 1999, UPC began consolidating its investment in @Entertainment. Details of the net assets acquired, based on preliminary purchase price allocations using information currently available, were as follows: Property, plant and equipment .............. 182,495 Goodwill.................................... 917,983 Other assets................................ 19,847 Net current assets.......................... 47,665 Long-term liabilities....................... (417,279) --------- Total cash paid............. 750,711 =========
The following unaudited pro forma condensed consolidated results for the years ended December 31, 1999 and 1998 give effect to the acquisition of @Entertainment as if it had occurred at the beginning of the periods presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable.
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ----------------------------- --------------------------- Historical Pro Forma Historical Pro Forma ------------- -------------- -------------- ----------- Service and other revenue............ 447,501 490,933 185,582 241,471 =========== =========== =========== =========== Net loss............................. (784,298) (961,956) (255,579) (455,122) =========== =========== =========== =========== Weighted-average number of ordinary shares outstanding...... 377,969,829 377,969,829 247,915,834 247,915,834 =========== =========== =========== =========== Basic and diluted net loss per ordinary share.............. (2.08) (2.55) (1.03) (1.84) =========== =========== =========== ===========
The consummation of the Company's tender offer of @Entertainment resulted in a change of control, and as a result, @Entertainment was obligated to offer to repurchase any @Entertainment senior notes that the note holders put to it at 101% of their principal amount, plus accrued and unpaid interest. 81 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Acquisition of Videopole In August 1999, UPC acquired, through UPC France, 100% of Videopole, which operates cable television systems in France. The purchase price of USD135.1 million (126.8 million) was paid half with cash of USD69.9 million (65.6 million) and half with 2,866,128 of UPC's ordinary A shares. The acquisition was accounted for under purchase accounting. Effective August 1, 1999, UPC began consolidating its investment in Videopole, including its debt, which was 19.0 million. Acquisition of Time Warner Cable France In August 1999, UPC acquired, through UPC France, 100% of Time Warner Cable France, a company that controls and operates three cable television systems in the suburbs of Paris and Lyon and in the city of Limoges. The purchase price was USD71.1 million (66.7 million). Simultaneously with the acquisition of Time Warner Cable France, UPC acquired an additional 47.62% interest in one of its operating systems, Rhone Vision Cable, in which Time Warner France had a 49.88% interest, for 13.6 million, increasing UPC's ownership in this operating system to 97.5%. The acquisition was accounted for under purchase accounting. Effective September 1, 1999, UPC began consolidating its investment in Time Warner Cable France, including its debt, which was 45.7 million. Acquisition of 50% of A2000 In September 1999, UPC acquired, through UPC Nederland, the remaining 50% of A2000 that it did not already own for USD229.0 million (214.0 million), including the assumption of receivables from A2000 of approximately 12.2 million. The acquisition was accounted for under purchase accounting. At closing UPC began consolidating, A2000 including its debt, which was 237.6 million. As of September 1, 1999, UPC began consolidating its investment in A2000. Details of the net assets acquired, based on preliminary purchase price allocations using information currently available, were as follows: Property, plant and equipment........... 90,243 Goodwill................................ 256,469 Net current liabilities................. (23,429) Long-term liabilities................... (121,446) ----------- 201,837 Receivables assumed..................... 12,211 ----------- Total cash paid......... 214,048 ===========
The following unaudited pro forma condensed consolidated results for the year ended December 31, 1999 and 1998 give effect to the acquisition of A2000 as if it had occurred at the beginning of the periods presented. The following pro formas reflect UPC's 100% ownership in A2000 for the periods presented. This pro forma condensed consolidated financial information does not purport to represent what the Company's results of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. 82 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ------------------------ ------------------------ Historical Pro Forma Historical Pro Forma ---------- --------- ---------- ---------- Service and other revenue....... 447,501 494,246 185,582 241,927 =========== ========== ========== =========== Net loss........................ (784,298) (821,909) (255,579) (276,584) =========== ========== ========== =========== Weighted-average number of ordinary shares outstanding. 377,969,829 377,969,829 247,915,834 247,915,834 =========== =========== =========== ============ Basic and diluted net loss per ordinary share......... (2.08) (2.17) (1.03) (1.11) =========== =========== =========== ============
Acquisition of Kabel Plus On October 27, 1999, UPC completed the acquisition of a 94.6% interest in Kabel Plus, which owns and operates cable television systems in the Czech and Slovak Republics. The purchase price was USD150.0 million (141.9 million). At closing UPC began consolidating Kabel Plus, including its debt, which was 22.0 million. Agreement to Acquire Kabel Haarlem B.V. In August 1999, UPC won a bid to purchase Kabel Haarlem B.V., the municipality-owned cable television network in Haarlem, for approximately 60.8 million. Kabel Haarlem B.V.'s system is located near Amsterdam. The acquisition is expected to close during the first quarter of 2000. Agreement by Tevel to Acquire 35% in Golden Channels In November 1999, Tevel, a 46.6% investment of UPC, agreed to purchase a 35% economic interest in Golden Channels for USD183.5 million (172.3 million). Golden Channels is a competitor of Tevel in the Israel market. Its systems, including Idan, passed approximately 461,347 homes and had approximately 322,945 basic subscribers at December 31, 1998. Close of the acquisition is subject to regulatory approval and there can be no assurance this acquisition will close. Acquisition of 48.03% of Monor In December 1999, UPC acquired an additional 48.03% economic interest in Monor from its partner, PenneCom B.V., and several small minority shareholders for approximately USD45.0 million (44.8 million). These transactions increased UPC's ownership from 49.11% to approximately 97.14%. As of December 31, 1999 Monor is consolidated. Monor's system is located in the Monor region, an area which borders Budapest in Hungary. 83 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 4. Investments in and Advances to Affiliated Companies, Accounted for Under the Equity Method
As of December 31, 1999 --------------------------------------------------------------------------------- Investments in Cumulative Cumulative Cumulative and Advances to Dividends Share in Results of Translation Affiliated Companies Received Affiliated Companies Adjustments Total --------------------- ----------- --------------------- ----------- ----- Tevel................................ 91,126 (5,500) (8,188) 8,179 85,617 Melita................................ 12,699 - 260 669 13,628 Xtra Music............................ 9,120 - (2,830) 465 6,755 IPS................................... 10,065 - 2,137 2,023 14,225 SBS................................... 94,952 - (5,183) 6,685 96,454 Fox Kids Poland....................... 7,171 - - - 7,171 Twoj Styl............................. 10,023 - - - 10,023 Mazowiecki Klub Sportowy Sportow..... 1,669 - - - 1,669 Other, net............................ 7,366 - (62) 1 7,305 ---------------- ----------- ------------------- ----------- -------- Total................................. 244,191 (5,500) (13,866) 18,022 242,847 ================ ========== =================== ========== =======
As of December 31, 1998 ------------------------------------------------------------------------------------ Investments in Cumulative Cumulative Cumulative and Advances to Dividends Share in Results of Translation Affiliated Companies Received Affiliated Companies Adjustments Total ------------------------ ------------ --------------------- ----------- ------- UTH (1)............................ 123,659 - (10,337) - 113,322 Tevel.............................. 86,997 (5,500) (353) (4,339) 76,805 Melita............................. 12,714 - 901 (64) 13,551 Telekabel Hungary.................. Programming (2)................ 11,074 - (3,505) (357) 7,212 Monor.............................. 9,692 - (2,231) (6,732) 729 Xtra Music......................... 4,809 - (484) - 4,325 IPS................................ 4,728 - (153) 1,141 5,716 Other, net......................... 2,073 - 4 - 2,077 -------------------- ---------- ------------------- ----------- ---------- Total.............................. 255,746 (5,500) (16,158) (10,351) 223,737 ==================== ========== =================== =========== ==========
(1) In February 1999, the Company acquired the remaining 49% of UTH and began consolidating UTH as of February 1, 1999. See Note 3. (2) Represents the Company's remaining investment in Telekabel Hungary Programming after the transaction with TWE. In March 1999, UPC sold the remaining investment in Telekabel Hungary Programming. 84 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued The Company had the following differences related to the excess of cost over the net tangible assets acquired for its equity investments. Such differences are being amortized over 15 years:
As of December 31, 1999 As of December 31, 1998 ---------------------------- -------------------------- Basis Accumulated Basis Accumulated Difference Amortization Difference Amortization ----------- ------------- ----------- ------------- UTH................................... - - 1,262 (28) Tevel (1)............................. 81,500 (7,898) 69,164 (2,874) Melita (1)............................ 11,600 (1,234) 11,062 (387) Telekabel Hungary Programming (2)..... - - 6,543 (259) Monor................................. - - 759 (59) Xtra Music............................ 5,477 (244) 3,075 (63) IPS................................... 11,867 (518) 1,900 (73) SBS................................... 108,401 (2,810) - - ------- ------- ------ ------ Total............................ 218,845 (12,704) 93,765 (3,743) ======= ======= ====== ======
(1) In November 1998 the Company acquired from TINTA its interests in Tevel and Melita, and sold its interest in Princes Holdings. See Note 3. (2) Represents the Company's remaining investment in Telekabel Hungary Programming after the transaction with TWE. See Note 3. Summary financial information for UTH is as follows:
For the One Month Ended January 31, 1999 ------------ Revenue................................... 9,005 Costs..................................... (5,731) Depreciation and amortization............. (3,742) ------------ Net operating loss................... (468) Share in results of affiliated companies.. (2,279) Financial charges and other............... (2,164) Income tax (provision) benefit............ 110 ------------ Net loss............................. (4,801) ============
85 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Summary financial information for Tevel is as follows:
As of December 31, 1998 ------------ Cash......................................................... 27 Tangible fixed assets........................................ 53,751 Other assets................................................. 202,866 --------- Total assets............................................. 256,644 ========= Current liabilities.......................................... 19,138 Notes payable................................................ 9,259 Long-term debt............................................... 193,585 Other long-term liabilities.................................. 12,097 Shareholders' value.......................................... 22,565 --------- Total liabilities and shareholders' value............... 256,644 =========
For the Years Ended December 31, ------------------------ 1998 1997 ---------- ---------- Revenue....................................................... 92,418 84,902 Costs......................................................... (36,492) (41,520) Depreciation and amortization................................. (21,771) (14,007) -------- -------- Net operating income..................................... 34,155 29,375 Financial charges, including related party interest........... expense, and foreign exchange results........................ (29,309) (3,607) Income taxes and other items.................................. 7,417 (2,607) Share in results of affiliated companies...................... (5,633) 23 -------- -------- Net income .............................................. 6,630 23,184 ======== ========
86 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Summary financial information for A2000 is as follows:
As of July 31, 1998 (1) ------------- Liquid assets.................................................... 1,060 Other current assets............................................. 24,131 Financial fixed assets........................................... 288 Tangible fixed assets............................................ 154,823 Intangible fixed assets.......................................... 53,454 ------------- Total assets................................................. 233,756 ============= Current liabilities.............................................. 40,101 Provisions....................................................... 684 Long-term debt................................................... 217,362 Shareholders' value.............................................. (24,391) ------------- Total liabilities and shareholders' value................... 233,756 =============
For the For the Seven Months Year Ended Ended July 31, December 31, 1998 (1) 1997 ------------- --------------- Revenue.................................................. 31,614 46,036 Costs.................................................... (23,746) (30,715) Depreciation and amortization............................ (16,388) (23,073) ------------- --------------- Net operating loss.................................. (8,520) (7,752) Financial charges and other.............................. (6,179) (7,601) Income tax (provision) benefit........................... - 4,459 ------------- --------------- Net income ......................................... (14,699) (10,894) ============= ===============
(1) Effective August 6, 1998, A2000 was contributed to UTH as part of the UTH Transaction. 5. Other Investments Marketable equity securities of parent, at fair value As a result of the UPC Acquisition, a subsidiary of UPC acquired 6,338,302 United's Class A common shares, valued at fair market value of 30,317 as of December 11, 1997. In November 1998, UPC used 769,062 shares to acquire an additional 5% interest in each of Tara and PHL. Accordingly, unrealized gains recorded in equity totaling approximately 829, were reversed out of equity and recorded as a realized gain in the consolidated statement of operations. As of December 31, 1999, the fair value of the remaining 5,569,240 shares was 390,881, resulting in an unrealized gain of 364,272 as of December 31, 1999. In September 1999, UPC agreed to form a joint venture with Microsoft and Liberty Media Corporation. UPC will contribute its 9.8 million Class A common shares of United that it owns and the other parties will contribute 4.9 million Class B common shares of United. UPC will have a 50% interest in the new joint venture and Liberty and Microsoft will share the other 50% and a USD287.0 million (269.6 million) redeemable preferred 87 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued interest in the joint venture to balance out the parties' ownership interests. UPC, together with Liberty and Microsoft, will evaluate content and distribution opportunities in Europe. Formation of the joint venture is still pending. Marketable equity securities of Primacom AG, at fair value In December 1999, UPC purchased an approximately 18.2% interest in PrimaCom AG, which owns and operates cable television networks in Germany. The purchase price for this interest was approximately 226.5 million. As of December 31, 1999, the fair value of the 18.2% interest was 230.5 million, resulting in an unrealized gain of 4.0 million for the year ended December 31, 1999. Subsequent to December 31, 1999, UPC increased its interest in PrimaCom AG. See Note 15. 6. Property, Plant and Equipment
As of December 31, -------------------------------- 1999 1998 --------------- --------------- Cable distribution networks.................. 1,523,871 211,501 Subscriber premises equipment and converters. 152,713 61,046 MMDS distribution facilities................. 7,997 6,295 DTH.......................................... 70,775 - Office equipment, furniture and fixtures..... 71,712 16,016 Buildings and leasehold improvements......... 143,868 5,788 Other........................................ 131,683 12,782 --------------- --------------- 2,102,619 313,428 Accumulated depreciation............ (194,205) (39,800) --------------- --------------- Net property, plant and equipment... 1,908,414 273,628
=============== =============== 7. Goodwill and Other Intangible Assets
As of December 31, ------------------------------- 1999 1998 -------------- -------------- @Entertainment................................ 929,956 - UPC Nederland................................. 758,962 - Stjarn........................................ 427,927 - Telekabel Group............................... 176,694 176,753 Mediareseaux.................................. 117,054 - UPC Norge..................................... 84,874 75,098 Telekabel Hungary............................. 54,725 44,211 UPC .......................................... 29,223 - UPC Belgium................................... 20,863 19,145 UPC Slovensko s r.o........................... 22,883 - Kabel Plus.................................... 84,799 - Monor......................................... 24,268 - Other......................................... 12,852 11,125 -------------- ------------- 2,745,080 326,332 Accumulated amortization................ (133,667) (17,747) -------------- ------------- Net goodwill and other intangible assets 2,611,413 308,585
============== ============= 88 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 8. Short-Term Debt Time Warner Note Short-term debt as of December 31, 1998 includes the USD18.0 million (15.4 million) non-interest bearing Time Warner Note. Subsequent to December 31, 1998, the Time Warner Note was cancelled as Time Warner exercised its option to acquire our 50% interest in HBO Hungary and 100% interest in TV Max. Telekabel Hungary Facility In October 1998, Telekabel Hungary entered into a DM65.6 million (33.5 million) six-month secured bridge facility. As of December 31, 1998, the amount outstanding under this facility totaled DM33.1 million (16.9 million). The facility was repaid in 1999. Stjarn Facilities In December 1998, Stjarn's parent company, which UPC acquired in July 1999, entered into a SEK521.0 million (59.1 million) loan agreement to refinance certain debt. The loan consists of a facility A, a medium term loan in the amount of SEK371.0 million (42.1 million), and a facility B, a short term loan in the amount of SEK150.0 million (17.0 million). These facilities are secured by pledges of shares in Stjarn's parent company's subsidary and bears interest at the rate of STIBOR plus between 0.75% and 1.25%. Originally, the A facility was to be repaid in eleven semi-annual installments of between SEK41.0 million (4.7 million) and SEK25.0 million (2.8 million) beginning in May 1999 until November 2004. The B facility has been fully repaid and replaced by a revolving credit facility in the amount of SEK150.0 million (17.0 million). The commitment fee for the revolving facility amounts to 0.30% and is based on the committed credit amount. Interest on utilized funds amounts to NBU + 0.60% units. The interest period is three months. The A facility restricts Stjarn's ability to encumber its present or future assets and to enter into sale-leaseback agreements. As a result of our acquisition of Stjarn, both the A facility and the revolving facility will mature on March 31, 2000. UPC is currently in negotiations to extend this to June 30, 2000. Stjarn Seller's Note In connection with the acquisition of Stjarn in July 1999, UPC paid USD100.0 million (99.4 million) in the form of a one year note ("Stjarn Seller's Note") with interest at 8% per annum. Upon maturity of the note, UPC will have the option to pay the note in either cash or UPC shares. 89 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 9. Long-Term Debt
As of December 31, -------------------- 1999 1998 --------- ---------- UPC Euro Senior Notes due 2009..................... 754,717 - UPC Euro Senior Notes due 2009..................... 300,000 - UPC USD Senior Discount Notes due 2009............. 419,123 - UPC 13.375% USD Senior Discount Notes due 2009..... 254,195 - UPC 13.375% EURO Senior Discount Notes due 2009 102,207 - UPC 10 7/8% USD Senior Notes due 2007.............. 190,658 - UPC 10 7/8% Euro Senior Notes due 2007............. 100,000 - UPC USD Senior Notes due 2009...................... 238,412 - UPC 11 1/4% EURO Senior Notes due 2009............. 100,267 - UPC Senior Credit Facility......................... 357,482 - UPC Senior Revolving Credit Facility............... - 439,267 UPC Bridge Bank Facility........................... - 51,513 PCI Notes.......................................... 16,355 - @Entertainment 1998 Senior Discount Notes.......... 115,263 - @Entertainment 1999 Senior Discount Notes.......... 140,925 - @Entertainment 1999 Series C Senior Discount Notes. 11,767 - New Telekabel Facility............................. 255,263 - CNBH Facility...................................... 121,556 - A2000 Facilities................................... 207,831 - Mediareseaux Facility.............................. 44,912 18,307 RCF Facility....................................... 31,654 - Rhone Vision Cable Credit Facility................. 60,979 - Videopole Facility................................. 7,704 - Monor.............................................. 33,280 - Bank and other loans............................... 89,151 75,504 ---------- ---------- 3,953,701 584,591 Less current portion...................... (50,291) (51,513) ---------- ---------- Total..................................... 3,903,410 533,078 ========== ==========
UPC October 1999 Senior Notes Offering In October 1999, UPC closed a private placement bond offering consisting of six tranches: USD252 million and Euro101.0 million of 11 1/4% senior notes due 2009; USD200.0 million and Euro100.0 million of of 10 7/8% senior notes due 2007 and USD478.0 million and Euro191.0 million aggregate principal amount at maturity of 13 3/8% senior discount notes due 2009. The senior discount notes were sold at 52.306% of the face amount, yielding gross proceeds of USD250.0 million and Euro100.0 million. The senior discount notes will accrue, but not pay, interest until November 2004. UPC has entered into cross-currency swaps, swapping the USD252.0 million, 11 1/4% coupon into fixed and variable rate Euro notes with a notional amount totaling Euro240.2 million, and swapping the USD200.0 million, 10 7/8% coupon into fixed and variable rate Euro notes with a notional amount totaling Euro190.7 million. Of the Euro240.2 million senior notes, Euro120.1 million have a fixed interest rate of 9.92% through November 1, 2004, thereafter switching to a variable rate of EURIBOR + 4.80%. The remaining Euro120.1 million have a variable interest rate of EURIBOR + 4.80%. Of the Euro190.7 million senior notes, Euro95.35 million have a fixed interest rate of 9.92% through November 1, 2004, thereafter switching to a variable rate of EURIBOR + 4.80%. The remaining Euro95.35 million have a variable interest of EURIBOR + 4.80%. UPC July 1999 Senior Notes Offering In July 1999, UPC completed an offering of USD800.0 million 10.875% senior notes due 2009, Euro300.0 million 10.875% senior notes due 2009 and USD735.0 million 12.5% senior discount notes due 2009. Interest payments on the senior notes will be due semi-annually, commencing February 1, 2000. The senior discount notes were sold at 54.521% of the face amount, yielding gross proceeds of USD400.7 million. The senior discount notes will accrue, but not pay, interest until February 2005. In order to minimize our currency and interest rate exposure, the USD800.0 million 10.875% senior notes have been swapped into senior Euro notes totaling 90 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Euro754.7 million. Of the senior Euro notes, Euro377.35 million have a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to a variable rate of EURIBOR + 4.15%, for an initial rate of 7.093%. The remaining Euro377.35 million have a variable interest rate of EURIBOR + 4.15%. In December 1999, UPC completed a registered exchange offering for its USD and Euro senior notes and USD senior discount notes initially sold under Rule 144A in July 1999 as a private placement. PCI Notes Poland Communications, Inc. ("PCI"), @Entertainment's major operating subsidiary sold USD130.0 million (129.2 million) (aggregate principal amount of senior notes ("PCI Notes")), in October 1996. The PCI Notes bear interest at 9 7/8%, payable on May 1 and November 1 of each year. The PCI Notes mature on November 1, 2003. The indenture governing the PCI Notes contains covenants limiting, among other things, @Entertainment's ability to incur additional indebtedness, make certain payments and distributions, including dividends, issue and sell capital stock of @Entertainment's subsidiaries, create certain liens, enter into transactions with its affiliates, invest in non-controlled entities, guarantee indebtedness by subsidiaries, purchase the notes upon a change of control, pay dividends and make other payments affecting @Entertainment's subsidiaries, effect certain consolidations, mergers, and sale of assets and pursue certain lines of business, and change in its ownership. Pursuant to the terms of the PCI indenture and upon the change of control, @Entertainment was required and has offered to repurchase all of the PCI Notes as a result of UPC's acquisition of @Entertainment. Pursuant to the repurchase offer, which expired on November 2, 1999, PCI has purchased USD113.2 million aggregate principal amount of PCI Notes for an aggregate price of USD114.4 million. PCI may seek to repurchase additional PCI notes from time to time. @Entertainment 1998 Senior Discount Notes In July 1998, @Entertainment sold 252,000 units, each consisting of 14 1/2% senior discount notes due 2008 and warrants entitling the warrant holders to purchase 1,824,514 shares of @Entertainment common stock, generating approximately USD125.1 million (124.3 million) gross proceeds. In connection with the acquisition of @Entertainment, UPC acquired all of the existing warrants. The senior discount notes are unsubordinated and unsecured obligations of @Entertainment. The senior discount notes will accrete, but not pay, interest until January 2004. Subsequent to the initial private placement of these notes, @Entertainment made a registered offer to exchange these notes for its 1998 senior discount notes ("1998 Senior Discount Notes"). The 1998 Senior Discount Notes have the same terms as the notes for which they were exchanged (except for certain registration rights), were issued under the same indenture, and are treated as one series with such notes. @Entertainment offered to repurchase these notes pursuant to the terms of the @Entertainment indenture. Pursuant to the repurchase offer, which expired on November 2, 1999, @Entertainment purchased USD49.1 million (48.8 million) aggregate principal amount at maturity of @Entertainment 1998 Senior Discount Notes. The indenture governing the 1998 Senior Discount Notes has covenants substantially similar to the PCI indenture. @Entertainment 1999 Senior Discount Notes In January 1999, @Entertainment sold 256,800 units consisting of 14 1/2% senior discount notes due 2009 and warrants to purchase 1,813,665 shares of @Entertainment's common stock, yielding gross proceeds of approximately USD100.0 million (99.4 million). In connection with the acquisition of @Entertainment, UPC acquired all of the existing warrants. The senior discount notes will accrete, but not pay, interest until August 2004. Subsequent to the initial private placement of these notes, @Entertainment made a registered offer to exchange these notes for its 1999 senior discount notes ("1999 Senior Discount Notes"). The 1999 Senior Discount Notes have the same terms as the notes for which they were exchanged (except for certain registration rights), were issued under the same indenture, and are treated as one series with such notes. 91 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued @Entertainment offered to repurchase these notes pursuant to the terms of the @Entertainment indenture. Pursuant to the repurchase offer, which expired on November 2, 1999, @Entertainment purchased 1999 Senior Discount Notes described above for an aggregate price of USD26.5 million (26.3 million). The indenture governing the 1999 Senior Discount Notes has covenants substantially similar to the PCI indenture. @Entertainment 1999 Series C Senior Discount Notes On January 20, 1999, @Entertainment sold USD36.0 million (35.8 million) 7.0% series C senior discount notes ("Series C Senior Discount Notes"), generating approximately USD9.8 million (9.7 million) of gross proceeds. The Series C Senior Discount Notes are senior unsecured obligations of @Entertainment. The senior discount notes will accrete, but not pay, interest until January 2004. The indenture governing the Series C Senior Discount Notes has covenants substantially similar to the PCI indenture. UPC Senior Credit Facility On July 27, 1999, a newly formed subsidiary of UPC, UPC Facility B.V., Telekabel Wien and UPC Norge, as borrowers, and a syndicate of banks executed a Loan and Note Issuance Agreement for a Euro1.0 billion multi-currency senior secured credit facility (the "UPC Senior Credit Facility"). The UPC Senior Credit Facility matures on July 27, 2006 and is comprised of two tranches. Tranche A is a 750.0 million reducing revolving credit facility. Tranche B is a 250.0 million term loan facility. The Senior Credit Facility bears interest at the EURIBOR (for borrowings in Euro) and at the London Interbank Offered Rate ("LIBOR") (for all other borrowings) plus a margin of between 0.75% and 2.0% (which margin is at least 1.5% for the first six months following closing) plus an additional cost of funding calculation. In addition to repaying the UPC Senior Revolving Credit Facility, proceeds from the UPC Senior Credit Facility are to be used for general corporate purposes, inter alia, to fund certain acquisitions, and certain permitted distributions, including the payment of interest on funds downstreamed from the proceeds of high yield issues and capital expenditures. Borrowings under the UPC Senior Credit Facility are limited by financial ratio tests. The UPC Senior Credit Facility contains provisions that require its immediate repayment, at the option of the majority banks, if (1) UPC ceases to own more than 50% of, or loses its ability to exercise control over, UPC Facility B.V., or (2) United ceases to own more than 50% and loses its ability to control UPC. In addition, the UPC Senior Credit Facility limits UPC Facility B.V.'s and its subsidiaries' ability to make acquisitions funded by loan proceeds with the UPC Senior Credit Facility to 400.0 million over the life of the UPC Senior Credit Facility, with a further limitation on new Eastern European acquisitions. Furthermore, the UPC Senior Credit Facility contains certain financial covenants and restrictions on UPC Facility B.V. and most subsidiaries' ability to make dividends or other payments to UPC, incur indebtedness, dispose of assets, merge and enter into affiliate transactions. Net proceeds of certain disposals (including sales by UPC of less than 50% of its current interest in UPC Facility B.V.) are required to be used to repay the UPC Senior Credit Facility. The UPC Senior Credit Facility does, however, permit UPC Facility B.V. to upstream payments to UPC after April 1, 2002 for the purpose of servicing interest on the UPC Notes due 2009, if UPC Facility B.V.'s ratio of senior debt to annualised net operating cash flow is less than or equal to 4.5:1.0. The UPC Senior Credit Facility is secured by, among other things, pledges of the shares of UPC Facility B.V., UPC Norge, UPC Belgium, Cable-Network Austria Holding B.V. ("CNAH"), Stipdon and Telekabel Hungary. UPC Facility B.V., UPC Belgium, CNAH, Stipdon and Telekabel Hungary are guarantors under the UPC Senior Credit Facility. The collateral and guarantees under the UPC Senior Credit Facility also secure UPC's liability under any currency and/or interest rate hedging arrangements entered into in connection with the UPC Notes due 2009, although only Euro100.0 million of the indebtedness represented by such arrangements is pari passu with the indebtedness under the UPC Senior Credit Facility. New TeleKabel Facility In March 1999, TeleKabel Beheer, a subsidiary of UPC Nederland, replaced their existing 313.1 million facility with a senior facility and additional shareholder loans. The senior facility 92 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued consists of a 340.0 million revolving facility to N.V. Telekabel that will convert to a term facility on December 31, 2001. Of this facility 5.0 million is in the form of an overdraft facility that is available until December 31, 2007. Repayment takes place from 2002 to 2007. This facility was used, among other things, to repay a portion of the NUON facility and for capital expenditures. The facility bears interest at EURIBOR plus margin between 0.75% and 2.00% based on leverage multiples tied to N.V. Telekabel's net operating income plus an additional cost of funding calculator. The facility is secured by, among other things, a pledge over the shares in N.V. Telekabel and by pledges over shares in its subsidiaries as well as assets pledges. The facility restricts N.V. Telekabel's ability to incur additional debt. This facility generally restricts the payment of dividends and distributions, unless, among other things, we achieve certain financial ratios. This facility also restricts the amount of management fees that can be paid to us. The facility is immediately due and payable if TeleKabel Beheer ceases to own 100% of N.V. TeleKabel or if we cease to own directly or indirectly more than 50% of TeleKabel Beheer. CNBH Facility In February 1998, CNBH, a subsidiary of UPC Nederland, entered into a secured 113.4 million ten-year term facility with a syndicate of banks led by Rabobank. In August 1998, this facility was increased to 120.7 million. Most of the proceeds were used to repay in full a Combivisie bridge facility entered into in connection with the acquisition of Combivisie and a KTE bank facility. The remaining amount under this facility is available to finance certain capital expenditures. Beginning in 2001, CNBH will be required to apply 50% of its excess cash flow to repayment of its facility. The facility restricts the payment of dividends and distributions and limits the amount of payments to UPC under our general services agreement. In January 1999, this facility was increased to 124.3 million. In connection with this facility, UPC entered into a project support agreement providing, among other things, for UPC to retain majority ownership of CNBH. In connection with this facility, CNBH also entered into a 2.3 million ten-year term working capital facility. A2000 Facilities In January 1996, A2000, a subsidiary of UPC Nederland, and its wholly-owned subsidiary Kabeltelevisie Amsterdam entered into bank facilities of 40.8 million and 170.2 million, respectively. In October 1996, A2000 Hilversum, a wholly- owned subsidiary of A2000, entered into a bank facility of 20.4 million. These facilities have between 9 and 10 year terms and interest rates of AIBOR + 0.75% or AIBOR + 0.7% or fixed-rate (fixed prior to each advance) increased by 0.7% or 0.75% per annum. The facilities also restrict the borrowers from incurring additional indebtedness and from paying dividends and distributions, subject to certain exceptions. The A2000 facilities are secured by mortgages and pledges, including pledges on Kabeltelevisie Amsterdam and A2000 Hilversum and assets. Subsequent to December 31,1999, A2000 replaced these facilities with a new facility (see Note 15). In connection with the refinancing, UPC placed 220.0 million cash on deposit with a bank as of December 31, 1999. Mediareseaux Facility In July 1998, Mediareseaux, a subsidiary of UPC France, entered into an 103.6 million term facility with Paribas to finance capital expenditures, working capital and acquisitions. This facility is secured by the assets of Mediareseaux and a pledge of our stock of Mediareseaux. The availability of this facility depends on revenue generated and its debt to equity ratios. Drawings under this facility may be made until December 31, 2002. The repayment period runs from January 1, 2003 to final maturity in 2007. Mediareseaux may not draw more than 18.3 million of this facility for acquisitions. This facility generally restricts the payment of dividends and distributions. This facility also restricts Mediareseaux from incurring additional indebtedness, subject to certain exceptions. In July 1998, Mediareseaux also secured a 9.5 year 3.0 million overdraft facility, subject to the same terms and conditions as this facility except for the availability for the tests which are applicable. Until certain financial covenants are met, we must own more than 51% of Mediareseaux. Generally, investments by Mediareseaux and its subsidiaries require approval of the facility agent except for investments in cash and certain marketable securities that are pledged to support the facility. This facility also restricts the amount of management fees that Mediareseaux may pay to us. UPC France is currently negotiating the refinancing of this facility. 93 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued RCF Credit Facility In 1990, RCF, a subsidiary of UPC France which was acquired in July 1999, and six of its subsidiaries entered into a 24.4 million credit facility with a consortium of banks to finance working capital and operations. In 1995 this facility was amended and extended to 38.5 million to refinance three further credit facilities entered into by other subsidiaries of RCF. The loan bears an interest rate of PIBOR (the French interbank offer rate) + 1.5%, payable in arrears quarterly. The loan has to be repaid in yearly installments of 5.3 million beginning at the end of 1999 until December 31, 2005. Subject to certain exceptions, the loan restricts RCF and certain of its subsidiaries from incurring certain additional indebtedness, from having liens on or disposing of certain assets, from merging or consolidating and from dividend payments. UPC France is currently negotiating the refinancing of this facility. Rhone Vision Cable Credit Facility In July 1996, Rhone Vision Cable, a subsidiary of UPC France, which was acquired in August 1999, entered into a 103.6 million credit facility to finance construction and installation of Rhone Vision Cable networks. The facility bears interest of LIBOR plus 1%, payable quarterly. The repayment of the facility commences on June 30, 2002, or either on the June 30/th/ or December 31/st/ occurring at least six months after network completion. The facility is secured by pledges of all the shares and certain assets of Rhone Vision Cable and by a guarantee given by the Department du Rhone (for up to 50% of any sum due under the facility). The facility restricts Rhone Vision Cable's ability to secure additional financing, incur additional debt or transfer shares. Under certain circumstances, the lenders are entitled to set up a company as successor of Rhone Vision Cable's position. UPC France is currently negotiating the refinancing of this facility. Videopole Credit Facility In October 1999, Videopole, a subsidiary of UPC France, which was acquired in August 1999, entered into a 9.9 million credit facility with the Comptoir de Entrepreneurs to finance the extension of existing network and working capital operations. The facility must be repaid by December 31, 2000. The facility bears interest of EURIBOR plus 1.25%. UPC France is currently negotiating the refinancing of this facility. DIC Loan In November 1998, a subsidiary of DIC loaned UPC USD90.0 million (89.4 million). The loan from DIC was subsequently assigned to an Israeli bank. We used the proceeds to acquire interests in the Israeli and Maltese systems. The loan from DIC matures in November 2000 and is secured by UPC's pledge of its ownership interest in the Israeli system. The loan from DIC bears interest at the nominal rate of 8% per annum. This interest is payable, together with an additional 6% of the principal amount, on maturity. The loan from DIC may be repaid on quarterly prepayment dates with three months prior notice by us. In connection with the loan from DIC, UPC granted the Discount Group, its partner in the Israeli system, an option to acquire USD90.0 million (89.4 million), plus accrued interest, of ordinary shares A at a price equal to 90.0% of the initial public offering price, and, if this option is exercised, another option to acquire USD45.0 million (44.7 million), plus accrued interest, of ordinary shares A at a price equal to the 30 day average closing price of our ordinary shares A on the Stock Market of Amsterdam Exchanges, or the initial public offering price, whichever is higher. At UPC's initial public offering, DIC exercised the first option and acquired 4,675,962 ordinary shares A. We repaid USD45.0 million (44.7 million) of the loan, plus accrued interest, with proceeds from the option exercise. The other option is exercisable until September 30, 2000. Monor Facility In September 1997, Monor entered into a USD42.0 million (41.7 million) term loan facility with a syndicate of banks led by Credit Lyonnasis. The proceeds of Monor facility were used to repay indebtedness and for capital expenditures in the build-out of Monor's network. Monor's facility matures on December 31, 2006 and bears interest at LIBOR plus 1.5%. Monor entered into an interest rate swap agreement with Credit Lyonnais swapping the floating rate to a fixed rate of 6.66% for German marks and 7.79% for U.S. dollars. Monor's 94 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued facility is secured by a pledge over the shares of Monor and it assets. This facility limits Monor's ability to encumber its assets, incur indebtedness and pay dividends. UPC Senior Revolving Credit Facility In October 1997, UPC and Norkabel as borrowers entered into a 499,158 multi-currency revolving credit facility with a syndicate of banks. Norkabel was succeeded as a borrower by Janco Multicom after the merger of Janco and Norkabel. In December 1997, Telekabel Wien and the other members of the Telekabel Group also became borrowers under the Senior Revolving Credit Facility. In July 1999, the outstanding debt under this facility was refinanced with the new UPC Senior Credit Facility. Bridge Bank Facility In connection with the UPC Acquisition, the Company entered into the consolidated USD125.0 million term Bridge Bank Facility with a syndicate of banks. In February 1999, UPC repaid the Bridge Bank Facility. Debt Maturities The maturities of the Company's long-term debt are as follows: 12 months ended December 31, 2000............... 50,291 12 months ended December 31, 2001............... - 12 months ended December 31, 2002............... 60,979 12 months ended December 31, 2003............... 16,355 12 months ended December 31, 2004............... - Thereafter...................................... 3,826,076 --------- Total.................................. 3,953,701 =========
95 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Fair Value of Financial Instruments Fair value is based on market prices for the same or similar issues. Carrying value is used when a market price is unavailable.
As of December 31, 1999 As of December 31, 1998 ----------------------- ----------------------- Fair Market Fair Market Book Value Value Book Value Value ---------- ----------- ---------- ----------- UPC Euro Senior Notes due 2009...................... 754,717 771,141 - - UPC Euro Senior Notes due 2009...................... 300,000 303,750 - - UPC USD Senior Discount Notes due 2009.............. 419,123 412,691 - - UPC 13.375% USD Senior Discount Notes due 2009...... 254,195 270,765 - - UPC 13.375% EURO Senior Discount Notes due 2009..... 102,207 106,005 - - UPC 10 7/8% USD Senior Notes due 2007............... 190,658 205,450 - - UPC 10 7/8% Euro Senior Notes due 2007.............. 100,000 102,000 - - UPC USD Senior Notes due 2009....................... 238,412 260,450 - - UPC 11 1/4% EURO Senior Notes due 2009.............. 100,267 103,020 - - UPC Senior Credit Facility.......................... 357,482 357,482 - - UPC Senior Revolving Credit Facility................ - - 439,267 439,267 UPC Bridge Bank Facility............................ - - 51,513 51,513 PCI Notes........................................... 16,355 16,355 - - @Entertainment 1998 Senior Discount Notes........... 115,263 147,028 - - @Entertainment 1999 Senior Discount Notes........... 140,925 145,099 - - @Entertainment 1999 Series C Senior Discount Notes. 11,767 11,767 - - New Telekabel Facility.............................. 255,263 255,263 - - CNBH Facility....................................... 121,556 121,556 - - A2000 Facilities.................................... 207,831 207,831 - - Mediareseaux Facility............................... 44,912 44,912 18,307 18,307 RCF Facility........................................ 31,654 31,654 - - Rhone Vision Cable Credit Facility.................. 60,979 60,979 - - Videopole Facility.................................. 7,704 7,704 - - Monor............................................... 33,280 33,280 - - Bank and other loans................................ 89,151 89,152 75,584 75,584 ---------- ----------- ---------- ----------- 3,953,701 4,065,344 584,671 584,671 Less current portion....................... (50,291) (50,291) (51,593) (51,593) ---------- ----------- ---------- ----------- Total...................................... 3,903,410 4,015,043 533,078 533,078 ========== =========== ========== ===========
10. Shareholders' Equity In February 1999, the Company's shareholders approved an amendment and restatement of the Company's Articles of Association to effect a 3:2 stock split and an increase in the number of authorized ordinary shares to 200,000,000, which was legally effected before the Company's initial public offering. The Company's shareholders also approved the issuance of 100 priority shares, which have special approval and other rights, to United. In addition, the Company's Articles of Association were amended and restated to provide for the issuance of 49,999,900 preference shares A and 200,000,000 preference shares B. The par value of all shares was set at Euro 0.30 per share. In July 1999, at the annual shareholders' meeting, the shareholders approved the amendment of UPC's Articles of Association to authorize 100 million ordinary shares B with the right to cast 1 vote per share and to increase the voting rights of the newly re-named ordinary shares A (formerly the ordinary shares), the priority shares, the preference shares A and the preference shares B to 100 votes per share. The shareholders also approved an increase in the nominal value of each issued and outstanding ordinary share A and each priority share from Euro0.30 to Euro2.0. At an extraordinary general meeting of shareholders, the shareholders approved the amendment of UPC's Articles of Association to (i) split each ordinary share A, priority share, preference share A AND prferred share B (as of December 31, 1999, with a nominal value of Euro2.00 each) into three shares with a nominal value of Euro1.00 each, (ii) split each ordinary share B (as of December 31, 1999, with a nominal value of Euro0.02 each) into three shares with a nominal value of Euro.01 each and (iii) pay up an amount of Euro145.2 million on account of the share premium reserve of the company. All share and per share amounts in the accompanying consolidated financial statements and notes thereto have been retroactively restated to reflect the share split from 3:1. The change in nominal value has been restated in the consolidated statement of shareholder's equity as if it occurred at the beginning of 1999. 96 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued General The equity classifications and amounts as stated in these consolidated financial statements do not necessarily reflect the statutory equity of the Company, as the statutory equity is subject to Dutch generally accepted accounting principles. The statutory equity is the basis for any distributions to shareholders. Initial Public Offering During February 1999, the Company successfully completed an initial public offering selling 133.8 million shares on the Amsterdam Stock Exchange and Nasdaq National Market System and raising gross and net proceeds from the offering of approximately 1,294.6 million and 1,206.8 million respectively. Secondary Public Offering of Ordinary Shares A In October 1999, UPC closed the offering of 45,000,000 of its ordinary shares A. The price was set at Euro59.75 per share, raising gross and net proceeds from the offering of approximately 896.2 million and 851.3 million respectively. United Indenture As a subsidiary of United, the Company's activities are restricted by the covenants in United's indenture dated February 5, 1998 (the ''United Indenture''). The United Indenture generally limits the additional amount of debt that UPC or its subsidiaries or controlled affiliates may borrow, or preferred shares that they may issue. Generally, additional borrowings, when added to existing indebtedness, must satisfy, among other conditions, at least one of the following tests: (i) 7.0 times the borrower's consolidated operating cash flow; (ii) 1.75 times its consolidated interest expense; or (iii) 225% of the borrower's consolidated invested equity capital. In addition, there must be no existing default under the United Indenture at the time of the borrowing. The United Indenture also restricts UPC's ability to make certain asset sales and certain payments. In connection with the initial public offering, UPC has agreed with United that it will not take any action during the term of the United Indenture that would result in a breach of the United Indenture covenants. The maturity date of the United Indenture is February 2008 and interest becomes payable in cash in February 2003. Relationship with Microsoft On January 25, 1999, UPC and Microsoft Corporation signed a letter of intent providing for the establishment of a technical services relationship. In connection with this letter of intent, we have agreed to grant Microsoft warrants to purchase up to 11,400,000 shares (as adjusted for UPC's 3:1 stock split in March 2000) or ADSs at Microsoft's option, at an exercise price of USD9.33. Half of these warrants were to be issued at the earlier of April 25, 1999 and the signing of the first definitive agreement. These warrants are exercisable after one year from issuance for a period of three years. The other half of the warrants will be issued upon the signing of the first definitive agreement. This half of the warrants will vest and become exercisable based on performance criteria to be established in the definitive agreements, although they also will not be exercisable until at least one year after the date of the closing of UPC's initial public offering. The first half of the warrants are for the right to negotiate to license technology from Microsoft under definitive agreements to be negotiated in the future. UPC recorded as contract acquisition rights approximately 29.2 million associated with the first half of the warrants. Such costs are being amortized over the life of the warrants until a contract life is determined. The accounting for the cost associated with the second half of the warrants will depend on the ultimate nature of the performance criteria giving rise to the earn-out of these warrants when such criteria are established. These warrants will be 97 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued recorded as such at fair value when it is probable the performance criteria will be met in accordance with EITF Issue No. 96-18 "Accounting for Equity Instruments that are issued to Other than Employees, or in Conjunction with selling Goods or Services." Stock Option Plan In June 1996, UPC adopted a stock option plan (the "Plan") for certain of its employees and those of its subsidiaries. There are 18,000,000 total shares available for the granting of options under the Plan, which are held by the Stichting Administratiekantoor UPC (the "Foundation"), which administers the Plan. Each option represents the right to acquire from the Foundation a certificate representing the economic value of one share. Following consummation of the initial public offering, any certificates issued to employees who have exercised their options will be convertible into UPC common stock. United appoints the board members of the Foundation and thus controls the voting of the Foundation's common stock. The options are granted at fair market value determined by the Company's Supervisory Board at the time of the grant. The maximum term that the options can be exercised is five years from the date of the grant. In order to introduce the element of "vesting" of the options, the Plan provides that even though the options are exercisable immediately, the shares to be issued or options granted in 1996 vest in equal monthly increments over a three-year period from the effective date set forth in the option grant. In March 1998, the Plan was revised to increase the vesting period for any new grants of options to four years, vesting in equal monthly increments. Upon termination of an employee (except in the case of death, disability or the like),all unvested options previously exercised must be resold to the Foundation at the original purchase price, or all vested options must be exercised, within 30 days of the termination date. The Supervisory Board may alter these vesting schedules in its discretion. An employee has the right at any time to put his certificates or shares from exercised vested options to the Foundation at a price equal to the fair market value. The Company can also call such certificates or shares for a cash payment upon termination in order to avoid dilution, except for certain awards, which can not be called by the Company until expiration of the underlying options. The Plan also contains anti-dilution protection and provides that, in the case of change of control, the acquiring company has the right to require UPC to acquire all of the options outstanding at the per share value determined in the transaction giving rise to the change of control. For purposes of the proforma disclosures presented below, UPC has computed the fair values of all options granted during the year ended December 31, 1999 using the Black-Scholes single-option pricing model and the following weighted- average assumptions: Risk-free interest rate..................... 5.76% Expected life............................... 5 years Expected volatility......................... 56.82% Expected dividend yield..................... 0%
The total fair value of options granted was approximately 38.5 million for the year ended December 31, 1999. This amount is amortized using the straight- line method over the vesting period of the options. Cumulative compensation expense recognized in pro forma net income, with respect to options that are forfeited prior to vesting, is adjusted as a reduction of pro forma compensation expense in the period of forfeiture. For the year ended December 31, 1999, stock-based compensation, net of the effect of forfeitures and net of actual compensation expense recorded in the statement of operations was 5.9 million. This stock-based compensation had the following proforma effect on net income (in thousands):
Net Loss Net Loss Per Share ---------- ---------- As reported........................... (784,298) (2.08) ---------- ---------- Pro Froma............................. (790,198) (2.09) ========== ==========
98 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued A summary of stock option activity for the Plan is as follows:
For the Years Ended december 31, ----------------------------------------------------------------------------------- 1999 1998 1997 -------------------------- ------------------------- ------------------------- Weighted- Weighted- Weighted- Average Average Average Number Exercise Price Number Exercise Price Number Exercise Price ---------- -------------- ---------- -------------- ---------- -------------- (Euros) (Euros) (Euros) Outstanding at beginning of period.................................. 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59 Granted during period........................ 4,338,000 14.91 7,029,000 1.83 - - Cancelled during period...................... (266,565) 3.44 (42,156) 1.59 (176,595) 1.59 Exercised during period...................... (5,702,256) 1.65 (1,125,000) 1.59 - - ---------- ----- ---------- ---- --------- ---- Outstanding at end of period................. 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59 ========== ===== ========== ==== ========= ==== Exercisable at end of period (1)............. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59 ========== ===== ========== ==== ========= ====
(1) Includes certificate rights as well as options. The combined weighted-average fair values and weighted-average exercise prices of options granted are as follows:
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ------------------------------------ ----------------------------------- Fair Exercise Fair Exercise Exercise Price Number Value Price Number Value Price -------------- ---------- ------- -------- ---------- ------- -------- (Euros) (Euros) Less than market price........... 375,000 8.94 16.12 - - - Equal to market price............ 3,963,000 8.95 14.79 7,029,000 1.83 1.83 Greater than market price........ - - - - - - ---------- ------ ------- ---------- ------ ------- Total..................... 4,338,000 8.94 14.91 7,029,000 1.83 1.83 ========== ======== ======= ========== ====== =======
The following table summarizes information about stock options outstanding, vested and exercisable as of December 31, 1999:
Options Outstanding Options Exercisable --------------------------------------------- ---------------------------- Weighted-Average Weighted- Weighted- Remaining Average Average Contractual Life Exercise Exercise Exercise Price Range (Euros) Number (Years) Price Number Price - ---------------------------- ----------- ---------------- --------- ----------- --------- (Euros) (Euros) 1.59 - 2.05......................... 6,681,039 1.19 1.80 4,211,055 1.78 9.67 - 9.67......................... 1,212,000 3.20 9.67 231,000 9.67 11.26 - 11.40......................... 719,640 3.22 11.40 132,483 11.40 15.67 - 18.17......................... 1,171,500 3.56 17.51 130,188 17.46 20.08 - 20.08......................... 1,171,500 3.78 20.08 63,969 20.08 ------------ ---------------- -------- ------------ --------- 10,955,679 2.00 6.94 4,769,595 3.10 ============ ================ ======== =========== =========
99 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued The Plan was accounted for as a variable plan prior to the initial public offering. Accordingly, compensation expense was recognized at each financial statement date based on the difference between the grant price and the estimated fair value of the Company's common stock. Thereafter, the Plan has been accounted for as a fixed plan. Compensation expense of 6,465, 2,186 and 0 was recognized for the years ended December 31, 1999, December 31, 1998 and December 31, 1997, respectively. Phantom Stock Option Plan In March 1998, the Company adopted a phantom stock option plan (the "Phantom Plan") which permits the grant of phantom stock rights in up to 7,200,000 shares of the Company's common stock. The rights are granted at fair market value determined by the Company's Supervisory Board at the time of grant, and generally vest in equal monthly increments over the four-year period following the effective date of grant and may be exercised for ten years following the effective date of grant. The Phantom Plan gives the employee the right to receive payment equal to the difference between the fair market value of a share of UPC common stock and the option base price for the portion of the rights vested. UPC, at its sole discretion, may make payment in (i) cash, (ii) freely tradable shares of United Class A Common Stock or (iii) freely tradable shares of its common stock. If the Company chooses to make a cash payment, even though its stock is publicly traded, employees have the option to receive an equivalent number of freely tradeable shares of stock instead. The Phantom Plan contains anti-dilution protection and provides that, in certain cases of a change of control, all phantom options outstanding become fully exercisable. The Phantom Plan is accounted for as a variable plan in accordance with its terms, resulting in compensation expense for the difference between the grant price and the fair market value at each financial statement date. Compensation expense of 117.4 million and 23.8 million was recognized for the years ended December 31, 1999 and December 31, 1998 respectively. A summary of stock option activity for the Phantom Plan is as follows:
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ----------------------------- ----------------------------- Weighted- Weighted- Average Average Number Exercise Price Number Exercise Price ------------ -------------- ------------ -------------- (Euros) (Euros) Outstanding at beginning of period................... 6,172,500 1.91 -- -- Granted during period................................ 585,000 9.67 6,172,500 1.91 Cancelled during period.............................. (1,540,128) 2.00 -- -- Exercised during period.............................. (1,072,809) 1.89 -- -- --------- ----- --------- ----- Outstanding at end of period......................... 4,144,563 2.98 6,172,500 1.91 ========= ===== ========= ===== Vested and exercisable at end of period.............. 1,554,813 2.47 1,411,407 1.84 ========= ===== ========= =====
The combined weighted-average fair values and weighted-average exercise prices of options are as follows:
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 ----------------------------------- ----------------------------------- Fair Exercise Fair Exercise Exercise Price Number Value Price Number Value Price - -------------- ----------- --------- --------- ----------- --------- --------- (Euros) (Euros) (Euros) (Euros) Equal to market price......................... 585,000 9.67 9.67 2,057,500 1.91 1.91 ----------- --------- --------- ----------- --------- --------- Total.................................... 585,000 9.67 9.67 2,057,500 1.91 1.91 =========== ========= ========= =========== ========= =========
100 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued The following table summarizes information about stock options outstanding and exercisable as of December 31, 1999:
Weighted- Average Number of Remaining Options Contractual Life Vested and Exercise Price (Euros) Number (years) Exercisable - ------------------ --------------- ------------------- ----------------- 1.82.............. 2,606,778 7.60 1,186,092 2.05.............. 952,785 8.74 245,907 9.67.............. 585,000 9.16 122,814 --------- --------- --------- 4,144,563 8.14 1,554,813 ========= ========= =========
Subsidiary Phantom Stock Option Plan As of June 1998, the Company adopted a phantom stock option plan (the "chello Phantom Plan"), which permits the grant of phantom stock rights of chello, a wholly owned subsidiary of the Company. The rights are granted at an option price equal to the fair market value determined by chello's Supervisory Board at the time of grant, and generally vest in equal monthly increments over the four-year period following the effective date of grant and the option must be exercised, in all cases, not more than ten years from the effective date of grant. The chello Phantom Plan gives the employee the right to receive payment equal to the difference between the fair market value of a share (as defined in the chello Phantom Plan) of chello and the option price for the portion of the rights vested. The Company, at its sole discretion, may make the required payment in cash, freely tradable shares of United Class A Common Stock, the Common stock of UPC, which shall be valued at the closing price on the day before the date the Company makes payment to the option holder, or the chello's common shares, if they are publicly traded and freely tradable ordinary shares. If the Company chooses to make a cash payment, even though its stock is publicly traded, employees have the option to receive an equivalent number of freely tradable shares of chello's stock instead. As of December 31, 1999, the Company had recorded a cumulative compensation expense of 70,804 for options granted under the chello Plan. A summary of stock option activity for the chello Phantom Plan is as follows:
For the Year Ended For the Year Ended December 31, 1999 December 31, 1998 --------------------------- --------------------------- Weighted- Weighted- Average Average Exercise Exercise Number Price Number Price ------------ ------------ ------------ ------------ (Euros) (Euros) Outstanding at beginning of period................ 570,000 4.54 -- -- Granted during period............................. 235,000 4.54 570,000 4.54 Granted during period............................. 1,309,838 9.08 -- -- Granted during period............................. 355,500 --(1) -- -- Cancelled during period........................... (128,542) 4.71 -- -- Exercised during period........................... (11,667) 4.54 -- -- --------- ----- ------- ----- Outstanding at end of period...................... 2,330,129 7.54(2) 570,000 4.54 ========= ===== ======= ===== Vested and exercisable at end of period........... 414,913 6.13(2) 70,625 4.54 ========= ===== ======= =====
(1) Of the total number of options granted to date, the option price in respect of these options in the initial public offering price ("IPO price"). (2) Excluding the shares discussed in (1) above. The weighted-average remaining contractual life for these options is 8.93 years as of December 31, 1999 (9.47 years as of December 31, 1998). The following table summarizes information about options rights outstanding, vested and exercisable as of December 31, 1999 under the chello Phantom Plan: For the Year Ended December 31, 1999 --------------------------------------------- Weighted - Average Number of Remaining options Contractual vested and Number Life (years) Exercisable ------------ ------------ ----------- Exercise price (Euros) 4.54 669,791 7.05 267,188 9.08 1,304,838 9.56 144,074 -(1) 355,500 9.96 3,651 --------- ----- ------- 2,330,129 8.93 414,913 ========= ==== ======= (1) The exercise price is to be determined as follows: Of the total number of options granted to date, the option price in respect of these options is the initial public offering ("IPO") price. The chello Phantom Plan is accounted for as a variable plan in accordance with its terms, resulting in compensation expense for the difference between the grant price and the fair market value at each financial statement date. Compensation expense of 69,831 was recognized for the year ended December 31, 1999. The Company's estimate of the fair value of its ordinary stock as of December 31, 1999 utilized in recording compensation expense and deferred compensation expense under the chello plan was Euro 85.00 per share. Because the Company will account for the chello Phantom Plan as a variable plan, compensation expense will continue to be recognized subsequent to December 31, 1999. For each Euro 1 per share increase in the estimate of the fair value per share of its ordinary stock as of December 31, 1999, over the Euro 85.00 used to record stock compensation expense as of December 31, 1999, additional stock compensation expense totalling approximately Euro 904 would have been recognized in the statement of operations and deferred compensation expense would have increased by approximately that amount as of that date. Subsidiary Stock option plan In June 1999, The Company adopted a stock plan (the "chello Plan"). Under the chello Plan, the Company's Supervisory Board's may grant stock options to the Company's employees at fair market value determined by the Company's Supervisory Board at the time of grant. All options are exercisable upon grant and for the period of five years. In order to introduce the element of "vesting" of the options, the chello Plan provides that even though the options are exercisable immediately, the shares to be issued or options to be granted are deemed to vest 1/48th per month for a four year period from date to grant. If the employee's employment terminates, other than in case of death, disability or the like, for a so-called "urgent reason" under Dutch law or for documented and material non- performance, all unvested options previously exercised must be resold to the Company at the original purchase price, and all vested options must be exercised, within 30 days of the termination date. The Supervisory Board may alter these vesting schedules at its discretion. The chello plan also provides that, in case of a change in control, the Company has the right to require a foundation to acquire all of the options outstanding at the per share value determined in the transaction giving rise to the change in its control. For purposes of the pro forma disclosures presented below, the Company has computed the fair value of all options granted during the year ended December 31, 1998 and the year ended December 31, 1999, using the Black-Scholes single- option pricing model and the following weighted average assumptions: expected dividend yield of 0%, expected annual standard volatility of 95%, risk-free interest rate of 3.41% and expected life of 5 years. The total fair value of options granted under the chello plan was nil for the year ended to December 31, 1998 and 3,707 for the ended December 31, 1999. These pro forma amounts are amortized using the straight-line method over the vesting period of the options. Cumulative compensation expense recognized in pro forma net income, with respect to options that are forfeitured prior to vesting, is adjusted as a reduction of pro forma compensation expense in the period of forfeiture. For the year ended December 31, 1998 and December 31, 1999, respectively, pro forma stock-based compensation, net of the effect of the forfeitures was nil and 726, respectively. The stock-based compensation had the following proforma effect on net income (in thousands): Net loss Net loss Per Share --------- --------- As reported (784,298) (2.08) --------- --------- Pro Forma (785,024) (2.08) ========= ========= 101 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 11. Commitments and Contingencies The Company has entered into various operating lease agreements for office space, office furniture and equipment, and vehicles. Rental expense under these lease agreements totaled 19,365, 3,656 and 3,114 for the years ended December 31, 1999 and, December 31, 1998 and December 31, 1997 respectively. The Company has operating lease obligations as follows: 12 months ended December 31, 2000............................ 84,392 12 months ended December 31, 2001............................ 84,314 12 months ended December 31, 2002............................ 67,112 12 months ended December 31, 2003............................ 49,883 12 months ended December 31, 2004 and thereafter............. 188,826 ------- Total............................................... 474,527 =======
Satellite Transponder Capacity UPC has entered into an agreement for the long term lease of satellite transponder capacity providing service from Europe to Europe, North America and South America. The term of the agreement is 156 months, with a minimum aggregate total cost of approximately USD114.0 million (113.3 million) payable in monthly installments based on capacity used. Programming, Broadcast and Exhibition Rights @Entertainment has entered into long-term programming agreements and agreements for the purchase of certain exhibition or broadcast rights with a number of third party content providers for its digital direct-to-home ("DTH") and cable systems. At December 31, 1999, @Entertainment had an aggregate minimum commitment in relation to these agreements of approximately USD214.0 million (212.3 million) over the next seven years, approximating USD55.6 million (55.3 million in 2000, USD51.8 million (51.5 million) in 2001, USD48.1 million (47.8 million) in 2002, USD29.9 million (29.7 million) in 2003 and USD28.6 million (28.4 million) in 2004 and thereafter. Purchase Commitments As of December 31, 1999, @Entertainment had an aggregate minimum commitment toward the purchase of the DTH reception systems from Philips Business Electronics B.V. of approximately USD60.8 million (60.4 million) over the next two years. Litigation and Claims From time to time, the Company is subject to various claims and suits arising out of the ordinary course of business. While the ultimate result of all such matters is not presently determinable, based upon current knowledge and facts, management does not expect that their resolution will have a material adverse effect on the Company's consolidated financial position or results of operations. 102 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 12. Segment and Geographic Information The Company's business has historically been derived from its video entertainment segment. This service has been provided in various European countries where the Company owns and operates its systems. During 1997, the Company introduced Internet/data and during 1999 the Company introduced telephony in several of its systems and began to develop its content and programming business. In August 1999, the Company acquired @Entertainment, which has a DTH business. The Company evaluates performance and allocates resources at the geographic country level and by business line. The key operating performance criteria used in this evaluation includes revenue growth and operating income before depreciation, amortization, stock-based compensation expense and management fees ("Adjusted EBITDA"). Management generally considers Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Management believes Adjusted EBITDA helps investors to assess the cash flow from the Company's operations from period to period and thus to value its business. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. The Company is not entirely free to use the cash represented by its Adjusted EBITDA as it pleases. Several of the Company's consolidated operating companies are restricted by the terms of their debt arrangements. Each company has its own operating expenses and capital expenditure requirements, which can limit the Company's use of cash. The Company's presentation of 103 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate EBITDA in the same manner. A summary of the segment information by geographic area is as follows:
Revenue for the Year Ended December 31, 1999 ------------------------------------------------------------------------------ Cable Internet/ DTH and Television Telephony Data Programming Other Intercompany Total ----------- -------- -------- ----------- ----- ------------ ------- The Netherlands: Corporate...................................... - - - - 6,063 - 6,063 UPCtv.......................................... - - - 1,051 - - 1,051 chello......................................... - - 7,323 - - (7,323) - Priority Telecom............................... - - - - - - - Operating companies............................ 110,618 30,275 8,144 - 312 - 149,349 Austria........................................... 79,151 6,920 12,865 - - - 98,936 Belgium........................................... 14,875 - 2,360 - - - 17,235 Czech Republic.................................... 7,075 171 - - 985 - 8,231 Norway............................................ 46,492 345 534 - - - 47,371 Hungary .......................................... 33,270 - 118 - - - 33,388 France............................................ 26,015 2,562 558 - - - 29,135 Poland............................................ 25,375 - - 18,637 - (8,318) 35,694 Sweden............................................ 12,605 - 476 - - - 13,081 Other ............................................ 7,872 - - - 95 - 7,967 ------- ------ ------ ------ ----- ------- ------- Total ........................................ 363,348 40,273 32,378 19,688 7,455 (15,641) 447,501 ======= ====== ====== ====== ===== ======= =======
Revenue for the Year Ended December 31, 1998 ------------------------------------------------------------------------------ Cable Internet/ DTH and Television Telephony Data Programming Other Intercompany Total ---------- -------- -------- ----------- ----- ------------ ------- The Netherlands: Corporate....................................... - - - - 7,835 - 7,835 UPCtv........................................... - - - - - - - Chello.......................................... - - - - - - - Priority Telecom................................ - - - - - - - Operating companies............................. 14,923 175 - - - - 15,099 Austria............................................ 76,906 66 3,416 - - - 80,388 Belgium............................................ 14,831 - 706 - 1,154 - 16,691 Czech Republic..................................... 4,043 - - - - - 4,043 Norway............................................. 41,879 - 173 - - - 42,052 Hungary ........................................... 12,572 - - - - - 12,572 France............................................. 3,657 - - - - - 3,657 Poland............................................. - - - - - - - Sweden............................................. - - - - - - - Other ............................................. 2,635 - - 611 - - 3,245 ------- ---- ----- ----- ----- ----- ------- Total ........................................ 171,446 241 4,295 611 8,989 - 185,582 ======= ==== ===== ===== ===== ===== =======
104 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Revenue for the Year Ended December 31, 1997 ---------------------------------------------------------------------------- Cable Internet/ DTH and Televising Telephony Data Programming Other Intercompany Total ------------- ----------- ---------- ------------ ---------- ----------- --------- The Netherlands: Corporate............. - - - - 4,149 - 4,149 UPCtv................. - - - - - - - chello................ - - - - - - - Priority Telecom...... - - - - - - - Operating companies... 9,276 - 103 - - - 9,379 Austria.................. 73,681 - 187 - - - 73,868 Belgium.................. 14,432 - 57 - 3,090 - 17,579 Czech Republic........... 3,400 - - - - - 3,400 Norway................... 41,534 - - - - - 41,534 Hungary ................. - - - - - - - France................... 1,146 - - - - - 1,146 Poland................... - - - - - - - Sweden................... - - - - - - - Other ................... 1,940 - - 45 - - 1,985 ------------- ---------- --------- ------------ --------- ----------- --------- Total ................. 145,409 - 347 45 7,239 - 153,040 ============= ========== ========= ============ ========= =========== =========
Adjusted EBITDA for the Year Ended December 31, 1999 --------------------------------------------------------------------------- Cable Internet/ DTH and Televising Telephony Data Programming Other Total ------------ ---------- --------- ------------ --------- ---------- The Netherlands: Corporate............. - - - - (40,273) (40,273) UPCtv................. - - - (15,694) - (15,694) chello................ - - (58,278) - - (58,278) Priority Telecom...... - (5,436) - - - (5,436) Operating companies... 45,270 (13,260) (4,255) - 1,424 29,179 Austria.................. 42,226 (10,776) 220 - - 31,670 Belgium.................. 3,715 (51) (2,078) - - 1,586 Czech Republic........... (1,061) 51 - - 382 (628) Norway................... 19,485 (6,720) (4,865) - - 7,900 Hungary ................. 11,029 - (245) - - 10,784 France................... (1,659) (5,586) (2,229) - (63) (9,537) Poland................... (8,797) - - (60,871) (2,835) (72,503) Sweden................... 4,305 (127) (3,847) - - 331 Other ................... 1,996 (194) (690) - (40) 1,072 ------------ ---------- --------- ------------ --------- ---------- Total ................. 116,509 (42,099) (76,267) (76,565) (41,405) (119,827) ============ ========== ========= ============ ========= ==========
Adjusted EBITDA for the Year Ended December 31, 1998 --------------------------------------------------------------------------- Cable Internet/ Television Telephony Data Programming Other Total ------------ ----------- --------- ------------ --------- ---------- The Netherlands: Corporate............. - - - - (5,225) (5,225) UPCtv................. - - - (350) - (350) chello................ - - (7,194) - - (7,194) Priority Telecom...... - (1,595) - - - (1,595) Operating companies... 10,024 48 (49) - - 10,023 Austria.................. 40,767 (1,941) (2,064) - - 36,762 Belgium.................. 6,830 - (947) - 136 6,019 Czech Republic........... (856) - - - - (856) Norway................... 16,633 (680) (957) - - 14,996 Hungary ................. 4,533 - - - - 4,533 France................... (1,132) (1,081) (91) - - (2,304) Poland................... - - - - - - Sweden................... - - - - - - Other ................... (199) - 21 (4,220) 156 (4,242) ------------ ----------- --------- ------------ --------- ---------- Total ................. 76,600 (5,249) (11,281) (4,570) (4,933) 50,567 ============ =========== ========= ============ ========= ==========
105 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Adjusted EBITDA for the Year Ended December 31, 1997 --------------------------------------------------------------------------- Cable Internet/ DTH and Television Telephony Data Programming Other Total ---------- --------- -------- ----------- ------ ------ The Netherlands: Corporate - - - - (5,538) (5,538) UPCtv..................................... - - - - - chello.................................... - - - - - - Priority Telecom.......................... - - - - - - Operating companies....................... 5,668 - 103 - - 5,771 Austria................................... 36,518. - 15 - - 36,533 Belgium................................... 5,914. - 56 - 859 6,829 Czech Republic............................ (3,054) - - - - (3,054) Norway.................................... 16,757 - - - - 16,757 Hungary .................................. - - - - - - France.................................... (2,103) - - - - (2,103) Poland.................................... - - - - - - Sweden.................................... - - - - - - Other .................................... 455 - - (5,233) (2,999) (7,777) ------ ---- ---- ------ ------ ------ Total .................................. 60,155 - 174 (5,233) (7,678) 47,418 ====== ==== ==== ====== ====== ======
Following is a reconciliation of Adjusted EBITDA to UPC's net loss before income taxes:
For the Years Ended December 31, -------------------------------------- 1999 1998 1997 -------------------------------------- Adjusted EBITDA.......................................... (119,827) 50,567 47,419 Depreciation and amortization............................ (266,070) (85,150) (60,302) Stock-based compensation ................................ (192,710) (146,402) (2,186) --------- --------- -------- Net operating loss................................. (578,607) (180,985) (15,069) Interest income.......................................... 28,064 3,357 2,955 Interest expense......................................... (186,408) (47,355) (32,100) Provision for loss on investment related costs........... - (2,827) (8,571) Gain on sale of assets................................... 1,501 - - Foreign exchange gain (loss) and other expense, net...... (22,561) 1,221 (18,634) --------- --------- -------- Net loss before income taxes and other items....... (758,011) (226,589) (71,419) Share in results of affiliated companies, net............ (29,760) (28,962) (11,552) Minority interests in subsidiaries....................... 1,651 523 69 --------- --------- -------- Net loss before income tax benefit (expense)....... (786,120) (255,028) (82,902) ========= ========= ========
106 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Investments in Affiliates Long-Lived Assets Capex Total Assets -------------------------- --------------------- ---------------------- ------------------------ December 31, December 31, December 31, December 31, -------------------------- --------------------- ---------------------- ------------------------ 1999 1998 1999 1998 1999 1998 1999 1998 ------------ ------------ ---------- --------- ---------- ---------- ---------- ------------ The Netherlands: Corporate.............. 188,930 223,737 31,612 2,346 31,758 5,788 1,932,378 257,413 UPCtv.................. 2,728 - 20,492 - 20,206 25 28,427 48 Chello................. - - 21,482 2,079 25,047 2,082 36,609 3,003 Priority Telecom....... - - 444 14 430 24 4,164 79 Operating companies.... 31,276 - 726,812 - 189,673 11,174 1,526,945 - Austria.................... - - 178,534 120,542 89,779 39,081 354,120 292,593 Belgium.................... - - 23,042 23,635 8,047 10,162 47,528 49,612 Czech Republic............. 549 - 79,847 7,493 2,373 472 158,812 9,861 Norway..................... - - 99,691 54,319 54,403 23,332 243,451 187,882 Hungary ................... 92 - 111,997 22,974 36,876 6,537 214,108 74,547 France..................... - - 317,467 34,587 67,321 26,009 495,673 43,818 Poland..................... 19,272 - 217,423 - 40,450 - 1,211,373 - Sweden..................... - - 47,882 - 11,903 - 471,944 - Other ..................... - - 31,689 5,638 4,987 3,134 76,740 19,461 ----------- ----------- ----------- -------- ---------- ---------- ---------- ------------ Total ................... 242,847 223,737 1,908,414 273,627 583,253 127,820 6,802,272 938,317 =========== =========== =========== ======== ========== ========== ========== ============
Depreciation and Amortization ----------------------------------------- For the Years Ended December 31, ----------------------------------------- 1999 1998 1997 ------------ ------------ ------------- The Netherlands: Corporate.............. (1,542) (4,301) (1,484) UPCtv.................. (2,435) - - chello................. (3,678) - - Priority Telecom....... (1,401) (10) - Operating companies.... (86,664) (6,259) (3,799) Austria.................... (40,035) (35,069) (22,774) Belgium.................... (9,157) (9,296) (6,467) Czech Republic............. (3,837) (3,495) (2,483) Norway..................... (30,873) (20,564) (21,647) Hungary ................... (7,999) (3,052) - France..................... (21,071) (1,874) (643) Poland..................... (37,731) - - Sweden..................... (14,189) - - Other ..................... (5,458) (1,230) (1,005) ------------ ------------ ------------- Total ................... (266,070) (85,150) (60,302) ============ ============ =============
107 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 13. Income Taxes To the extent UPC qualifies as a Dutch holding company, it may benefit from the so-called participation exemption. The participation exemption is a facility in Dutch corporate tax law which allows a Dutch company to exempt any dividend income and capital gains in relation with its participation in subsidiaries which are legal entities of a foreign country. Capital losses are also exempted, apart from liquidation losses (under stringent conditions). All costs incurred at the UPC level which relate to an investment in a foreign subsidiary are not tax deductible, e.g. interest expense on loans used for the financing of the investment in the foreign subsidiary. In addition, currency exchange results on these loans are covered by the participation exemption, e.g. gains are exempted and losses are not tax deductible. 108 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued The significant components of the net deferred tax liability are as follows:
As of December 31, ------------------------------- 1999 1998 --------------- -------------- Deferred Tax Assets: Tax net operating loss carryforward...................... 275,470 62,183 Stock-based compensation................................. 35,888 6,188 Accrued interest......................................... 14,330 -- Foreign currency effects................................. 22,969 -- Other.................................................... 14,183 365 --------------- -------------- Total deferred tax assets........................... 362,840 68,736 Valuation allowance...................................... (354,236) (61,508) --------------- -------------- Deferred tax assets, net of valuation allowance..... 8,604 7,228 --------------- -------------- Deferred Tax Liabilities: Intangible assets........................................ (18,565) (5,019) Property, plant and equipment, net....................... (6,000) (6,137) --------------- -------------- Total deferred tax liabilities...................... (24,565) (11,156) --------------- -------------- Deferred tax liabilities, net....................... (15,961) (3,928) =============== ==============
The difference between income tax expense provided in the financial statements and the expected income tax benefit at statutory rates is reconciled as follows:
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 ---------- ---------- ---------- Expected income tax benefit at the Dutch statutory rate of 35%............... (265,304) (79,306) (24,996) Tax effect of permanent and other differences: Change in valuation allowance........... 244,910 23,357 12,466 Non-deductible expenses................. 65,162 53,512 8,886 International rate differences.......... 783 1,597 1,467 Provision on investment................. -- 989 3,000 Capitalized costs....................... (47,063) -- -- Other................................... (310) (700) (75) ---------- ---------- ---------- Total income tax benefit..... (1,822) (551) 748 ========== ========== ==========
The benefit of tax loss carry forwards arise primarily in The Netherlands, Czech Republic, Poland and Austria. The benefit of the tax loss carry forwards of Poland and Czech Republic aggregating to 99,598 as of December 31, 1999 will expire during the years 2000 - 2004. The benefit of the tax loss carry forwards of The Netherlands and Austria, aggregating to 186,645 as of December 31, 1999 have no expiration date. During 1996, the Austrian tax authorities passed legislation which had the effect of eliminating approximately 256,000 of tax basis associated with certain amounts of goodwill recorded at Telekabel Group effective January 1, 1997. This change in tax law has been challenged on constitutional grounds. However, there can be no assurance of a successful repeal of such legislation. Accordingly, this change caused Telekabel Group's effective tax rate to increase from the historical effective tax rate through December 31, 1996, due to the non- deductibility of such goodwill amortization subsequent to January 1, 1997. 109 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued 14. Related Party Agreement with United In February 1999, United and the Company became parties to a Management Service Agreement (the "United Service Agreement"), with an initial term through 2009, pursuant to which United will provide services such as accounting, financial reporting, investor relations, human resources, information technology, equipment procurement and testing expenses, corporate offices lease payments and costs associated with corporate finance activities. Under the United Service Agreement, the Company will pay United a fixed amount each month. After the first year of the United Service Agreement, the fixed amount may be adjusted from time to time by United to allocate corporate level expenses among United's operating companies, including UPC, taking into account the relative size of the operating companies and their estimated use of United resources. In addition, UPC will continue to reimburse United for costs incurred by United which are directly attributable to UPC. The United Service Agreement also specifies the basis upon which United may second certain of its employees to UPC. The Company generally is responsible for all costs incurred by United with respect to any seconded employee's employment and severance. Historically, UPC has been self sufficient from a corporate operations perspective and required nominal assistance from its shareholders, Philips and United, and solely from United subsequent to December 11, 1997. United and Philips did not allocate any indirect overhead type costs to the Company from inception through December 11, 1997 and United did not allocate any such costs subsequent to December 11, 1997 through December 31, 1998. The only costs historically charged to UPC were direct costs incurred by Philips and United on UPC's behalf. Such costs were charged at cost. In connection with the Company's initial public offering, United and the Company executed the United Service Agreement which will provide for a fixed allocation in addition to direct out-of-pocket reimbursements. Related Party Payables The Company classifies any unpaid invoices related to seconded employee expenses or other expenses incurred by United on the Company's behalf as related party payables on the balance sheet. Loans to Employees In 1996, UPC loaned certain employees of the Company amounts for the exercise of the employees' stock options, taxes on options exercised, or both. These recourse loans bear interest at 5.0% per annum. The employees' liability to the Company is presented in the consolidated financial statements net of the Company's obligation to the employees under the plan. As of December 31, 1999 and 1998, the receivable from employees, including accrued interest totaled 12,115 and 8,702, respectively. Note Payable to Shareholder UPC entered into two promissory notes with United of USD100.0 million (March 1998) and USD20.0 million (July 1998). UPC has borrowed USD70.0 million and USD16.0 million, respectively, under these two notes. In 1999, UPC repaid USD60.0 million (54.5 million) of the indebtedness outstanding under the USD100.0 million note and all of the indebtedness outstanding under the USD20.0 million note with proceeds form the initial public offering. In December 1999, the remaining balance, 6.8 million, including accrued interest, of the United loan was converted into equity. Acquisitions of Interest in PHL and TARA In November 1998, UPC purchased from RCL, an entity owned by a discretionary trust for the benefit of the members of the family of John Riordan, a member of the Board of Management, (1) a 5% interest in Tara and (2) a 5% interest in our Irish operating system. The price for these interests was shares 769,062 of United Class A Common Stock that we acquired as part of the UPC Acquisition. 110 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Eastern European Transaction UPC has agreed to sell 3% of its interest in its Eastern European operations to Nimrod Kovacs for a purchase price based on its investment in these interest at historical cost plus 12% interest thereon from the time of investment throught the date of closing. The amount of Mr. Kovak's required investment is being revised due to the recent Eastern European acquisitions. Mr. Kovacs is a member of UPC's Board of Management, and UPC's Executive Chairman, UPC Central Europe. 15. Subsequent Events January 2000 Offering of Senior Notes and Senior Discount Notes On January 20, 2000, UPC closed its USD1.6 billion equivalent bond offering. The offering consists of four tranches: USD600.0 million and 200.0 million of ten year senior notes due 2010 with a 11-1/4% coupon; USD300 million of ten year senior notes due 2010 with a coupon of 11-1/2%; and USD1,000 million aggregate principal amount of ten year 13-3/4% senior discount notes due 2010. The senior discount notes were sold at 51.224% of the face amount yielding gross proceeds of USD512 million and will accrue but not pay interest until 2005. Total gross proceeds from the sale of the senior notes and senior discount notes are approximately USD1.6 billion. Refinancing of A2000 Facilities In January 1999, A2000 refinanced its existing bank facilities with a one year term-loan bridge facility of 231.4 million and a one year revolving credit bridge facility 49.9 million, subjected to certain availability covenants. The facilities are secured by mortgages and pledges, including pledges on A2000 holding, Kabeltelevisie Amsterdam and A2000 Hilversum. The borrowers are restricted from incurring additional indebtedness and from paying dividends and distributions, subject to certain exceptions. These facilities bear an annual interest rate of Euribor + 1.0%. The facilities expire in December 2000. Acquisition of Intercomm France Holding S.A. In February 2000, UPC aquired Intercomm France Holding S.A. (a wholly owned subsidiary of Intercomm Holdings, L.L.C.). At the time of closing Intercomm France is expected to have around 500,000 franchise homes of which 80,000 have been built out. Over 400,000 of Intercomm's homes are located close to a number of the properties acquired by UPC in its recent purchase of the Reseaux Cables de France and Videopole networks, thus facilitating the roll-out of UPC's triple play strategy in those areas. UPC funded the acquisition with 36.0 million cash and shares in UPC France. Following the transaction, UPC controls 92% of the combined entities with Intercomm Holdings LLC owning the remaining 8%. Acquisition of Tebecai Cable System In February 2000, UPC acquired 100% of the shares of Tebecai, a cable system based in the east of Holland. UPC paid 71.2 million for the shares of Tebecai, on a debt-free basis. Tebecai owns and operates cable networks in Zutphen, Doetinchem and the surrounding municipalities. The company has approximately 78,000 basic cable television subscribers and 2,800 internet subscribers. Tebecai's network is fully upgraded and 80% two-way capable. 111 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Completion of Stock Split On March 13, 2000, the shareholders of UPC approved a three for one stock split. Shareholders of record at the close of business on March 13, 2000 will be entitled to two additional Class Ordinary A shares for each A share they own on that date. Acquisition of ElTele Ostfold and Vestfold Systems In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and Vestfold from the energy companies Fredrikstad Energi as, Ostfold Energiverk and Hafslund. ElTele Ostfold and Vestfold currently have approximately 300 kilometers of fibre and approximately 125 business customers between them and are among the leading providers of broadband services to business customers in the Ostfold, Vestfold, Telemark and Buskerud regions of Norway. UPC paid NKR 320.0 million (39.7 million) for the companies. Completion of MTV Networks Europe In March 2000, UPCtv and MTV Networks Europe, formed a 50/50 joint venture partnership which will produce and distribute two new 24-hour music channels specifically targeted at the Polish marketplace: MTV Polska and VH1 Polska. In addition, the company will be responsible for creation and distribution of related MTV and VH1 branded web-sites, and will act as distribution agent in Poland for MTV Networks Europe's digital channel portfolio, including M2, MTV Extra, MTV Base and VH1 Classic. Both MTV Polska and VH1 Polska will be distributed via the UPC-owned Wizja TV DTH and PTK cable platforms and via other cable operators. Acquisition of Additional Interest in SBS In February 2000, UPC acquired an additional 10.2% of SBS for 162.5 million, increasing its ownership to 23.5%. Tender Offer for SBS On March 9, 2000, UPC announced its intention to commence a tender offer to acquire all the shares of SBS that it does not already own. The supervisory boards of both companies have approved the transaction. UPC has agreed to initiate an exchange offer to acquire SBS's shares at a per share price of USD40 in cash plus 0.57144 of a share of UPC's ordinary shares A, subject to adjustment. UPC will adjust the stock portion of the purchase price under certain circumstances so that SBS shareholders will receive not less than USD77.50 and not more than USD86.00 for each SBS share exchanged, based on our average closing share price prevailing on the trading days ending shortly prior to making the exchange offer, UPC intends that all shares not purchased in the exchange offer will be converted into the right to receive the same cash and stock considerations as provided in the exchange offer, in the second step transaction following consummation of the exchange offer. This transaction is subject to a number of conditions, including regulatory approval. Acquisition of Wireless Licenses In March 2000, UPC acquired 26 GHz spectrum in Norway as a result of the acquisition of ElTele Ostfold and ElTele Vestfold. In March 2000, UPC was awarded a national 3.5 GHz license in Spain where it is was part of a consortium called ALO' 2000. The consortium partners include RSL Com LTD, Dragados SA, and Hidroelectrica Del Cantabrico SA. Also in March 2000, in an auction, UPC won a national 3.5 GHz license in Switzerland and regional 26 GHz licenses in Geneva and Zurich. There are additional regional 26 GHz auctions occurring in Switzerland through April 2000. UPC has submitted applications for spectrum in France and Finland and is registered to participate in the WLL auction in Austria, starting April 10, 2000. Throughout the next 18 months additional WLL spectrum is being offered. UPC plans to participate in these offerings as they unfold. Formation of E-Ventures Fund UPC, together with chello broadband and United, announced their intention in March 2000, to form an E-ventures fund. The venture will be funded equally by the three parties and will source investment ideas primarily from the Internet and advanced technology sectors from the United/UPC global network. UPC intends to contribute its investment in Sorrento Networks Inc. of USD16.5 million as the first key investment in the fund. In March 2000, UPC invested in Sorrento Series A Convertible Preferred Stock, with the UPC investment representing 33% of the Convertible Preferred Stock sold by Sorrento. Based in California, Sorrento Networks is a subsidiary of Osicom Technologies Inc., a NASDAQ traded company. Sorrento is a developer of metro optical networking systems used in both the interoffice and access networks. The company's systems offer an all-optical end-to-end solution that improves bandwidth utilisation, reduces network costs and complexity and provides a scalable, efficient and dynamically manageable platform to meet rapidly growing and changing bandwidth demands. Acquisition of ENECO Cable System In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO, for a consideration of 1.2 billion. K&T owns and operates cable networks in Rotterdam, Dordrecht and the surrounding municipalities, with approximately 610,000 homes passed, 590,000 basic cable television subscribers and has over 6,000 broadband Internet subscribers. K&T's network is substantially upgraded and, with 85% of the network two-way capable, the company is ready to offer most of its customers interactive broadband services. In addition, the company has a glass fibre network covering approximately 100 kilometers in The Hague area. In total, the cable systems pass over 40,000 potential business customers. 112 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure -------------------- None. 113 PART III Item 10. MANAGEMENT - ------------------- In March 2000, the shareholders of the Company approved a 3:1 stock split. All share and per share data have been restated to reflect this stock split. In November 1999, the shareholders of United approved a 2:1 stock split. All share and per share amounts have been restated to reflect this stock split. United currently owns approximately 54.8% of our outstanding ordinary shares A and all of our outstanding priority shares. Because we are a strategic holding of United, United is likely to continue to control us for the foreseeable future. Four of the five members of our Supervisory Board are also directors, officers or employees of United. Supervisory Board Our general affairs and business, as well as our management board, are supervised by a Supervisory Board, the members of which are proposed by United as the holder of our priority shares and appointed by the general meeting of shareholders. Mr. Gene Schneider, United's Chairman and Chief Executive Officer and the former Chairman of the Supervisory Board, resigned from the Supervisory Board in February 1999. Pursuant to the rules and procedures of the Supervisory Board, he became a non-voting advisor to the Supervisory Board and has the right to attend and participate in the meetings of the Supervisory Board. The Supervisory Directors are appointed at the general meeting of shareholders from a list proposed by United as the holder of our priority shares or through direct appointment by Philips. Under our articles of association, Philips may appoint and remove one of our Supervisory Directors, so long as Philips has any liability in respect of the agreements relating to the Telekabel Wien system, which is expected to terminate by 2006. We have agreed to indemnify Philips against such liability. We and United have agreed to use our reasonable best efforts to obtain the release by the City of Vienna of Philips from such liability. Philips' representative on the Supervisory Board must approve (1) the disposition of assets aggregating more than 30% of the consolidated assets or generating more than 30% of the consolidated revenues of the Telekabel Group, or (2) our merger or consolidation into any other entity that is not wholly-owned by United. The Discount Group has a contractual right to nominate one director and United has agreed to vote in favor of the Discount Group's nominee subject to certain conditions. The Discount Group, our partner in our Israeli system, has not to date exercised its contractual right to nominate a Supervisory Director. The Discount Group's nomination may be set aside by two-thirds of the votes cast at the general meeting of shareholders representing more than one-half of the issued nominal capital. The Supervisory Directors and Advisor are:
Name Age Position Michael T. Fries.................................. 37 Chairman of the Supervisory Board John P. Cole, Jr.................................. 70 Supervisory Director Richard De Lange.................................. 54 Supervisory Director Ellen P. Spangler................................. 51 Supervisory Director Tina M. Wildes.................................... 39 Supervisory Director Gene W. Schneider................................. 73 Advisor
Michael T. Fries has been a member of the Supervisory Board since September 1998 and the Chairman since February 1999. Mr. Fries became a director of United in November 1999 and is President of United and President of United Latin America, Inc., a wholly-owned subsidiary of United, positions he has held since September 1998. He is also the Executive Chairman of Austar United Communications Limited ("Austar United"), United's subsidiary, a position he has held since June 1999. Mr. Fries also serves as President and Chief Executive Officer of United Asia/Pacific Communications, Inc., a wholly-owned subsidiary of United, positions he has held since June 1995 and December 1996, respectively. In January 2000, Mr. Fries also became a member of the Supervisory Board of chello broadband, our Internet portal and ISP. In addition, since September 1998, Mr. Fries has served as the President of United Latin America, Inc. a wholly owned subsidiary of United. From March 1990 to June 1995, Mr. Fries served as United's Senior Vice President, Development, in which capacity he was responsible for managing United's acquisitions and new business development activities, including United's expansion into the Asia/Pacific, Latin American and European markets. John P. Cole Jr. became a member of the Supervisory Board in February 1999 and has been a director of United since March 1998. In January 2000, he also became a member of chello broadband's Supervisory Board. Mr. Cole has practiced law in Washington, D.C. since 1956 and has been counsel over the years in many landmark proceedings before the U.S. Federal Communications Commission, reflecting the development of the cable television industry. In 1966, he founded the law firm of Cole, Raywid & Braverman, a firm specializing in all aspects of communications and media law. 114 Richard De Lange has been a member of the Supervisory Board since April 1996. Since October 1998, Mr. De Lange has been Chairman of the Philips organization in The Netherlands (Philips Nederland B.V. and Nederlandse Philips Bedrijven B.V.). He also serves as President and Chief Executive Officer of Philips Media B.V., which position he assumed in February 1996. From April 1995 until October 1998, Mr. De Lange was Chairman and Managing Director of Philips Electronics UK Ltd. Previously, Mr. De Lange served since 1970 in various capacities with subsidiaries of Philips, including as President of Philips Lighting Europe from December 1990 until April 1995. Ellen P. Spangler became a member of the Supervisory Board in February 1999. Ms. Spangler is the Senior Vice President of Business and Legal Affairs and Secretary of United, positions she has held since December 1996. Ms. Spangler is responsible for the legal operations of United. Prior to assuming her current positions, since February 1991, she served as a Vice President of United where her responsibilities included business and legal affairs, programming and assisting on development projects. Tina M. Wildes became a member of the Supervisory Board in February 1999. Ms. Wildes has been a director of United since November 1999 and the Senior Vice President of Operations and Development Oversight since May 1998. In January 2000, she also became a member of the Supervisory Board of chello broadband. From October 1997 until May 1998, Ms. Wildes served as Senior Vice President of Programming for United. From 1993 to 1997, she served as Regional Vice President of United Latin America, Inc. From 1988 to 1994, Ms. Wildes served as either a director or vice president for development, programming and operations for several of United's European operating companies. Gene W. Schneider served as a member of the Supervisory Board from July 1995 until February 1999, when he became an advisor to the Supervisory Board. Mr. Schneider is also the Chairman of the Board of Directors of United, a position he has held since its inception in May 1989 and was a director of United International Holdings, a Colorado general partnership, since September 1989 until its dissolution in December 1993. In addition to serving as United's Chairman, Mr. Schneider has served as United's Chief Executive Officer since October 1995, and served as United's President from October 1997 until he relinquished the title in September 1998. Mr. Schneider has served as a director of Austar United since June 1999. Mr. Schneider served as Chairman of United Artists, then the third largest multiple system cable operator in the United States, from May 1989 until its merger with Tele-Communications, Inc. in November 1991. He was a founder of United Cable in the early 1950s and, as its Chairman and Chief Executive Officer, helped build United Cable into the eighth- largest multiple system operator in the United States prior to its merger with United Artists in 1989. As Chairman of United Cable, he was involved in United Cable's investment in numerous programming companies such as Discovery and Turner Broadcasting, and served as a director on the board of Turner Broadcasting and Chairman of C-SPAN. Mr. Schneider has been active in cable television affairs and has served on the board of the National Cable Television Association (the "NCTA") and on numerous committees and special projects thereof since NCTA's inception in the early 1950s. Mr. Schneider is one of the original inductees into NCTA's Cable Television Pioneers. Mr. Schneider is the Chairman of the Board of Advance Display Technologies, Inc. and an advisor to the Supervisory Board of chello broadband. The Supervisory Board has an Audit Committee and a Compensation Committee. The Audit Committee is comprised on Mr. Fries, Mr. Cole and Mr. De Lange. The Compensation Committee is comprised of Mr. Fries, Ms. Spangler and Ms. Wildes. Family Relationships Tina M. Wildes, a member of the Supervisory Board, and Mark L. Schneider, the Chairman of our Board of Management and our Chief Executive Officer, are sister and brother. Gene W. Schneider is their father. No other family relationships exist between any other members of our Supervisory Board or Board of Management. 115 Board of Management and Other Key Employees The members of the Board of Management are:
Name Age Position Mark L. Schneider.......................... 44 Chairman of Board of Management and Chief Executive Officer John F. Riordan............................ 57 President and Vice Chairman Charles H.R. Bracken....................... 33 Board of Management Member and Chief Financial Officer Nimrod J. Kovacs........................... 50 Board of Management Member, Managing Director, Eastern Europe and Executive Chairman, UPC Central Europe Anton M. Tuijten........................... 38 Board of Management Member and General Counsel
Other key employees include:
Name Age Position Scott Bachman........................ 45 Managing Director, Technology and Purchasing Andrew Barron........................ 34 Managing Director, Media Jeroen Bergman....................... 32 Managing Director, Video and Marketing Steven D. Butler..................... 40 Managing Director, UPC Capital Markets and Treasurer Sudhir Ispahani...................... 39 Managing Director, Operations and Technology, chello broadband Roger Lynch.......................... 37 President and Chief Executive officer, chello broadband Shane O'Neill........................ 38 Managing Director, Strategy, Acquisitions and Corporate Development Simon Oakes.......................... 41 Managing Director, Programming Iain Osborne......................... 42 Managing Director, Marketing, Sales and Portal, chello broadband Ray D. Samuelson..................... 46 Managing Director, Finance and Accounting
Mark L. Schneider has been our Chief Executive Officer and Chairman of our Board of Management since April 1997. Mr. Schneider has been a member of the board of directors of United since 1993 and served as its Executive Vice President from December 1996 to December 1999. In addition, Mr. Schneider has been a member of the Supervisory Board and the Chairman of chello broadband since March 1998. From April 1997 to September 1998, he served as our President and from May 1996 to December 1996, he served as Chief of Strategic Planning and Operational Oversight of United. He served as President of United from July 1992 until March 1995 and as Senior Vice President of United from May 1989 until July 1992. Mr. Schneider also worked as a consultant for United from June 1995 to May 1996. Mr. Schneider is a director of Advance Display Technologies, Inc. John F. Riordan was appointed as our President in June 1999, and has been a member of our Board of Management since September 1998. Also in September 1998, Mr. Riordan was appointed Vice Chairman of the Supervisory Board of chello broadband, our Internet portal and ISP, overseeing implementation of our Internet/data services and digital distribution platform. In June 1999, Mr. Riordan became a director of Austar United. Mr. Riordan has also served as a director of United since March 1998. From March 1998 to June 1999, he served as Executive Vice President and from September 1998 to June 1999, he served as President of Advance Communications for us. From 1992 until November 1998, Mr. Riordan served as Chief Executive Officer of Princes Holdings Limited, the Irish multi-channel television operating company of which we owned 20% until its sale in November 1998. Charles H. R. Bracken has been Chief Financial Officer since November 1999. Prior to November 1999, Mr. Bracken served as Managing Director of Strategy, Acquisitions and Corporate Development from March 1999. Mr. Bracken became a member of the Board of Management in July 1999 and a member of the Supervisory Board of chello broadband in March 1999. From 1994, he held a number of positions at Goldman Sachs International in London, most 116 recently as Executive Director, Communications, Media and Technology. While at Goldman Sachs, he was responsible for providing merger and corporate finance advice to a number of communications companies, including us. Nimrod J. Kovacs was appointed Executive Chairman, Central Europe in August 1999. He was appointed our Managing Director of Eastern Europe in March 1998 and a member of our Board of Management in September 1998. He has served in various positions with United, including President of United Programming, Inc. from December 1996 until August 1999, President, Eastern Europe Electronic Distribution & Global Programming Group from January to December 1996 and Senior Vice President, Central/Eastern Europe from March 1991 until December 1995. Anton M. Tuijten joined our company in September 1998 as Vice President of Legal Services and was appointed our General Counsel in May 1999. Mr. Tuijten has been a member of our Board of Management since March 2000. Mr. Tuijten has also served as General Counsel for and a member of the Board of Management of chello broadband since December 1998. From 1992 until joining us, Mr. Tuijten was General Counsel and Company Secretary of Unisource, an international telecommunications company. Prior to that he worked as a Senior Corporate Lawyer at KPN, the Dutch Telecom Operator. Scott Bachman has served as our Managing Director of Technology and Purchasing since February 1998. From March 1996 until February 1998, Mr. Bachman was our Vice President of Engineering and the Chief Technology Officer. From April 1991 to March 1996, Mr. Bachman was Vice President of Operations & Technology Projects for Cable Television Laboratories, Inc. Andrew Barron became Managing Director of Media in November 1999, a new position created to oversee the development of our digital media strategy. Prior to joining us, Mr. Barron served as Executive Vice President of New Media & Business Development at Walt Disney International Europe, with responsibility for overseeing Walt Disney's Internet businesses in Europe. Mr. Barron joined Walt Disney in 1995. Prior to joining Walt Disney, Mr. Barron worked for McKinsey & Co. as a management consultant specialising in international telecoms strategy and mergers and acquisitions activity. Mr. Barron has also been a member of the Supervisory Board of chello broadband since January 2000. Jeroen Bergman became Managing Director of Video and Marketing in July 1999. Prior to his appointment, Mr. Bergman served as the Commercial Director at Casema, a subsidiary of France Telecom, and the second largest cable television operator in The Netherlands after us, a position he had held since 1996. From 1993 to 1996, Mr. Bergman worked for Optus Vision, and its shareholder Optus Communications, a long distance and mobile communications operator in Australia, primarily owned by Cable & Wireless Optus Limited. Steven D. Butler became Managing Director of UPC Capital Markets and Treasurer in February 1998. Mr. Butler is responsible for all corporate and project/debt equity financing activities, as well as banking and investor relations. From July 1995 until February 1998, Mr. Butler served as out Vice President and Treasurer. Prior to July 1995, Mr. Butler served as Director of Finance at United from May 1991. Sudhir Ispahani has served as Chief Technology Officer and Managing Director of Operations and Technology for chello broadband since March 1999. His primary responsibility is developing and implementing chello's technology architecture. Mr. Ispahani joined chello broadband as Corporate Technology Officer in July 1998 and has been a member of chello broadband's Management Board since November 1998. Prior to joining chello broadband in July 1998, Mr. Ispahani spent the nine preceding years with MCI Telecommunications. While at MCI, Mr. Ispahani's responsibilities included overseeing the design, engineering and support of MCI's data and voice networks in the U.S. Roger Lynch has been the President and Chief Executive Officer and Chairman of the Board of Management of chello broadband since November 1999. Prior to November 1999, Mr. Lynch served as President and Chief Financial Officer of chello broadband from July 1999. Prior to joining us, Mr. Lynch spent five years at Morgan Stanley Dean Witter where he was responsible for the bank's Internet corporate finance activity in Europe. In addition, Mr. Lynch was Morgan Stanley Dean Witter's Internet sector specialist and had advised us and chello broadband during the year preceding his appointment with us. Shane O'Neill joined us as Managing Director, Strategy, Acquisitions and Corporate Development in November 1999. Prior to joining us, Mr. O'Neill spent seven years at Goldman Sachs in the New York, Sydney and London offices. Most recently, Mr. O'Neill was an Executive Director in the Advisory Group for Goldman Sachs in London where he worked on a number of mergers and acquisitions and corporate finance transactions for companies in the communications 117 industry, including us. Prior to joining Goldman Sachs, Mr. O'Neill spent four years at Macquarie Bank in Sydney as well as three years at KPMG in Dublin where he qualified as a chartered accountant. Simon Oakes has served as our Managing Director of Programming since March 1998, where he is responsible for our programming operations and development activities. From 1994 until joining us, Mr. Oakes independently developed and produced feature films including Single Girls' Diary (Granada Films), The Maiden of Buttermere (Tribeca and United Artists) and Cave (Working Title and Polygram). From 1989 until 1994, Mr. Oakes served as co-chairman of Crossbow Films, a film production company. Iain Osborne has been Managing Director of Marketing Communications for chello broadband since March 1999 and has been a member of the Board of Management of chello broadband since January 1999. Mr. Osborne's primary responsibility is to build the chello brand. Mr. Osborne joined us in July 1998 from Yahoo! Inc. where he served as Marketing and Communications Director, Europe. Ray D. Samuelson has been our Managing Director of Finance and Accounting in February 1998, in which he is responsible for all our accounting, reporting, budgeting and administrative activities. From our formation in July 1995 until February 1998, Mr. Samuelson served as Vice President of Finance & Accounting. From 1992 to 1995, he served as Vice President of Finance and Administration of the Cable Operations Division at United. Prior to Mr. Samuelson's appointment with United, he was employed by US WEST. While with US WEST, from 1990 to 1992, Mr. Samuelson was seconded to United's and US WEST's Norwegian, Swedish and Hungarian cable television partnership where he served as the Chief Financial Officer. Section 16(a) Beneficial Ownership Reporting Compliance Under the Section 16(a) of the Securities Exchange Act of 1934, as amended, our Supervisory Directors, members of our Management Board and certain of our officers, and persons holding more than ten percent of our ordinary shares A are required to file forms reporting their beneficial ownership of our ordinary shares A and subsequent changes in that ownership with the Securities and Exchange Commission. Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that during the fiscal year ended December 31, 1999, our directors, executive officers, and greater than ten percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements, except Steve Butler and Ray Samuelson failed to timely file their Form 3s following our initial public offering. Item 11. Executive Compensation - -------------------------------- The following table sets forth the 1999 compensation for our current chief executive officer and the four other highest compensated executive officers at fiscal year end 1999. The information in this section reflects compensation received by the named executive officers for all services performed for us and our affiliates. Summary Compensation Table Annual Compensation (1)
Long Term Compensation ---------------------- Awards --------------- Other Annual Securities All Other Name and Principal Compensation Underlying Compensation Position Year Salary(Euro) Bonus (Euro) Options/SARs (Euro) - ------------------- ---- -------------- --------- ---------------- ------------ ---------------- Mark L. Schneider (2).... 1997 265,461 -- -- 2,925,000(14) 430(17) Chief Executive Officer 1998 348,014 -- 105,810(6) 258,419(15) 5,196(18) 1999 390,027 -- 106,858(7) -- 5,765(19) John F. Riordan.... 1998 281,661 -- 37,555(8) 1,875,000(14) -- President 1999 316,024 -- 177,057(19) 300,000(16) 49,379(20) Charles H.R. Bracken.... 1999 297,308(3) -- 12,716(10) 750,000(14) 19,812(21) Chief Financial Officer Gene Musselman (4). 1997 59,559 -- -- -- 1,950(22) Chief Operating Officer, 1998 234,718 67,761 60,948(11) -- 5,392(23) Telekabel Wien 1999 254,939 1,572,609 52,563(12) 112,500(14) 5,779(24) Nimrod Kovacs...... 1997 215,824 -- -- -- 4,853(25) Managing Director, 1998 248,456(5) -- -- -- 5,089(2) Eastern Europe 1999 280,849 -- 65,179(13) 675,000(14) 5,779(24)
(1) Compensation amounts for the persons identified for 1999 were converted from U.S. dollars or British pounds to Euros using the average exchange rate for the period, or were converted from Dutch guilders to euro using the fixed rate of 1 Euro to 2.20371 Dutch guilders. For periods prior to the creation of the Euro, currencies were converted first to Dutch guilders and then to euro using the fixed rate. (2) Mr. Schneider was appointed as our Chief Executive Officer in April 1997 and served as United's Executive Vice President until December 1999. The salary amount shown consisted of the total salary paid to Mr. Schneider for his duties to us and United. Other compensation consisted of amounts related to Mr. Schneider's non-U.S. assignment. (3) Mr. Bracken commenced his employment with us in March 1999. Accordingly, the salary information above represents only ten months of employment during 1999. (4) Mr. Musselman commenced his employment with us in September 1997. Accordingly, the salary information included above represents only four months of employment during 1997. Mr. Musselman received a performance- based bonus for 1998 and 1999. (5) Mr. Kovacs was appointed as our Managing Director of Eastern Europe in March 1998. The salary amount shown for 1998 consisted of the total salary paid to Mr. Kovacs for his duties to us and United. (6) Includes living expenses, including rent related to foreign assignment (Euro105,131) and personal use of United's airplane (Euro679). (7) Includes housing expenses in the amount of Euro102,698. (8) Includes monthly housing allowance payments. (9) Consisted of expenses related to housing (Euro29,113) and tax-related reimbursements (Euro147,944). (10) Consisted of car allowance payment. 118 (11) Consisted of housing allowance payments (Euro40,847), goods and services allowance (Euro15,407) and moving allowance (Euro4,694). (12) Consisted of housing allowance (Euro36,000) and a goods and services allowance (Euro16,563). (13) Consisted entirely of a relocation allowance payment. (14) Represents shares underlying options to acquire our Ordinary Shares A. (15) Includes an option to acquire 8,419 shares of United's Class A Common Stock and an option to acquire 250,000 shares of chello broadband Ordinary Shares A. (16) Includes an option to acquire 300,000 Ordinary Shares A of chello broadboard. (17) Consisted entirely of life insurance payment. (18) Consisted of matching employer contributions under United's 401(k) plan (Euro4,507) and life insurance payments (Euro689). (19) Consisted of a matching employer contribution under United's 401(k) plan (Euro4,507) and life insurance payments (Euro1,258). (20) Consisted entirely of a pension contribution under our pension plan. (21) Consisted of matching employer contributions under our pension plan (Euro 17.977) and health, life and disability insurance payments (Euro 1.825). (22) Consisted of matching employer contributions under United's 401(k) plan (Euro1,787) and life insurance payments (Euro163). (23) Consisted of a matching employer contribution under United's 401(k) plan (Euro4,507) and life insurance payments (Euro885). (24) Consisted of a matching employer contribution under United's 401(k) plan (Euro4,507) and life insurance payments (Euro1,272). (25) Consisted of a matching employer contribution under United's 401(k) plan (Euro4,203) and life insurance payments (Euro650). (26) Consisted of matching employer contributions under United's 401(k) plan (Euro4,337) and health and life insurance payments (Euro752). The following table sets forth information concerning options that were granted by us to the executive officers listed in the Summary Compensation Table above during the fiscal year ended December 31, 1999. Option Grants in Last Fiscal Year (1)
Individual Grants Potential Realizable Value at Assumed Annual Number of Percentage of Rates of Stock Price Appreciation for Option Securities Total Options Term(2) Underlying Granted to Exercise -------- Options Employees in Price Expiration Granted Fiscal Year(3) (Euro/Share) Date 0% (Euro) 5% (Euro) 10% (Euro) --------- -------------- ------------ ----------- --------- --------- ---------- Mark L. Schneider UPC -- -- -- -- -- -- -- United 8,419 0.62% 6.5862(4) 12/17/09 392,136 673,619 1,105,469 chello 250,000 13.44% 9.076 3/26/04 -- 626,856 1,385,187 John F. Riordan UPC -- -- -- -- -- -- -- chello 300,000 16.13% 9.076 3/26/04 -- 752,226 1,662,224 Charles H.R. Bracken UPC 750,000 17.42% 9.67(5) 3/25/04 798,041 2,899,123 5,440,882 Gene Musselman Phantom UPC 112,500 20.83% 9.67 2/12/04 -- 282,090 623,345 Nimrod Kovacs Phantom UPC -- -- -- -- -- -- --
(1) Options granted under our Plan and chello's plan are subject to repurchase rights of equal monthly amounts over the 48 months following the date of grant. Options granted under our phantom plan and by United vest in 48 equal installments following the date of grant. (2) The potential realizable value is based on assumed annual rates of stock price appreciation from our initial public offering, at Euro29.00 (Euro9.67 post-stock split), to the end of the option term. The options gains are net of option exercise price and do not include the effect of taxes associated with exercise. The amounts shown are for the assumed rates of appreciation only, do not constitute projections of future stock performance and may not necessarily be realized. Actual gains, if any, on exercises depend on future performance of our shares, United's stock, or the valuation of chello, as the case may be, continued employment and other factors. (3) Represents percentage of total options granted to employees under the respective plans in last fiscal year. (4) The market value of the shares on the date of grant was Euro17.722. (5) The market value of the shares on the date of grant was Euro10.8. The following table sets forth information with respect to the executive officers listed in the Summary Compensation Table above holding unexercised options as of December 31, 1999. See "--Stock Option Plans" and "Security Ownership of Certain Beneficial Owners and Management." 119 Aggregated Fiscal Year-end Option Values
Number of Ordinary Number of Securities SharesA Underlying Unexercised Value of Unexercise Acquired on Values Options at Fiscal Year-End In-the-Money Options(1) Name Exercise Realized (Euro) Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------------- ----------- ------------- ----------- ------------- Mark L. Schneider UPC -- -- 1,950,000 975,000 74,463,060 37,231,530 United 100,000 6,277,554 270,479 30,000 16,587,163 1,800,286 chello -- -- 46,875 203,125 -- -- John F. Riordan UPC -- -- 1,050,000 525,000 40,095,494 20,047,747 United -- -- 29,167 70,833 1,820,183 4,420,372 chello -- -- 56,250 243,750 -- -- Charles H.R. Bracken UPC -- -- 140,625 609,375 4,326,206 18,746,895 Gene Musselman Phantom UPC -- -- 7,813 29,688 721,080 2,739,977 Nimrod Kovacs Phantom UPC 75,000 1,413,865 375,000 225,000 14,319,819 8,591,892 United 60,000 1,302,402 248,750 21,250 15,024,769 1,278,919
(1) Calculated in euro based on the following fair market values at year-end: UPC - Euro39.902; United - Euro66.308; and chello - Euro9.076. Agreements with Executive Officers We and Mr. Bracken are parties to an Executive Services Agreement. In addition, Mr. Schneider has a consulting agreement with United. Our agreement with Mr. Bracken and United's agreement with Mr. Schneider are discussed below. Mr. Musselman and Mr. Kovacs have employment agreements with United. We and United are parties to a Secondment Agreement, pursuant to which Mr. Schneider, together with all our other U.S. citizen employees, are seconded to us. See "Certain Transactions and Relationships--Relationship with United and Related Transactions." Pursuant to the Secondment Agreement, we reimburse United for all expenses incurred by United in connection with the seconded employees. Mark L. Schneider. On June 1, 1995, United entered into a Consulting Agreement (the "Agreement") with Mark L. Schneider, who until that time had served as United's President. Mr. Schneider's Agreement is for a term ending on May 31, 2000. Although the Agreement provides that Mr. Schneider will be available for up to 90 days each calendar year to serve as a consultant, Mr. Schneider and United have agreed that Mr. Schneider will work full time for United as our Chief Executive Officer. Until December 1, 1997, Mr. Schneider received an annual fee of USD 300,000, thereafter United increased such fee to USD 375,000 and in April 1999 United increased the annual fee to USD 431,200. In addition, Mr. Schneider receives insurance and other perquisites that are available to him in his capacity as our Chief Executive Officer or that are otherwise made available to top executives of United. All of Mr. Schneider's unvested United stock options vested as of the date of the Agreement. He will be entitled to receive additional United stock options during the consulting period, in an amount to be determined by the Board of United upon the recommendation of the Chairman of United, but shall be entitled to receive at least options to purchase a number of shares of United equal to 90% of the average number of shares provided in options granted to United's Chairman, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Executive Vice President. In June 1995, Mr. Schneider received stock options to purchase 36,000 shares of United's Class A Common Stock at an exercise price of USD 15.75 per share. In December 1996, Mr. Schneider received stock options to purchase 60,000 shares of United's Class A Common Stock at an exercise price of USD 12.75 per share; however, Mr. Schneider agreed to cancel 50,000 shares thereof in connection with a grant of options by us. The Agreement is terminable by United or by Mr. Schneider. If it is terminated by Mr. Schneider, benefits will terminate as of the date of termination. If Mr. Schneider is terminated by United, or dies prior to the end of the term of the Agreement, he or his personal representative shall receive all payments due under the Agreement through its term. 120 Mr. Schneider has agreed that he will not enter into certain businesses that would be competitive with United. This Agreement provides for indemnification of Mr. Schneider by United to the full extent permitted by its Certificate of Incorporation or Bylaws, any standard indemnity agreement between United and its officers and directors or by applicable law. Mr. Schneider and Untied have executed mutual releases. Charles H.R. Bracken. On March 5, 1999, we entered into an Executive Service Agreement with Charles H.R. Bracken in connection with Mr. Bracken becoming our Managing Director of Development, Strategy, and Acquisitions. Subsequently, Mr. Bracken became a member of the UPC Board of Management and Chief Financial Officer for UPC. Mr. Bracken's Executive Services Agreement is for a term expiring March 5, 2003. Under the Executive Service Agreement, Mr. Bracken's initial base salary was (Pounds)250,000 per year. Such salary is subject to periodic adjustments. In addition, to his salary Mr. Bracken received options for 750,000 of our ordinary A shares and participation in a pension plan. In addition to his salary, UPC provides a car to Mr. Bracken for his use valued at (Pounds)8,400 per year. The Executive Services Agreement may be terminated for cause by us. Also, we may suspend Mr. Bracken's employment for any reason. If his employment is suspended, Mr. Bracken will be entitled to receive the balance of payments due under the Executive Service Agreement until such Agreement is terminated. In the event Mr. Bracken becomes incapacitated, by reason of injury or ill-health for an aggregate of 130 working days or more in any twelve month period, we may discontinue future payments under the Agreement, in whole or in part, until such incapacitation ceases. Our Stock Option Plans Equity Stock Option Plan. Under our Equity Stock Option Plan, the Supervisory Board may grant stock options to our employees. There are approximately 4.3 million total options outstanding under our stock option plan. The Board of Management may from time to time increase the number of shares available for granting under our stock option plan. Options under our stock option plan will be granted at fair market value (as determined by the Supervisory Board) at the time of the grant unless determined otherwise by the Supervisory Board. The ordinary shares A available under our stock option plan are held by Stichting Administratiekantoor UPC, a stock option foundation, which administers our stock option plan. Each option represents the right to acquire from the foundation a depositary receipt representing the economic value of one share. United appoints the board members of the foundation and thus controls the voting of the foundation's ordinary shares A. Proceeds from the exercise of these options remain in the foundation. Upon liquidation of the foundation, any remaining assets revert to United. All options are exercisable upon grant and for the next five years. In order to introduce the element of "vesting" of the options, our stock option plan provides that even though the options are exercisable immediately, the shares to be issued or options granted in 1996 are deemed to "vest" 1/36th each month for a three-year period from the date of the option grant. The date of the option grant is generally the employee's employment commencement date. For options granted in 1998 and thereafter, the vesting period has been increased to four years and the options vest 1/48th each month. No options were granted in 1997. If the employee's employment terminates other than in the case of death, disability or the like, all unvested options previously exercised must be resold to the foundation at the original purchase price and all vested options must be exercised within 30 days of the termination date. The Supervisory Board may alter these vesting schedules in its discretion. Our stock option plan contains limited anti-diluion protection in the case of stock splits, stock dividends and the like. Our stock option plan also provides that, in the case of a change of control, the acquiring company has the right to require us to acquire all of the options outstanding at the per share value determined in the transaction giving rise to the change of control. In 1998, we loaned Anton H.E. van Voskuijlen Euro18,378 to enable him to pay the tax on exercise of stock options. This loan bears no interest. The tax payable over the imputed interest is added to the loan. Mr. van Voskuijlen's loan is due upon exercise of his options. Mr. van Voskuijlen served as our General Counsel from July 1996 until May 1999, when he was appointed Senior Vice President. He also served as a member of our Board of Management from April 1997 until his resignation in March 2000. Through December 31, 1998, options to acquire a total of 23,305,500 ordinary shares A have been granted under the Plan. Of these, options representing 11,762,193 ordinary shares A have been exercised and resold to the foundation and, therefore, are available for future option grants. Options representing 369,471 ordinary shares A have been canceled and [options representing a further 375,000 ordinary shares A have been returned]. The exercise prices for the options range from Euro1.59 to Euro34.87. 121 In March 1998, we granted Mark Schneider options for 2,925,000 ordinary shares A at an exercise price of Euro1.81513, the price at which shares were acquired by United and us from Phillips in connection with the purchase in December 1997. Phantom Stock Option Plan. Under our phantom stock option plan, the Supervisory Board has granted certain employees the right to receive an amount in cash or stock, at the Supervisory Board's option, equal to the difference between the fair market value of the ordinary shares A and the stated grant price for a specified number of phantom options. Through December 31, 1999, options representing 3,845,970 phantom shares remained outstanding, 6,882,471 had been cancelled and had been exercised. The grant prices for the phantom options range from Euro1.815 to Euro9.67. The phantom options have a four-year vesting period and vest 1/48th each month. The phantom options may be exercised during the period specified in the option certificate, but in no event later than ten years following the date of the grant. Of the outstanding phantom options, 295,083 were fully vested on December 31, 1999. Our phantom stock option plan contains limited anti-dilution protection in the case of stock splits, stock dividends and the like. Our phantom stock option plan also provides that, in some cases upon a change of control, all phantom options outstanding become fully exercisable. Upon exercise of the phantom options, we may elect to issue such number of ordinary shares A as is equal to the value of the cash difference in lieu of paying the cash. Our phantom stock option plan also provides that upon the offering, an employee holding phantom options may convert these into options for ordinary shares A under our stock option plan. If the employee elects not to do so, upon exercise of the phantom options we may elect to issue such number of ordinary shares A equal to the value of the cash difference in lieu of paying cash to such employee. chello broadband Stock Option Plans chello broadband has adopted a stock option plan and a phantom stock option plan. All the shares underlying these stock option plans are held by Stichting administratie kantoor chello broadband, a stock option foundation, which administers chello broadband's stock option plans. Proceeds realized by the foundation upon exercise of the options will be remitted to chello broadband. Upon completion of an initial public offering by chello broadband, chello broadband will establish a new stock option plan. chello broadband Equity Option Plan. Under chello broadband's equity option plan, the Supervisory Board may grant stock options to chello broadband employees, on the recommendation of chello broadband's Board of Management and subject to approval of chello broadband's priority shareholders. To date chello broadband has granted options for 550,000 ordinary shares under its stock option plan. Of these, options for 250,000 ordinary shares have been exercised. Options under chello broadband's equity option plan will be granted at fair market value (as determined by the Supervisory Board on the recommendation of the Board of Management) at the time of grant unless determined otherwise by the Supervisory Board. All options are exercisable upon grant and for the next five years. Within five days after the exercise of the option, the employee will receive the number of shares or depositary certificates, as the case may be, in respect to the exercised option, against payment in full of the exercise price. If the employee's employment terminates: . because of death, permanent disability, retirement or early retirement, any unexercised options will expire one year from the date of such termination, or five years after the date of grant, whichever is earlier; . because of so called "urgent reason" under Dutch law or because of documented and material non-performance, any certificates issued to the employee upon exercise of his or her options must be resold to the foundation at the original purchase price for the options and any unexercised options expire immediately without notice; or . for any other reason, any exercised options must be resold to the foundation at the original purchase price and any unexercised options will expire as follows: . if employment terminates during the first month after the date of grant, all unexercised options expire; . if employment terminates during the first month after the date of grant, all unexercised options will be deemed to vest at a rate of one-forty eighth per month of the total number of options granted for each month the employee is employed after the first month. All unexercised vested options will expire at the 122 earlier of 30 days after the termination of employment if not exercised, or five years from the date of grant. All "unvested" options expire automatically upon termination of employment. The chello broadband equity option plan contains limited anti-dilution protection in the case of stock splits, stock dividends and the like. The chello broadband equity option plan also provides that, in the case of change in control, the acquiring company has the right to require chello broadband's stock option foundation to acquire all of the options outstanding at the per share value determined in the transaction giving rise to the change in control. In 1999, we granted Mark Schneider options for 250,000 chello broadband shares. Also during 1999, we granted John Riordan options for 300,000 chello broadband shares. Both of these grants were at an exercise price of Euro9.076. In 1999, we loaned Mark Schneider approximately Euro2.3 million to enable him to exercise chello broadband stock options to acquire chello broadband shares. The recourse loan is interest free. The tax payable on the imputed interest is added to the principal amount of the loan. In 1999, we agreed to loaned Mr. Riordan up to approximately Euro85,000 in connection with the grant of his chello broadband stock options. chello broadband Phantom Stock Option Plan. chello broadband's phantom stock option plan is administered by its Supervisory Board, subject to prior approval by our Supervisory Board. The exercise price of the options granted under chello broadband's phantom stock option plan ranges from Euro4.54 to the initial public offering price of chello broadband's ordinary shares. The phantom stock options have a four-year vesting period and vest one-forty eighth each month and may be exercised during the period specified in the option certificate. All options must be exercised within 90 days after the end of employment. If such employment continues, all options must be exercised not more than ten years following the effective date of grant. This plan gives the employee the right to receive payment equal to the difference between the fair market value of a share and the exercise price for the portion of the rights vested. chello broadband, at its sole discretion, may make the required payment in cash, freely tradeable shares of United's class A common stock or our common stock, or, if chello broadband's shares are publicly traded, its freely tradeable ordinary shares. If chello broadband chooses to make a cash payment, at a time when its stock is publicly traded, employees have the option to receive an equivalent number of chello broadband's freely tradeable ordinary shares instead. At December 31, 1999, options representing 2,635,000 phantom shares had been granted. Of these, options representing 11,667 phantom shares has been exercised and options representing 60,833 phantom shares had been cancelled. chello broadband's phantom stock option plan contains limited anti-dilution protection in the case of stock splits, stock dividends, and the like. In some cases of a change of control, including a change of control of us, chello broadband may choose to acquire immediately all the phantom options outstanding for a consideration equal to the excess of the fair market value of the share at that time over the exercise price. chello broadband's phantom stock option plan also provides that, upon the pricing of an initial public offering, any of its employees holding phantom options may convert these into options for ordinary shares A under its stock option plan. If chello broadband's employee elects not to do so, upon exercise of the phantom options chello broadband may elect to issue such number of ordinary shares A equal to the value of the cash difference in lieu of paying the cash. Limitation of Liability and Indemnification Matters Pursuant to Dutch law, each member of the Supervisory Board and Board of Management is responsible to us for the proper performance of his or her assigned duties. Our articles of association provide that the adoption by the general meeting of shareholders of the annual accounts shall discharge the Supervisory Board and Board of Management from liability in respect of the exercise of their duties during the financial year concerned unless an explicit reservation is made by the general meeting of shareholders. This discharge of liability may also be limited by mandatory provisions of Dutch law, such as in the case of bankruptcy, and furthermore extends only to actions or omissions not disclosed in or apparent from the adopted annual accounts. In the event of such actions or omissions, the members of the Supervisory Board or Board of Management will be jointly and severally liable to third parties for any loss sustained by such third parties as a result of such actions or omissions, unless the Supervisory Board or Board of Management member proves that he or she is not responsible for the actions or omissions. Generally, under Dutch law, directors will not be held personally liable for decisions based on reasonable business judgment. Our articles of association provide that we must indemnify any person who: . is or was a member of the Supervisory Board or the Board of Management; 123 . was or is a party to or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative, or by or in the right of the company to procure a judgement in its favor by reason of the fact that such person is or was a member of our Supervisory Board or our Board of Management; and . acted in good faith in carrying out their duties. This indemnification will generally not apply if the person seeking indemnification is found to have acted with gross negligence or wilful misconduct in the performance of their duty to us, unless the court in which the action is brought determines that indemnification is otherwise appropriate. Our articles of association furthermore provide that a majority of the members of the Supervisory Board (not being parties to the action) must approve any indemnification, unless the entire Supervisory Board is named in the lawsuit, in which case the indemnification may be approved by independent legal counsel in a written opinion or by the general meeting of shareholders. The Supervisory Board may extend the indemnification provisions of our articles of association to any of our officers, employees or agents. Compensation of Supervisory Board Members All of the members of the Supervisory Board, other than Mr. De Lange, are directors or employees of United. None of these members receive additional compensation for serving on the Supervisory Board. Compensation of Board of Management Members The aggregate 1999 salary compensation for the entire Board of Management is approximately Euro1.77 million. In addition, we provide our executive officers with automobile allowances and other benefits. Expatriates also receive housing allowances, foreign tax equalization payments and other compensation relating to their foreign assignments. Compensation Committee Interlocks and Insider Participation We and United have concluded a secondment arrangement, pursuant to which certain U.S. citizens employed by United are seconded to us. See "Certain Transactions and Relationships--Relationship with United and Related Transactions." Prior to our initial public offering in February 1999, compensation for all members of our management who are employees of United was set by the compensation committee of United and compensation for all of our other employees was determined by the Supervisory Board. In February 1999, our Supervisory Board established a compensation committee following the completion of the initial public offering. The compensation committee is composed of Mr. Fries, Ms. Spangler and Ms. Wildes, each of whom is a member of the Supervisory Board. The members of our management who are employees of United, however, will continue to have their compensation set by United's compensation committee. None of the members of our compensation committee, the United compensation committee or our Supervisory Board has served as a director or member of a compensation committee of another company that had any executive officer that was also one of our Supervisory Directors or a member of the compensation committee of United. 124 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the beneficial ownership of all classes of securities as of March 18, 2000, by (1) each shareholder who is known by us to own beneficially more than 5% of the outstanding ordinary shares at such date; (2) each of our Supervisory Directors and our advisor to the Supervisory Board; (3) each of our executive officers; and (4) all of our Supervisory Directors, advisors and executive officers as a group. Because Messrs. G. Schneider, Cole, M. Schneider and Riordan are directors of United, they may be deemed to beneficially own our shares held by United. They disclaim any beneficial ownership of these shares and this table does not include those shares. Such share ownership information includes ordinary shares A that may be acquired within 60 days of March 15, 2000, through either our options or phantom options. Our phantom options are payable in either cash or ordinary shares A, at our election. Shares issuable within 60 days upon exercise of options or phantom options are deemed to be outstanding for the purpose of computing the percentage ownership and overall voting power of the persons beneficially owning such securities, but have not been deemed to be outstanding for the purposes of computing the percentage ownership or overall voting power of any other person.
Number of Ordinary Percentage of Ordinary Shares A Shares A (1) Beneficial Owner --------- ---------------------- - --------------- UnitedGlobalCom, Inc.(2)............................................... 239,220,291 54.84 Microsoft Corporation (3).............................................. 30,473,250 6.99 Gene W. Schneider (4).................................................. 466,593 * Michael T. Fries (5)................................................... 98,217 * John P. Cole, Jr....................................................... 4,575 * Richard De Lange....................................................... -- -- Ellen P. Spangler (6).................................................. 46,875 * Tina Wildes (7)....................................................... 127,090 * Mark L. Schneider (8).................................................. 2,284,686 * John F. Riordan (9).................................................... 1,217,724 * Charles H.R. Bracken (10).............................................. 218,751 * Anton M. Tuijten (11).................................................. 53,532 * Nimrod J. Kovacs(12)................................................... 446,688 * All directors, director nominees and executive officers as a group (11 persons).............................................................. 4,598,263 *
*Less than 1%. ____________ (1) The figures for the percent of shares are based on 436,229,439 ordinary shares A outstanding on March 28, 2000 (after elimination of shares held by subsidiaries). (2) Includes 7,332,942 ordinary shares A held by the stock option foundation as of December 31, 1999, the board members of which are appointed by United. The address of UnitedGlobalCom, Inc. is 4643 South Ulster Street, Suite 1300, Denver, Colorado 80237, U.S.A. (3) The address of Microsoft Corporation is One Microsoft Way, Redmond, Washington 98052, U.S.A. (4) Includes 30,000 ordinary shares A held by the Gene W. Schneider Family Trust of which Mr. Schneider is a co-trustee and includes 3,000 ordinary shares A owned by his spouse. Also includes phantom options for 562,500 of which 433,593 are vested. (5) Represents 9,153 ordinary shares A owned by Mr. Fries' spouse. Also includes phantom options for 225,000 shares, of which 89,064 are vested. (6) Includes currently exercisable options for 45,000 ordinary shares A of which options for 32,814 ordinary shares A are subject to our repurchase right which expires March 26, 2003. Also includes phantom options for 45,000 of which 34,689 are vested. (7) Includes phantom options for 153,000, of which 117,937 are vested. (8) Includes currently exercisable options for 2,925,000 ordinary shares A of which options for 670,314 ordinary shares A are subject to our repurchase right, which expires April 1, 2001. Also includes 30,000 ordinary shares A held by the Gene W. Schneider Family Trust of which Mr. M. Schneider is a co-trustee. (9) Includes currently exercisable options for 459,375 ordinary shares A of which options for 360,936 ordinary shares A are subject to our repurchase right, which right expires April 1, 2001. Also includes 3,660 ordinary shares A owned by Mr. Riordan's spouse. (10) Mr. Bracken holds currently exercisable options for 750,000 ordinary shares A of which options for 531,249 ordinary shares A are subject to our repurchase right, which expires March 15, 2003. (11) Includes currently exercisable options for 301,500 ordinary shares A, of which options for 248,439 ordinary shares A are subject to our repurchase right. Such repurchase right expires for 65,625 shares on September 24, 2002, for 54,688 shares on March 26, 2003 and for 128,126 shares on September 17, 2003. (12) Represents phantom options for 600,000 shares of which 445,314 are vested. 125 Item 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS Loans to Executive Officers In 1999, the chello foundation loaned Mark Schneider approximately Euro2.3 million to enable him to exercise chello broadband stock options to acquire chello broadband shares. The recourse loan is interest free. The tax payable on the imputed interest is added to the principal amount of the loan. In 1999, we agreed to loaned Mr. Riordan up to approximately Euro85,000 in connection with the grant of his chello broadband stock options. See "Management--Stock Option Plans." In October 1999, we agreed to guarantee for a period of 60 days the bridge loan Mr. M. Schneider obtained in connection with the purchase of his home. Our guarantee of this Euro7.6 million bridge loan is secured by Mr. M. Schneider's vested stock options and a right to a first mortgage on his home. If Mr. M. Schneider defaults on this loan and the guarantee is enforced, we have a power of attorney which allows us to exercise the relevant number of stock options and sell the shares in satisfaction of Mr. M. Schneider's obligation. Upon an event of default, we can also execute a first mortgage. The guarantee has been extended by us through March 24, 2000. Eastern European Transaction. We have agreed to sell 3% of our interest in our Eastern European operations to Nimrod Kovacs for a purchase price based on our investment in these interests at historical cost plus 12% interest thereon from the time of investment through the date of closing. The amount of Mr. Kovac's required investment is being revised due to recent Eastern European acquisitions. Mr. Kovacs is a member of our Board of Management, and our Executive Chairman, UPC Central Europe. Relationship With United and Related Transactions United is the largest broadband communications provider of video, voice and data services outside the U.S. With operations in 23 countries, United's networks reach more than 16 million homes and businesses and serve approximately 8 million voice and video customers. In addition, as of December 31, 1999, United's telephony business had more than 320,000 telephony access lines and its high speed Internet access business had more than 120,000 accounts. United's significant operating subsidiaries include us (51% owned), the largest pan- European broadband communications company; Austar United Communications (75% owned), the fasted growing satellite, cable television and telecommunications provider in Australasia; and VTR Global Com (100% owned) the largest cable television and competitive telephony provider in Chile. Control by United. Immediately prior to our initial public offering, United held effectively all of the voting control over us and held all of our issued and outstanding ordinary shares A other than approximately 7.7% of such shares that were registered in the name of the stock option foundation to support our stock option plan. The foundation currently has the right to shares totaling 1.6% of our issued and outstanding ordinary shares A. United appoints the board members of the foundation and thus controls the voting of these shares. See "Management--Stock Option Plans." United currently owns approximately 54.8% of our outstanding ordinary shares A and all of our outstanding priority shares. Because we are a strategic holding of United, United will continue to control us for the foreseeable future. Four members of our five-member Supervisory Board are directors, officers or employees of United. Transactions with United. As part of the acquisition of UPC, we acquired approximately 6.34 million shares of United's Class A common stock. We subsequently sold 769,062 of these shares in exchange for certain interests in the Irish system and Tara. We currently hold approximately 5.6 million shares of United's Class A common stock, which currently represents approximately [7%] of United's outstanding common stock. We plan to contribute these shares to a new joint venture to which Liberty Media and Microsoft will contribute approximately 9.8 million shares of United's Class B common stock. The joint venture will hold approximately 17% of United's common stock. The joint venture and its members will be bound by voting and standstill agreements with United and certain of its controlling shareholders. United has sold to us, in exchange for 18,991,020 of our ordinary shares A, United's 37.5% voting and 44.75% economic interest in the telephone system operating in the Monor region of Hungary and its interest in the Tara programming joint venture. United has also sold to us its interest in the IPS programming joint venture in exchange for 14,865,792 ordinary shares A. 126 Agreements with United. Subject to certain limitations, beginning one year after the date of our initial public offering, United may require us to file a registration statement under the Securities Act of 1933 with respect to all or a portion of our ordinary shares A or ADSs owned by United, and we are required to use our best efforts to effect such registration, subject to certain conditions and limitations. We are not obligated to effect more than three of these demand registrations using forms other than Form S-3 or F-3, as the case may be. United may demand registration of such securities an unlimited number of times on Form S-3 or F-3, as the case may be, except that we are not required to register our ordinary shares A owned by United on Form S-3 more than once in any six-month period. United also has the right to have our ordinary shares A that it owns included in any registration statement we propose to file under the Act except that, among other conditions, the underwriters of any such offering may limit the number of shares included in such registration. We have also granted United rights comparable to those described above with respect to the listing or qualification of the ordinary shares A held by United on the Stock Market of Amsterdam Exchanges or on any other exchange and in any other jurisdiction where we previously have taken action to permit the public sale of our securities. United incurs certain overhead and other expenses at the corporate level on behalf of us and its other operating companies. These expenses include costs not readily allocable among the operating companies, such as accounting, financial reporting, investor relations, human resources, information technology, equipment procurement and testing expenses, corporate offices lease payments and costs associated with corporate finance activities. United also incurs direct costs for its operating companies such as travel expenses and salaries for United employees performing services on behalf of its respective operating companies. We and United are parties to a management services agreement, with an initial term through 2009, pursuant to which United will continue to perform these services for us. Under the management services agreement, we will pay United a fixed amount each month as its portion of such unallocated expenses. For the year ended December 31, 1999, this fixed amount was USD300,000 per month. The fixed amount may be adjusted from time to time by United to allocate these corporate level expenses among United's operating companies, including us, taking into account the relative size of the operating companies and their estimated use of United resources. In addition, we will continue to reimburse United for costs incurred by United that are directly attributable to us. We and United are also parties to a secondment agreement that specifies the basis upon which United may second certain of its employees to us. United's secondment of employees to us helps us attract and retain U.S. citizens and other employees who want U.S. benefit plans, without creating a separate U.S. employment subsidiary. We generally are responsible for all costs incurred by United with respect to any seconded employee's employment and severance. United may terminate a seconded employee's employment if the employee's conduct constitutes willful misconduct that is materially injurious to United. During the year ended December 31, 1999, we incurred approximately [euro4.9] million for costs associated with the seconded employees, which costs were reimbursable to United. We have agreed with United that so long as United holds 50% or more of our outstanding ordinary shares A, (1) United will not pursue any video services, telephone or Internet access or content business opportunities specifically directed to the European or Israeli markets, unless it has first presented such business opportunity to us and we have elected not to pursue such business opportunity, and (2) we will not pursue any video services, telephone or Internet access or content business opportunities in Saudi Arabia or in other markets outside of Europe or the Middle East, unless we have first presented such business opportunity to United and United has elected not to pursue such business opportunity. Either party may pursue any business in the United States and its territories and possessions without regard to activities of the other. We and United have agreed that we will provide audited financial statements to United in such form and with respect to such periods as are necessary or appropriate to permit United to comply with its reporting obligations as a publicly-traded company and that we will not change our accounting principles without United's prior consent. We have consented to the public disclosure by United of all matters deemed necessary or appropriate by United, in its sole discretion, to satisfy the disclosure obligations of United or any of its affiliates thereof under the United States federal securities laws or to avoid potential liability under such laws. United Indentures. We are restricted by the covenants in United's indentures dated February 5, 1998 and April 29, 1999. The United indentures contain covenants that, among other things, limit the ability of United and its subsidiaries, including us, to: . incur indebtedness and issue certain preferred stock in amounts exceeding that permitted based upon financial ratios and other tests; 127 . repurchase equity interests from third parties other than United; . make investments in non-controlled entities; . enter into agreements restricting our ability to make distributions, loans or other payments to equity holders; . create certain liens; . sell assets or issue equity for consideration other than cash, replacement assets or permitted investments or fail to invest the cash proceeds of such sales, in replacement assets or permitted investments within 360 days of the sale periods; and . enter into transactions with affiliates of United. We continue to be controlled by United and restricted by the terms of its debt securities. We have agreed with United that, for as long as we are subject to the provisions of United's indentures, as amended or supplemented, or any other indenture or agreement to which United is a party governing indebtedness of United that replaces or refinances any indebtedness governed by United's indentures, as amended or supplemented, we will not take any action that will result in a breach of United's indentures. Relationship With Microsoft We have signed a letter of intent with Microsoft to establish a technical services relationship and, as part of this, we have agreed to set up a series of joint projects to deliver Internet, non-traditional telephone and other interactive video and general services to digital cable set-top devices, personal computers and other devices within and beyond our current service areas. The particular terms of each joint project will be negotiated by us and Microsoft. As part of this relationship, we established a technology board to review technology issues and develop technology specifications and directions. In addition, we and Microsoft will be preferred suppliers to one another, with Microsoft having the first opportunity to license technologies to us. We will be given the opportunity to present and offer our products to Microsoft offices in Europe. We and Microsoft will also cooperate to advocate mutually-agreed standards and regulations to the bodies in our service territories who set technical standards. We will also have the right to license Microsoft software for the delivery of Internet content services over our networks. As part of this technology relationship, we have agreed that, on the earlier of three months from the date of the letter of intent and the signing of the first definitive agreement with Microsoft, we will grant Microsoft warrants to purchase up to 11,400,000 ADSs representing ordinary shares A, which would currently represent approximately 2.6% of our outstanding share capital. Microsoft will have the option under these warrants to purchase ordinary shares A instead of ADSs. These warrants can be exercised at a price of USD9.334 per ordinary share A or ADS. These warrants became exercisable on February 16, 2000 and will expire February 16, 2003. In addition, half of the warrants will not vest until certain performance standards are met. We have agreed to grant Microsoft certain registration rights to be negotiated with respect to the ADSs or shares to be issued upon exercise of these warrants. In addition, we have granted Microsoft a preemptive right to purchase up to an aggregate of 10% of chello broadband n.v.'s aggregate ordinary share capital in any equity offering at the initial offering price. Following an initial public offering by chello broadband, Microsoft will be given the right in any subsequent public or private equity offerings (except when relating to a grant of equity to cable operators in Europe or to a wholly-owned subsidiary of us) to purchase such number of ordinary shares as will enable it to maintain up to a 10% interest in chello broadband's ordinary share capital. In September 1999, we agreed to form a joint venture with Microsoft and Liberty Media Corporation to own United securities and to evaluate content and distribution opportunities in Europe. At formation, Liberty will contribute 9.8 million Class B shares of United and we will contribute the 5.6 million Class A shares of United that we own. We will have a 50% interest in the new joint venture and Liberty and Microsoft will share the other 50%. In addition to its interest in the joint venture, Liberty will receive approximately USD287.0 million redeemable preferred interest in the joint venture to balance out the parties' ownership positions. 128 The Discount Group's Option In November 1998, a subsidiary of Discount Investment Corporation loaned us USD90.0 million (the "DIC Loan") to acquire additional interests in our Israeli operation. In connection with the DIC Loan, we granted an option to the Discount Group, our partner in our Israeli system and an affiliate of Discount Investment Corporation, to acquire ordinary shares A at a price equal to the price in the initial public offering, discounted by a factor of 10%. The Discount Group exercised its option and we issued 4,675,962 ordinary shares A to it at the same time as the closing of our initial public offering. The aggregate purchase price for the shares was equal to the sum of USD45 million, plus interest thereon at the rate of 8% per annum from November 9, 1998 through the closing of the exercise of the option. The Discount Group currently owns about 1.1% of our outstanding ordinary shares A. In connection with the exercise of the option, we agreed to enter into a registration rights agreement with the Discount Group and a shareholders' agreement with the Discount Group and United. Under the shareholders' agreement, United agreed to vote in favor of one supervisory board member nominated by the Discount Group for as long as the Discount Group and its affiliates retain at least the number of ordinary shares A originally acquired upon the exercise of the option. In addition, the Discount Group has the right to participate on equal terms in connection with sales of ordinary shares A by United, including the right to sell the Discount Group's entire interest in us in connection with a sale by United of a controlling interest in us. The Discount Group also has the right to negotiate with United prior to certain sales of ordinary shares A by United. United has a right of first refusal with respect to a sale of ordinary shares A by the Discount Group and the right to require that the Discount Group agree to a merger or sale of all of our shares if proposed by United. In addition, there are certain limited restrictions on the entities or persons to whom the Discount Group may transfer its ordinary shares A. Upon the exercise of its option, the Discount Group received an additional option to acquire ordinary shares A from us at a price per share equal to the greater of (1) the price in our initial public offering or (2) the average sale price of our ordinary shares A on the Stock Market of Amsterdam Exchanges for the 30-day period immediately preceding the exercise date. The aggregate purchase price for the ordinary shares A purchased pursuant to the additional option would be equal to the sum of USD45.0 million, plus interest thereon at the rate of 8% per annum from November 9, 1998 through the closing of the additional option. The transfer rights and restrictions set forth in the registration rights agreement and the shareholders' agreement discussed above will be applicable with respect to the ordinary shares A acquired by the Discount Group upon the exercise of the additional option. The additional option will terminate if it is not exercised on or before September 30, 2000. Relationship with chello broadband We are currently negotiating with chello broadband regarding the terms under which our operating companies will distribute chello broadband services. These negotiations will not apply to our operating companies in Malta and Israel. We expect that our final agreement will include terms relating to non- competition and a revenue sharing structure for services provided over our systems. 129 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Index to Financial Statements
Page Number --------- UNITED PAN-EUROPE COMMUNICATIONS N.V. Independent Auditors' Report.................................................................... 62 Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 (Post- Acquisition................................................................................... 63 Consolidated Statements of Operations for the Years Ended December 31, 1999 (Post- Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition)....................... 64 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1999 (Post-Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition),........... 65 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 (Post- Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition)....................... 67 Notes to Consolidated Financial Statements...................................................... 69 UNITED TELEKABEL HOLDINGS Report of Independent Accountants............................................................... 144 Consolidated Balance Sheet as of December 31, 1998.............................................. 146 Consolidated Statement of Operations from August 6, 1998 (commencement of operations) until December 31, 1998....................................................................... 147 Consolidated Statement of Cash Flows from August 6, 1998 (commencement of operations) until December 31, 1998....................................................................... 148 Notes to Consolidated Financial Statements...................................................... 149
130 (b) Reports on Form 8-K Date of Report Item Reported Financial Statements Filed - -------------- ------------- -------------------------- November 2, 1999 Item 5 - @Entertainment and None Poland Communications, Inc. repurchase of notes (c) Exhibits 3.1(a) Amended and Restated Articles of Association of UPC(1) 3.1(b) Amendment to the Articles of Association of UPC dated March 17, 2000 (2) 4.1 Indenture dated as of July 30, 1999, between UPC and Citibank N.A, as Trustee with respect to 10 7/8% Senior Notes(3) 4.2 Indenture dated as of July 30, 1999, between UPC and Citibank N.A., as Trustee with respect to 12 1/2% Senior Discount Notes(3) 4.3 Indenture dated as of October 29, 1999, between UPC and Citibank N.A, as Trustee with respect to 10 7/8% Senior Notes due 2007(4) 4.4 Indenture dated as of October 29, 1999, between UPC and Citibank N.A., as Trustee with respect to 11 1/4% Senior Notes due 2009(4) 4.5 Indenture dated as of October 29, 1999, between UPC and Citibank N.A., as Trustee with respect to 13 3/8% Senior Discount Notes due 2009(4) 4.6 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as Trustee with respect to 11 1/2% Senior Notes due 2010 4.7 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as Trustee with respect to 11 1/4% Senior Notes due 2010 4.8 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as Trustee with respect to 13 3/4% Senior Discount Notes due 2010 10.1 Amended and Restated Securities Purchase and Conversion Agreement dated as of December 1, 1997, by and among Philip Media B.V. ("Philips Media"), Philips Media Network B.V. ("Phillips Networks"), Joint Venture, Inc.("JVI") and UPC(5) 131 10.2 Tax Liability Agreement dated October 7, 1997, between UPC, Philips Media, Philips Coordination Center, Philips Networks, United, and JVI(6) 10.3 Indenture dated as of February 5, 1998, between United International Holdings, Inc. ("United") and Firstar Bank of Minnesota, N.A.("Firstar")(7) 10.4 Indenture dated as of April 29, 1999, between United and Firstar(8) 10.5 Form of Master Seconded Employee Services Agreement(9) 10.6 Form of United Registration Rights Agreement(10) 10.7 Form of United Management Services Agreement(9) 10.8 Consulting Agreement dated June 1, 1995, between United and Mark L. Schneider(10) 10.9 Agreement dated as of February 11, 1999 between United and UPC(11) 10.10 Option Agreement dated November 5, 1998, among UPC, DIC and PEC(6) 10.11 Amendment to Option Agreement dated February 4, 1999, between UPC, DIC and PEC(9) 10.12 Form of Registration Rights Agreement among UPC, DIC and PEC(6) 10.13 Form of Shareholders Agreement among UPC, DIC and PEC(6) 10.14 United Pan - Europe Communications N.V. Phantom Stock Option Plan, March 20, 1998(6) 10.15 Amended Stock Option Plan dated February 8, 1999, between UPC and Stichting Administratie Kantoor UPC(11) 10.16 Agreement dated April 2, 1998, for the contribution of the Dutch Cable Assets of UPC and NUON to UTH(12) 10.17 Share Purchase Agreement dated January 19, 1999, by and between UPC, Belmarken Holding B.V., NUON, N.V. Kraton and UTH, as amended(10) 10.18 Final Amendment to Share Purchase Agreement dated as of February 17, 1999(13) 10.19 Share Purchase Agreement dated June 23, 1999, between UPC and MediaOne International B.V.(14) 10.20 Investment Agreement between SBS BROADCASTING SA and Registrant dated June 29, 1999(3) 132 10.21 Exchange Offer Agreement, dated as of March 9, 2000, by and between UPC and SBS Broadcasting S.A.(15) 10.22 Share Exchange Agreement, dated as of March 9, 2000, by and between UPC and the shareholders named therein(15) 10.23 Agreement and Plan of Merger among @Entertainment, Inc., United Pan - Europe Communications N.V. and Bison Acquisition Corp. dated as of June 2, 1999(3) 10.24 Form of Stockholders Agreement dated as of June 2, 1999 among @Entertainment, Inc., United Pan - Europe Communications N.V., Bison Acquisition Corp. and the other parties signatory thereto(3) 10.25 Indenture dated as of July 14, 1998, between @Entertainment and Bankers Trust Company relating to @Entertainment's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series B Senior Discount Notes due 2008(16) 10.26 Indenture dated as of January 20, 1999, between @Entertainment and Bankers Trust Company relating to @Entertainment's Series C Senior Discount Notes due 2008(17) 10.27 Indenture dated as of January 27, 1999, between @Entertainment and Bankers Trust Company relating to @Entertainment's 14 1/2% Senior Discount Notes due 2009 and its 14 1/2% Series B Senior Discount Notes due 2009(17) 10.28 Share Purchase Agreement between the Sellers represented by EQT Scandinavia Limited and United Pan - Europe Communications N.V.(3) 10.29 Share Purchase Agreement, dated February 2, 2000, among Eneco Wed-Activiteiten B.V., N.V. Eneco, UPC Nederland N.V., Belmarken Holding B.V. and UPC(18) 10.30 Loan and Note Issuance Agreement between UPC Facility B.V., Telekabel Wien and Janco Multicom and Bank of America International Limited, CIBC World Markets plc, Citibank N.A., MeesPierson N.V., Paribas, The Royal Bank of Scotland plc, Toronto Dominion Bank Europe Limited, and The Toronto - Dominion Bank, as Facility Agent and Security Agent(3) 12.1 Computation of Earnings to Fixed Charges 21.1 Subsidiaries of UPC 133 27.1 Financial Data Schedules - -------------------- (1) Incorporated by reference from Amendment No. 1 to Form S-1 Registration Statement filed by UPC on September 23, 1999 (File No. 333-84427). (2) Incorporated by reference from Form 8-K filed by UPC, dated March 17, 2000 (File No. 000-25365). (3) Incorporated by reference from Form 8 K filed by UPC, dated July 30, 1999 (File No. 000-25365). (4) Incorporated by reference from Form 10 Q filed by UPC, for the quarter ended September 30, 1999 (File No. 000-25365). (5) Incorporated by reference from Form 8-K filed by United, dated December 11, 1997 (File No. 0-21974). (6) Incorporated by reference from Form S-1 Registration Statement filed by UPC on November 24, 1998 (File No. 333-67895). (7) Incorporated by reference from Form S-4 Registration Statement filed by United on March 3, 1998 (File No. 333-47). (8) Incorporated by reference from Form 8-K filed by United, dated April 29, 1999 (File No. 0-21974). 134 (9) Incorporated by reference from Amendment No. 8 to Form S-1/A Registration Statement filed by UPC on February 10, 1999 (File No. 333-67895). (10) Incorporated by reference from Amendment No. 6 to Form S-1/A Registration Statement filed by UPC on February 4, 1999 (File No. 333-67895). (11) Incorporated by reference from Form 10 K filed by UPC for the year ended December 31, 1998 (File No. 000-25365). (12) Incorporated by reference from Amendment No. 4 to Form S-1/A Registration Statement filed by UPC on January 25, 1999 (File No. 333-67895). (13) Incorporated by reference from Form 8 K filed by UPC, dated March 4, 1999 (File No. 000-25365). (14) Incorporated by reference from Amendment No. 2 to Form S-1 Registration Statement filed by UPC on September 30, 1999 (File No. 333-84427). (15) Incorporated by reference from Form 8-K filed by UPC, dated March 9, 2000 (File No. 000-25365). (16) Incorporated by reference from Amendment No. 1 to Form S-4 filed by @Entertainment on August 10, 1998 (File No. 333-60659). (17) Incorporated by reference from Amendment No. 1 to Form S-4 filed by @Entertainment on May 13, 1999 (File No. 333- 72361). (18) Incorporated by reference from Form 8-K filed by UPC, dated February 3, 2000 (File No. 000-25365). (d) Financial Statement Schedules
Page Number --------- UNITED PAN-EUROPE COMMUNICATIONS N.V. Report of Independent Public Accountants on Schedules........................................... 136 Schedule I - Condensed Financial Information of Registrant (Parent Only)........................ 137 Schedule II - Valuation and Qualifying Accounts................................................. 143
135 INDEPENDENT AUDITORS' REPORT ON SCHEDULES To United Pan-Europe Communications N.V. We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements of United Pan-Europe Communications N.V. included in this Form 10-K and have issued our report thereon dated March 27, 2000. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The following schedules are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements as indicated in our report with respect thereto and, in our opinion, based on our audit, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN Amstelveen, The Netherlands, March 28, 2000 136 UNITED PAN-EUROPE COMMUNICATIONS N.V. PARENT ONLY SCHEDULE I Condensed Information as to the Financial Condition of Registrant (Stated in thousands of Euros, except share and per share amounts)
As of As of December 31, December 31, 1999 1998 ------------- --------------- ASSETS: Current assets Cash and cash equivalents.......................................................... 950,343 3,198 Restricted cash.................................................................... 18,683 -- Related party receivables.......................................................... 780,494 52,472 Other receivables, net............................................................. 13,198 1,057 Other current assets............................................................... 20,540 3,602 ---------- ----------- Total current assets........................................................ 1,783,258 60,329 Investments in, loans and other advances to affiliated companies, accounted for under the equity method, net.................................................... 2,122,955 444,208 Property, plant and equipment, net of accumulated depreciation of 2,075 and 531, respectively.................................................................... 28,876 446 Goodwill and other intangibles, net of accumulated amortization of 34 and 0, respectively.................................................................... 275 - Stocks and bonds..................................................................... 394,558 - Other investments ................................................................... 230,411 - Deferred financing costs, net of accumulated amortization of 1,819 and 924, respectively..................................................................... 49,446 7,087 Other assets......................................................................... 491 295 ---------- ----------- Total assets................................................................ 4,610,270 512,365 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT): Current liabilites Related party accounts payables.................................................... 11,111 3,957 Accrued liabilities................................................................ 98,472 25,821 Note payable to shareholder........................................................ 6,786 54,032 Short-term debt.................................................................... 99,378 15,438 Short-term debt, related party...................................................... 20,421 17,754 ---------- ----------- Total current liabilites.................................................... 236,168 117,002 Long-term debt....................................................................... 2,459,579 281,344 Other related-party long-term debt................................................... - - Loans from affiliated companies...................................................... 37,844 - Deferred compensation................................................................ (143,434) 147,616 Deferred taxes....................................................................... (87) 62 ---------- ----------- Total liabilities........................................................... 2,590,070 546,024 ========== =========== Shareholders' equity (deficit) (As adjusted for stock splits) Priority stock, 1.0 par value, 300 shares authorized, 300 and 0 shares issued, respectively................................................................... Ordinary stock, 1.0 par value, 600,000,000 shares authorized, 435,604,497 and 276,856,812 shares issued, respectively........................................ 435,605 83,057 Additional paid-in capital......................................................... 2,371,951 249,797 Deferred compensation.............................................................. (47,425) - Treasury stock, at cost 0 and 27,594,405 shares of ordinary stock, respectively.... - (50,091) Accumulated deficit................................................................ (1,114,219) (329,921) Other cumulative comprehensive income.............................................. 374,288 13,499 ---------- ----------- Total shareholders' equity (deficit)......................................... 2,020,200 (33,659) ---------- ----------- Total liabilities and shareholders' equity (deficit)......................... 4,610,270 512,365 ========== ===========
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. 137 UNITED PAN-EUROPE COMMUNICATIONS N.V. PARENT ONLY SCHEDULE I Condensed Information as to the Operations of Registrant (Stated in thousands of Euros, except share and per share amounts)
For the Years Ended December 31, ---------------------------------------------------------------- 1999 1998 1997 -------------------- -------------------- -------------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) Management fee income from related parties.................. 11,411 4,832 1,401 Corporate general and administrative expense................ (139,705) (146,711) (5,266) Depreciation and amortization............................... (1,986) (199) (334) -------------------- -------------------- -------------------- Net operating loss........................................ (130,280) (142,078) (4,199) Interest income............................................. 22,758 871 1,284 Interest income, related party.............................. 27,869 28,297 20,360 Interest expense............................................ (103,130) (539) (6,872) Interest expense, related party............................. (1,298) (26,467) (15,139) Foreign exchange gain (loss) and other income (expense), net..................................... 15,651 (6,596) (5,838) -------------------- -------------------- -------------------- Net loss before income taxes and other items.............. (168,430) (146,512) (10,404) Share in results of affiliated companies, net............... (615,865) (109,067) (72,410) Income tax benefit (expense)................................ - - 660 -------------------- -------------------- -------------------- Net loss.................................................. (784,298) (255,579) (82,154) ==================== ==================== ==================== Basic and diluted net loss per ordinary share (1)........... (2.08) (1.03) (0.30) ==================== ==================== ==================== Weighted-average number of ordinary shares outstanding (1)........................................... 377,969,829 247,915,834 275,421,933 ==================== ==================== ==================== (1) As adjusted for the stock splits
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of Jaunary 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. 138
UNITED PAN-EUROPE COMMUNICATIONS N.V. PARENT ONLY SCHEDULE I Condensed Information as to the Cash Flows of the Registrant (Stated in thousands of Euros) For the Years Ended December 31, 1999 1998 1997 ---------------------- ---------------------- --------------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash flows (784,298) (255,579) (82,153) from operating activities: Depreciation and amortization 1,986 199 334 Amortization of deferred financing costs 10,135 - - Accretion of interest 30,282 - - Share in results of affiliated companies, net 615,865 109,067 72,410 Compensation expense related to stock options 101,388 145,429 2,186 Exchange rate gain, net (11,021) 6,596 5,837 Other (3,574) (2,470) Changes in assets and liabilities: 1,670 - - Increase in receivables (3,406) (5,585) (2,886) Decrease (increase) in other non-current assets (15,802) (698) (661) Increase in other current liabilities 47,671 9,383 25,861 Decrease in deferred taxes and other - - long-term liabilities (152) 507 1,045 ---------------------- ---------------------- --------------------- Net cash flows from operating activities (5,682) 5,745 19,503 ---------------------- ---------------------- --------------------- Cash flows from investing activities: Restricted cash deposited (18,683) - - Investments in, loans to and advances to affiliated companies, net (2,830,121) (226,275) (133,652) Investments in stocks and bonds, net (255,133) - - Loans repaid by subsidiaries - 79,726 158,937 Capital expenditures (32,086) (2,356) (594) Dividends received - 4,074 - Release (deposit) to acquire minority interest in subsidiary - 21,328 (21,328) Sale of affiliated companies 16,648 - 5,023 ---------------------- ---------------------- --------------------- Net cash flows from investing activities (3,119,375) (123,503) 8,386 ---------------------- ---------------------- --------------------- Cash flows from financing activities: Proceeds from initial public offering, net 1,206,910 - - Proceeds from secondary public offering, net 851,306 - - Proceeds from senior notes 2,393,451 - - Proceeds from short-term borrowings 18,225 - 41,482 Proceeds from short-term borrowings, related party - 58,957 103,506 Proceeds from long-term borrowings - 59,454 226,300 Deferred financing costs (51,265) (233) (7,778) Repayments of long and short-term borrowings (281,355) (16,873) (171,276) (Repayments) borrowings on note payable to shareholder (48,561) - - Dividends paid to minority shareholder - - - Redemption of convertible loans - - (77,220) Purchase shares from shareholder - - (132,758) Repayments on short-term note (16,499) - - ---------------------- ---------------------- --------------------- Net cash flows from financing activities 4,072,212 101,305 (17,744) ---------------------- ---------------------- --------------------- Net increase (decrease) in cash and cash equivalents 947,155 (16,453) 10,145 Cash and cash equivalents at beginning of period 3,198 19,651 9,506 ---------------------- ---------------------- --------------------- Cash and cash equivalents at end of period 950,353 3,198 19,651 ====================== ====================== =====================
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. 139 UNITED PAN-EUROPE COMMUNICATIONS N.V. PARENT ONLY SCHEDULE I Condensed Information as to the Cash Flows of the Registrant (Stated in thousands of Euros)
For the Years Ended December 31, 1999 1998 1997 ------------------- ----------------- ----------------- (Post-Acquisition) (Post-Acquisition) (Pre-Acquisition) Non-cash investing and financing activities: Issuance of shares upon conversion of United loan 6,786 - - =================== ================= ================= Issuance of shares upon conversion of PIK Notes - - - =================== ================= ================= Supplemental cash flow disclosures: Cash paid for interest (21,542) (7,515) (4,207) =================== ================= ================= Cash received for interest 25,198 12,492 11,924 =================== ================= =================
The conversion of Dutch Guilder amounts into Euros related to the financial information presented prior to the creation of the Euro, was calculated using the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch Guilders. 140 UNITED PAN-EUROPE COMMUNICATIONS N.V. NOTE TO PARENT ONLY SCHEDULE I AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998 (Monetary amounts stated in thousands of Euros, except share and per share amounts) 1. Organization and Nature of Operations United Pan-Europe Communications N.V., formerly known as United and Philips Communications B.V. ("UPC") or the "Company") was formed for the purpose of acquiring and developing multi-channel television and telecommunications systems in Europe. On July 13, 1995, United International Holdings, Inc. ("United"), a United States of America corporation, and Philips Electronics N.V. ("Philips"), contributed their respective ownership interests in European and Israeli multi-channel television systems to UPC. Philips contributed to UPC its 95% interest in cable television systems in Austria, its 100% interest in cable television systems in Belgium, and its minority interests in multi-channel television systems in Germany, The Netherlands (KTE) and France (Citecable). United contributed its interests in multi-channel television systems in Israel, Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. United also contributed United States dollars 78.2 million in cash (including accrued interest of USD3.2 million) to UPC and issued to Philips 9,507,453 shares of its Class A Common Stock having a value of USD50.0 million (at date of closing). In addition, UPC issued to Philips USD133.6 million of convertible subordinated pay-in-kind notes (the "PIK Notes"). As a result of this transaction, United and Philips each owned a 50% economic and voting interest in UPC. On December 11, 1997, United acquired Philips' 50% interest in UPC (the "UPC Acquisition"), thereby making it an effectively wholly-owned subsidiary of United (subject to certain employee equity incentive compensation arrangements) through its wholly-owned subsidiary United Europe, Inc. ("United"). The entity's name was changed to United Pan-Europe Communications N.V., and its legal seat was transferred from Eindhoven to Amsterdam. Through its cable-based communications networks in 10 countries in Europe and in Israel, UPC currently offers cable television services and is further developing and upgrading its network to provide digital video, voice and Internet/data services in Western European markets. As part of the UPC Acquisition, (i) UPC purchased the 6,338,302 shares of Class A Common Stock of United held by Philips (30,313), (ii) United purchased 77,097 of the accreted amount of UPC's PIK Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to Philips the remaining 77,311 accreted amount of the PIK Notes (154,195), (iv) United purchased 39,364,812 shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining equity interest in UPC (73,135,188 shares). The UPC Acquisition was financed with proceeds from a long-term revolving credit facility through UPC with a syndicate of banks (138,494) (the "Senior Revolving Credit Facility"), a bridge bank facility through a subsidiary of UPC USD111,200 (101,647) and a cash investment by United of 148,568. Approximately 217,360 drawn on the Senior Revolving Credit Facility was used to repay existing debt of UPC in conjunction with the UPC Acquisition. United's acquisition of Philips' interest in UPC was accounted for as a step acquisition under purchase accounting. As a result of UPC becoming effectively wholly owned by United, such purchase accounting adjustments, along with existing basis differences, were pushed down to the financial statements of UPC and a new basis of accounting was established for the UPC net assets acquired by United. As of December 11, 1997, the proportional net assets of UPC acquired by United were recorded at fair market value based on the purchase price paid by United, along with additional basis differences at the United level existing as of that date. The total purchase accounting adjustments of 233,587 were allocated to UPC's underlying net assets. As a result of the UPC Acquisition and the associated push-down of United basis on December 11, 1997, the condensed information as to financial position of registrant as of December 31, 1997, 1999, 1998 and is presented on a "post-acquisition" basis. The condensed information as to the operations and the cash flows of the registrant for the year ended December 31, 1997 include the post-acquisition results of the Company for the period from December 11, 1997 through December 31, 1997, which reflects 898 of new basis depreciation and amortization resulting from push-down accounting as well as approximately 1,831 of interest expense from purchase related indebtedness which is included in the 141 Parent's share in result of affiliated companies, net. Due to immateriality, the entire fiscal year ended December 31, 1997 is presented as "pre-acquisition" in the accompanying condensed information as to the operations and cash flows of registrant. 2. Basis of Presentation In December 1998 and February 1999, UPC acquired telephony and programming assets from United through the issuance of new shares. As the acquisitions were between entities under common control, the transactions were accounted for at historical cost, similar to pooling of interests accounting. It is generally accepted that, consistent with a pooling-of-interests accounting, prior period financial statements of the transferee are restated for all periods in which the transferred operations were part of parent's consolidated financial statements. Accordingly, we have restated all periods presented as if UPC had acquired the telephony and programming assets from United as of the date of United's initial investment. 142 UNITED PAN-EUROPE COMMUNICATIONS N.V. VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II (Stated in thousands of Euros)
Additions ------------------------- Balance at Beginning of Charged to Balance at End Period Expense Acquisitions Deductions(1) Of Period ------------ ---------- ------------ ------------- -------------- Allowance for doubtful accounts receivable: Year ended December 31, 1999.................. 4,202 4,495 8,751 (693) 16,754 ===== ===== ===== ====== ====== Year ended December 31, 1998.................. 2,925 917 512 (152) 4,202 ===== ===== ===== ====== ====== Year ended December 31, 1997.................. 2,648 950 246 (919) 2,925 ===== ===== ===== ====== ====== Year ended December 31, 1996.................. 2,424 412 379 (567) 2,648 ===== ===== ===== ====== ====== Allowance for costs to be reimbursed: Year ended December 31, 1999.................. -- 63 -- -- 63 ===== ===== ===== ====== ====== Year ended December 31, 1998.................. 1,002 49 -- (1,651) -- ===== ===== ===== ====== ====== Year ended December 31, 1997.................. 2,096 554 -- (1,648) 1,002 ===== ===== ===== ====== ====== Year ended December 31, 1996.................. 2,406 360 -- (670) 2,096 ===== ===== ===== ====== ====== Allowance for Investments Affiliated Companies: Year ended December 31, 1999.................. -- -- -- -- -- ===== ===== ===== ====== ====== Year ended December 31, 1998.................. -- -- -- -- -- ===== ===== ===== ====== ====== Year ended December 31, 1997.................. 1,900 -- -- (1,900) -- ===== ===== ===== ====== ====== Year ended December 31, 1996.................. 2,245 -- -- (345) 1,900 ===== ===== ===== ====== ======
(1) Represents uncollectible balances written off to the allowance account and the effect of currency translation adjustment. 143 INDEPENDENT AUDITOR'S REPORT Introduction We have audited the consolidated financial statements of UNITED TELEKABEL HOLDING N.V., Amsterdam, The Netherlands, for the year 1998 for purpose of inclusion in the Form 10-K of one of its shareholders. 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 audit. Scope We conducted our audit in accordance with auditing standards generally accepted in The Netherlands, which are substantially the same as those generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the company as at December 31, 1998 and of the result for the period from commencement of operations at August 6, 1998 then ended in accordance with accounting principles generally accepted in The Netherlands. Generally accepted accounting principles in the Netherlands vary in certain significant respects from generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles in the United States of America would have affected total assets, statement of operations and shareholders' equity as at and for the period from commencement of operations at August 6, 1998 ended December 31, 1998, to the extent summarized in Note 18. to the consolidated financial statements. Amstelveen, The Netherlands March 19, 1999 144 UNITED TELEKABEL HOLDING N.V. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (AUGUST 6, 1998) TO DECEMBER 31, 1998 145 UNITED TELEKABEL HOLDING N.V. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 (stated in thousands of Dutch guilders)
Assets Fixed assets: Intangible fixed assets.............................. 564,438 Tangible fixed assets................................ 847,056 Affiliated companies................................. 206,332 --------- Total fixed assets......................................... 1,617,826 --------- Current assets: Inventories.......................................... 3,091 Receivables.......................................... 40,638 Cash and cash equivalents............................ 10,475 --------- Total current assets....................................... 54,204 --------- Total assets............................................... 1,672,030 =========
Shareholders' Equity and Liabilities Shareholders' Equity................................. 635,521 Minority interest.................................... 1,104 --------- 636,625 Provisions........................................... 42,054 Long-term liabilities................................ 232,727 Current liabilities.................................. 760,624 --------- Total shareholders' equity and liabilities.............. 1,672,030 =========
146 UNITED TELEKABEL HOLDING N.V. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (AUGUST 6, 1998) TO DECEMBER 31, 1998 (stated in thousands of Dutch guilders) Total revenues...................................... 99,122 Direct operating expenses........................ (33,172) Selling, general and administrative expenses..... (36,096) Depreciation and amortization.................... (39,490) -------- Total operating expenses............................ (108,758) -------- Operating loss................................... (9,636) Financial income and expense..................... (16,699) -------- Loss before income taxes............................ (26,335) Income taxes..................................... 1,212 -------- Loss after taxes.................................... (25,123) Share in results of affiliated companies......... (24,486) -------- Group loss.......................................... (49,609) Minority interest................................ 235 -------- Net loss............................................ (49,374) ========
147 UNITED TELEKABEL HOLDING N.V. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (AUGUST 6, 1998) TO DECEMBER 31, 1998 (stated in thousands of Dutch guilders)
Cash flows from operating activities: Net loss.................................................... (49,374) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization............................... 39,490 Share in results of affiliated companies, net............... 24,486 Minority interest in subsidiaries........................... (235) Changes in assets and liabilities: Decrease in current assets.................................. 40,098 (Decrease) in current liabilities........................... (55,186) (Decrease) in deferred taxes and other provisions........... (1,132) -------- Net cash flows from operating activities..................... (1,853) -------- Cash flows from investing activities: Capital expenditures........................................ (121,384) Loan to affiliated companies................................ (7,120) Acquisitions, net of cash acquired.......................... (12,588) -------- Net cash flows from investing activities..................... (141,092) -------- Cash flows from financing activities: Proceeds from short-term borrowings......................... 120,705 Proceeds from long-term borrowings.......................... 9,621 -------- Net cash flows from financing activities..................... 130,326 -------- Net decrease in cash and cash equivalents................... (12,619) Cash and cash equivalents at beginning of period............ 100 Cash and cash equivalents contributed....................... 22,994 -------- Cash and cash equivalents at end of period................... 10,475 ========
Supplemental cash-flow disclosures: Cash paid for interest...................................... (19,470) ======== Non-cash investing activities: Contribution of Dutch cable systems Working capital............................................. (73,850) Affiliated companies........................................ 223,698 Tangible fixed assets....................................... 764,762 Intangible fixed assets..................................... 550,911 Short-term debt............................................. (544,918) Long-term liabilities....................................... (223,106) Provisions.................................................. (35,696) Cash and cash equivalents................................... 22,994 -------- Equity contributed........................................... 684,795 ========
148 UNITED TELEKABEL HOLDING N.V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (AUGUST 6, 1998) TO DECEMBER 31, 1998 (Monetary amounts stated in thousands of Dutch guilders) 1. Organization and Nature of Operations United Telekabel Holding N.V. ("UTH" or the "Company"), legally seated in Almere, The Netherlands, was legally formed in May 1998 and commenced operations on August 6, 1998. UTH was formed as a joint venture between United Pan-Europe Communications N.V. ("UPC") and N.V. NUON Energie-Onderneming voor Gelderland, Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and NUON a 49% shareholder. UTH was formed for the purpose of offering cable-based communications through its networks in the Netherlands. UTH currently offers cable television services and is further developing and upgrading its network to provide digital video, voice and internet/data services in its Dutch markets. UTH commenced operations on August 6, 1998 when both shareholders contributed their interests in Dutch cable television operating companies to UTH. NUON contributed its interest in N.V. Telekabel Beheer ("Telekabel") and UPC contributed its interest in Cable Network Brabant Holding B.V. ("CNBH") and 50% of the shares in A2000 Holding N.V. ("A2000"). UTH recorded the assets contributed at their fair market value. The table below summarizes the opening balance sheet of UTH, based on the net assets contributed at their fair market values by NUON and UPC as of August 6, 1998. Cash and cash equivalents contributed................... 23,094 Other current assets.................................... 83,827 Affiliated companies.................................... 223,698 Tangible fixed assets................................... 764,762 Intangible fixed assets................................. 550,911 --------------- Total assets......................................... 1,646,292 =============== Short-term debt......................................... 544,918 Other current liabilities............................... 157,677 Provisions.............................................. 35,696 Long-term liabilities................................... 223,106 Shareholders' equity and liabilities.................... 684,895 --------------- Total shareholders' equity and liabilities........... 1,646,292 ===============
Due to the fact that operations commenced at August 6, 1998, no comparative financial statements have been presented. Proforma information (unaudited) is presented in note 19. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Netherlands for financial statements. The accounting policies followed in the preparation for the consolidated financial statements, differ in some respects to those generally accepted in the United States of America (US GAAP). See note 18. The preparation of financial statements in conformity with Dutch generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses 149 during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company as of December 31, 1998 and the results of its operations for the period from commencement of operations (August 6, 1998) to December 31, 1998. Principles of Consolidation The accompanying consolidated financial statements include the accounts of UTH and its group companies (the "UTH Group"). Group companies are companies or other legal entities in which UTH has an ownership interest of more than 50% of the issued share capital or that UTH otherwise controls. All significant intercompany accounts and transactions have been eliminated in consolidation. The following chart presents a summary of UTH's significant investments in multi-channel television, programming and telephony operations as of December 31, 1998:
Name City Percentage Ownership Cable Network Brabant Holding BV Eindhoven 100 N.V. Telekabel Beheer Arnhem 100 A2000 Holding N.V. Amsterdam 50 (1) Uniport Communications B.V. Amsterdam 80
(1) Not consolidated Foreign Currencies Assets and liabilities denominated in foreign currencies are translated into Dutch guilders at the yearend exchange rate. Transactions in foreign currencies are translated at the exchange rate in effect at the time of the transaction. The exchange results are recorded under financial income and expense in the statement of income. Balance Sheet (a) General ------- Assets and liabilities are stated at face value unless indicated otherwise. (b) Fixed assets ------------ Intangible fixed assets The excess of investments in consolidated subsidiaries over the net tangible asset value at acquisition is amortized on a straight-line basis over 15 years. Licenses in newly acquired companies are recognized at the fair market value of those licenses at the date of acquisition and include the development costs incurred prior to the date a new license was acquired. The license value is amortized on a straight-line basis over the initial license period, up to a maximum of 20 years. Deferred financing costs are amounts spent in connection with financing the UTH Group. The amortization period is the period relating to the term of the financing. When assets are fully amortized, the costs and accumulated amortization are removed from the accounts. Tangible fixed assets Tangible fixed assets are stated at cost. Additions, replacements, installation costs and major improvements are capitalized, and costs for normal repair and maintenance of tangible fixed assets are charged to expense as incurred. Assets constructed by subsidiaries of UTH incorporate overhead expense and interest charges incurred during the period of construction; investment subsidies are deducted. Depreciation is calculated using the straight-line method over the economic life of the asset, taking into account the residual value. The economic lives of tangible fixed assets at acquisition are as follows: 150 Networks 7-20 years Buildings and leasehold improvements 20-33 years Machinery & Other 3-10 years Affiliated Companies For those investments in companies in which UTH's ownership interest is 20% to 50%, its investments are held through a combination of voting common stock, preferred stock, debentures or convertible debt and/or UTH exerts significant influence through board representation and management authority, or in which majority control is deemed to be temporary, the equity method of accounting is used. Under this method, the investment, originally recorded at fair market value, is adjusted to recognize UTH's proportionate share of net earnings or losses of the affiliates, limited to the extent of UTH's investment in and advances to the affiliates, including any debt guarantees or other contractual funding commitments. UTH's proportionate share of net earnings or losses of affiliates includes the amortization of the excess of its cost over its proportionate interest in each affiliate's net tangible assets or the excess of its proportionate interest in each affiliate's net tangible assets in excess of its cost. (c) Receivables ----------- Receivables are stated at face value, less an allowance for doubtfull accounts. The allowance for doubtful accounts is based upon specific identification of overdue accounts receivable. An allowance for a percentage of the account is established once the receivable is overdue. Upon disconnection of the subscriber, the account is fully reserved. The allowance is maintained on the books until receipt of payment or for a maximum of three years. (d) Cash and Cash Equivalents ------------------------- Cash and cash equivalents include cash and investments with original maturities of less than three months. (e) Provisions ---------- Deferred tax liabilities arising from temporary differences between the financial and tax bases of assets and liabilities are included in the provisions. The principal differences arise in connection with valuation differences of intangible fixed assets. In calculating the provision, current tax rates are applied. UTH accounts for income taxes under the asset and liability method, which requires recognition of, deferred tax assets and liabilities for the expected future income tax consequences of transactions, which have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and income tax basis of assets, liabilities and loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Net deferred tax assets are then reduced by a valuation allowance if management believes it is more likely than not they will not be realized. (f) Fair value of financial instruments ----------------------------------- SFAS Statement No. 107, "Disclosures about Fair Values of Financial Instruments" requires the disclosure of estimated fair values for all financial instruments, both on- and off-balance sheet, for which it is practicable to estimate fair value. For certain instruments, including cash and cash equivalents, receivables, current liabilities and certain provisions, it was assumed that the carrying amount approximated fair value due to the short maturity of those instruments. For short and long term debt, the carrying value approximates the fair value since all debt instruments carry a variable interest rate component except for the convertible loans which carried a fixed interest rate. For investments in affiliated companies carried at cost, quoted market prices for the same or similar financial instruments were used to estimate the fair values. UTH has adopted the principles of this statement in its financial statements. UTH did not have any material off-balance-sheet financial instruments as of December 31, 1998. (g) Recoverability of Tangible and Intangible fixed assets ------------------------------------------------------ UTH evaluates the carrying value of all tangible and intangible assets whenever events or circumstances indicate the carrying value of assets may exceed their recoverable amounts. An impairment loss is recognized when the estimated 151 future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the fair value of the asset computed using discounted cash flows if the asset is expected to be held and used. Measurement of an impairment loss for an asset held for sale would be based on fair market value less estimated costs to sell. (h) Concentration of Credit Risk ---------------------------- Financial instruments which potentially subject UTH to concentrations of credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to UTH's large number of customers. (i) Other Comprehensive Income -------------------------- UTH has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise (i) classify items of other comprehensive income by their nature in a financial statement and (ii) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. As of December 31, 1998, UTH had no other comprehensive income items. Income Statement Revenue is primarily derived from the sale of cable television services to subscribers and is recognized in the period the related services are provided. Initial installation fees are recognized as revenue in the period in which the installation occurs, to the extent installation fees are equal to or less than direct selling costs, which are expensed. To the extent installation fees exceed direct selling costs, the excess fees are deferred and amortized over the average contract period. All installation fees and related costs with respect to reconnections and disconnections are recognized in the period in which the reconnection or disconnection occurs. New Accounting Principles In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting For the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 identifies the characteristics of internal-use software and provides examples to assist in determining when computer software is for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998, for projects in progress and prospectively, with earlier application encouraged. Management believes that the adoption of SOP 98-1 will not have a material effect on the financial statements. The American Institute of Certified Public Accountants recently issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which is required to be adopted by affected companies for fiscal years beginning after December 15, 1998. SOP 98-5 defines start-up and organization costs, which must be expensed as incurred. In addition, all deferred start-up and organization costs existing as of January 1, 1999 must be written-off and accounted for as a cumulative effect of an accounting change. Management believes that the adoption of SOP 98-1 will not have a material effect on the financial statements. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under SFAS 133, accounting for changes in fair value of a derivative depends on its intended use and designation. SFAS 133 is effective for fiscal years beginning after June 15, 1999. Management is currently assessing the effect of this new standard. 152 3. Intangible fixed assets
Licenses and Deferred Total Goodwill Financing Costs ------------- ----------------------- -------------------- Value upon contribution........................ 550,911 547,869 3,042 Investments.................................... 30,996 29,745 1,251 Amortization................................... (17,469) (17,149) (320) ------- ------- ----- Book value as of December 31,1998............. 564,438 560,465 3,973 ======= ======= =====
Balance as of December 31, 1998 ------------------------------------------------------------ Licenses and Deferred Total Goodwill Financing Costs ------------- ----------------------- -------------------- Gross Value.................................... 581,907 577,614 4,293 Amortization................................... (17,469) (17,149) (320) ------- ------- ----- Book value as of December 31,1998............. 564,438 560,465 3,973 ======= ======= =====
4. Tangible fixed assets
Land and Machinery Total Buildings Network & Other ------------- ------------------ -------------- -------------- Value upon contribution...................... 764,762 6,025 745,503 13,234 Additions.................................... 104,315 130 102,023 2,162 Depreciation................................. (22,021) (182) (20,005) (1,834) ------- ----- ------- ------ Book value as of December 31,1998........... 847,056 5,973 827,521 13,562 ======= ===== ======= ======
Balance as of December 31, 1998 ----------------------------------------------------------------- Land and Machinery Total Buildings Network & Other ------------- ------------------ -------------- -------------- Cost......................................... 869,077 6,155 847,526 15,396 Depreciation................................. (22,021) (182) (20,005) (1,834) ------- ----- ------- ------ Book value as of December 31,1998........... 847,056 5,973 827,521 13,562 ======= ===== ======= ======
5. Affiliated companies
Total Investments Advances ------------- ----------------------- ------------------- Balance upon contribution...................... 223,698 223,698 -- Additions...................................... 7,120 -- 7,120 Share in result................................ (24,486) (24,486) -- ------- ------- ------- Balance as of December 31,1998................ 206,332 199,212 7,120 ======= ======= =======
The investments in affiliated companies as of December 31, 1998 are:
Investments in and Cumulative Share % Advances to In Results of Ownership Affiliated Companies Affiliated Companies Total ------------- --------------------- ---------------------- ------------- A2000.................... 50 229,481 (24,449) 205,032 Interway................. 33 1,337 (37) 1,300 ------- ------- ------- Total.................... 230,818 (24,486) 206,332 ======= ======= =======
153 UTH had the following differences related to the excess of cost over the net tangible assets acquired for its equity investments. Such differences are being amortized over 12 to 15 years:
Accumulated Basis Difference Amortization ---------------- ---------------- A2000............................................. 249,236 (8,200) ======= ======
These differences have been presented as affiliated companies and share in result of affiliated companies respectively. Subsequent to year end, UPC provided a letter of support to A2000 stating that it would continue to provide to A2000 the funding necessary to continue operations through at least 1999. Summary financial information for A2000 based on Dutch generally accepted accounting principles is as follows:
Balance sheet As of December 31, 1998 ----------------------- Intangible fixed assets............................. 113,361 Tangible fixed assets............................... 356,623 Financial fixed assets.............................. 770 Liquid assets....................................... 369 Other current assets................................ 37,482 ------- Total assets..................................... 508,605 ======= Provisions.......................................... 1,610 Long-term debt...................................... 467,430 Current liabilities................................. 125,813 ------- Total liabilities................................ 594,853 ------- Total shareholders' value........................... (86,248) ======= Statement of income For the Five Months Ended December 31, 1998 ------- Revenue............................................. 53,954 Costs............................................... (39,271) Depreciation and amortization....................... (35,888) Financial income/charges............................ (11,293) ------- Net loss......................................... (32,498) =======
6. Receivables Receivables as presented under current assets mature within one year and are specified as follows: Trade accounts receivable 22,519 Receivables from affiliated companies 1,654 Prepaid expenses and accrued income 1,447 Other receivables 15,018 ------ Total 40,638 ====== A major item under "other receivables" is current reclaimable VAT 3,676. As of December, 1998 the valuation allowance on trade receivables amounted to 538. 154 7. Cash and cash equivalents Cash and cash equivalents include demand accounts held in a bank with a maturity of less than three months. 8. Shareholders' Equity UTH's issued share capital consists of 100,000 shares with a par value of NLG 1 each. All issued shares are fully paid-in.
Ordinary Additional Accumulated Capital Paid-in Capital Deficit Total --------- ---------------- ----------------- ------------ Balance at inception...... 100 -- -- 100 Balances upon contribution of properties to joint venture, August 6, 1998. -- 684,795 -- 684,795 Net loss.................. -- -- (49,374) (49,374) --------- ---------------- ----------------- ------------ 100 684,795 (49,374) 635,521 ========= ================ ================= ============
9. Provisions Provisions relate mainly to deferred taxation. 10. Long-term liabilities Average Amount Rate of Outstanding Range of Interest Interest December 31, 1998 ----------------- ------------ ------------------ Bank loans 5-7.625% 5.2 235,947 Long-term liabilities at December 31, 1998 will be payable as follows: Bank Loans ---------- 1999 3,220 2000 2,353 2001 8,404 2002 16,948 2003 30,104 Thereafter 174,918 ------- Total 235,947 ======= On February 20, 1998 CNBH secured a 250,000 nine-year term facility, which was amended in August 1998 to 266,000. The CNBH facility bears interest at the applicable Amsterdam Interbank Offered Rate ("AIBOR") plus a margin ranging from 0.60% to 1.60% per annum, and is secured by, among other things, an encumbrance over CNBH's assets and a pledge of the shares of CNBH. The facility is used to refinance several acquisitions and will furthermore be used for the development and exploitation of enhanced cable TV services, data services and telephony services. As of December 31, 1998, 219,000 was outstanding on the facility. The shares of UTH held by UPC are pledged for a certain loan of UPC. 155 11. Current Liabilities The current liabilities relate to short-term debt and other liabilities which are specified below: (a) Short-term debt Long-term debt repayable within one year 3,220 Short-term debt to shareholders 662,403 ------- Total 665,623 ------- Short term debt to shareholders as of December 31, 1998 NUON's contribution to UTH included an existing 690,000-debt facility with an outstanding balance of approximately 543,000 (as of August 6, 1998). This facility bears an interest rate of 6.65% over the reporting period up to November 30, 1998. As of November 30, 1998 this rate was increased with 1.5%. As of December 31, 1998, approximately 614,000 was outstanding on the facility. The debt facility is due March 15, 1999, with an extension period of 15 days. As security for repayment of the debt facility, NUON received a pledge over the shares of N.V. Telekabel Beheer (the assets contributed by NUON). UTH has negotiated with the lenders to refinance the debt facility (see Note 20.). Subordinated loans UTH entered into a subordinated loan agreement with NUON in December 1998 for an amount of NLG 33.0 million. The interest payable is 5.5% on an annually basis.This subordinated loan was entered into for purposes of continuing funding of incurred losses and capital expenditures.UTH entered into a subordinated loan agreement with UPC in December 1998 for an amount of NLG 15.2 million. The interest payable is 5.5% on an annually basis. This subordinated loan was entered into for purposes of continuing funding of incurred losses and capital expenditures (b) Other Liabilities Accounts payable to trade creditors 47,459 Deposits by customers 197 Other short-term liabilities 39,855 Deferred income and accrued expenses 7,490 ------- Total 95,001 ------- Total current liabilities 760,624 ======= 12. Information per geographical area All operations of UTH are in The Netherlands. In addition, substantially all operations relate to cable television services. 13. Personnel Labour cost is specified as follows: Salaries and wages 9,173 Pension costs 538 Social securities 1,911 ------ Total 11,622 ====== 156 The information about employees by category is as follows: Operating 160 Other 184 --- Total 344 === 14. Financial income and expenses Interest income 14 Interest expense (16,713) ------- Total (16,699) ======== Under interest expense an amount of 11,348 was accounted for as interest related parties. 15. Income taxes In general, a Dutch holding company may benefit from the so-called participation exemption. The participation exemption is a facility in Dutch corporate tax law which under certain conditions allows a Dutch company to exempt any dividend income and capital gains in relation with its participation in subsidiaries. Capital losses are also exempted, apart from liquidation losses (under stringent conditions). For UTH the primary difference between taxable loss and net loss for financial reporting purposes relates to the amortization of goodwill. The consolidated financial statements have been prepared assuming partial tax basis for license fees capitalized relating to certain acquisitions. Deferred taxes have been provided for that portion of the licenses which management believes no tax basis will be allowed. The difference between income tax expense provided in the financial statements and the expected income tax benefit at statutory rates is reconciled as follows: Expected income tax benefit at the Dutch statutory rate of 35% (9,217) Tax effect of permanent and other differences: Change in valuation allowance 6,541 Non- deductible expenses 1,464 ------- Total income tax benefit (1,212) ========= The significant components of the net deferred tax liability are as follows: Deferred Tax Assets: Tax net operating loss carries forward.................. 20,112 Valuation allowance..................................... (20,112) -------------- Deferred tax assets, net of valuation allowance...... 0 -------------- Deferred Tax Liabilities: Intangible assets....................................... 33,438 Tangible fixed assets, net.............................. 962 -------------- Total deferred tax liabilities.......................... 34,400 -------------- Deferred tax liabilities, net........................ 34,000 ==============
The tax loss carry forwards have no expiration date. 16. Related parties transactions UTH signed management services agreements with both of its shareholders. In the reporting period an amount of NLG 4,255 has been taken into account as expenses. In addition UTH delivers service to NUON. These services are rendered at arms' length prices and made up 8% of the revenues over the reporting period. As mentioned under Note 11 UTH has a short-term debt payable to NUON as well as subordinated loans to both NUON and UPC. UPC charged an amount of 988 for salaries and related costs for employees seconded to UTH Group. 157 17. Commitments and Guarantees The UTH Group has entered into various rent and lease agreements for office space, cars etc. The terms of the agreements call for future minimum payments as follows: 1999 4,000 2000 3,200 2001 2,100 2002 1,600 2003 1,400 Subsequent to December 31, 1998, UTH provided additional funding to A2000. In total UTH's share of the funding commitment is $15,000. As of December 31, 1998, UTH had funded $3,750 of its commitment. 18. US GAAP Reconciliation General The accounting policies followed in the preparation for the consolidated financial statements differ in some respects to those generally accepted in the United States of America (US GAAP). The differences which have a material effect on net loss and/or shareholders'equity and/or total assets are as follows: - The fair market value of licences, goodwill, land and buildings and networks for US GAAP purposes should be set at historical cost of the contributor. Consequently, no step-up in asset value is allowed for the difference between historical cost and the fair market value of the assets contributed by both UPC and NUON. - Deferred taxes have been established for the difference between book and tax basis of contributed assets, if applicable. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions which have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based upon the difference between the financial and tax bases of assets and liabilities and carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. UTH has adopted the principles of this statement in its financial statements. 158 US GAAP information The calculation of net loss, shareholders' equity and total assets, substantially in accordance with US GAAP, is as follows: Net loss as per Consolidated ---------------------------- Statements of income (49,374) -------------------- Adjustments to reported income (loss): Amortisation of goodwill 4,082 Share in results of affiliated companies 747 --------- Approximate net loss in accordance with US ========= GAAP (44,545) ========= Shareholders'equity as per -------------------------- Consolidated balance sheets 635,521 --------------------------- Adjustments to reported equity: Goodwill (152,105) Affiliated Companies (27,893) --------- Approximate shareholders'equity in accordance with US GAAP 455,523 ========= Total assets as per Consolidated -------------------------------- Balance sheets 1,672,030 -------------- Adjustments to reported assets: Goodwill (152,105) Affiliated Companies (27,893) --------- Approximate total assets in accordance with US GAAP 1,492,032 ========= 19. Proforma information (unaudited) On August 6, 1998 both shareholders contributed their interests in the Dutch cable market into UTH. The following pro forma condensed consolidated information for the year ended December 31, 1997 and 1998 give effect to the UTH Transaction as if it had occurred at the beginning of the periods presented. This pro forma condensed consolidated information does not purport to represent what UTH's result of operations would actually have been if such transaction had in fact occurred on such date. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable.
For the Year Ended For the Year Ended December 31, 1997 December 31, 1998 ---------------------- ---------------------- Total revenues........................ 157,836 219,314 Net loss.............................. (47,194) (90,600)
159 20. Subsequent events Subordinated loan UTH entered into a subordinated loan agreement with UPC in March, 1999 for an amount of 119,000 million. The interest is payable on an annually basis. This subordinated loan was entered into for purposes of continuing funding of incurred losses and capital expenditures. NUON Share Purchase Agreement On February 17, 1999, UPC acquired the remaining 49% of UTH. This transaction completed the purchase by UPC of 100% of UTH. UPC purchased the interest from NUON for 518,100. In addition, UPC repaid NUON and assumed from NUON a 33,300 subordinated loan, including accrued interest dated December 31, 1998, owed by UTH to NUON. Refinancing Subsequent to December 31, 1998, UTH replaced their existing 690,000 facility with a senior facility and additional shareholder loans. The senior facility consists of a Euro 340 million (750,000) revolving facility to N.V. Telekabel Beheer that will convert to a term facility on December 31, 2001. Euro 5 million of this facility will be in the form of an overdraft facility that will be available until December 31, 2007. This existing facility will be used to repay a portion of the UTH facility and for capital expenditures. The new facility will bear interest at the Euro Interbank Offered Rate plus a margin between 0.75% and 2.00% based on the leverage multiples tied to N.V. Telekabel Beheer's net operating income. The new facility will be secured by, among other things, a pledge over shares held by the borrower and will restrict N.V. Telekabel Beheer's ability to incur additional debt. 160 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. United Pan-Europe Communications N.V. a Dutch Public limited liability company By: /S/ Charles H.R. Bracken ------------------------------------ Board of Management Member and Chief Financial Officer Date: March 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/S/ Mark L. Schneider - --------------------------------- Mark L. Schneider, Chairman of Board of Management and Chief Executive Officer Date: March 28, 2000 /S/ Charles H.R. Bracken - --------------------------------- Charles H.R. Bracken, Board of Management Member and Chief Financial Officer Date: March 28, 2000 /S/ Ray D. Samuelson - --------------------------------- Ray D. Samuelson, Managing Director, Finance and Accounting Date: March 28, 2000 /S/ Michael T. Fries - --------------------------------- Michael T. Fries, Chairman of Supervisory Board and Authorized U.S. Representative Date: March 28, 2000 /S/ Richard De Lange - --------------------------------- Richard De Lange, Supervisory Board Member Date: March 28, 2000 /S/ Tina M. Wildes - --------------------------------- Tina M. Wildes, Supervisory Board Member Date: March 28, 2000 /S/ Ellen P. Spangler - --------------------------------- Ellen P. Spangler, Supervisory Board Member Date: March 28, 2000 /S/ John P. Cole, Jr. - --------------------------------- John P. Cole, Jr., Supervisory Board Member Date: March 28, 2000
161 EX-4.6 2 11 1/2% SENIOR NOTES UNITED PAN-EUROPE COMMUNICATIONS N.V. Issuer CITIBANK, N.A. (London Branch) Trustee ______________ Indenture 11 1/2% SENIOR NOTES DUE 2010 Dated as of January 20, 2000 ______________ $300,000,000 11 1/2% Senior Notes Due 2010 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...................... 1 SECTION 1.1 Definitions............................................... 1 SECTION 1.2 Compliance Certificates and Opinions...................... 39 SECTION 1.3 Form of Documents Delivered to Trustee.................... 40 SECTION 1.4 Acts of Holders........................................... 41 SECTION 1.5 Notices................................................... 42 SECTION 1.6 Notice to Holders; Waiver................................. 44 SECTION 1.7 Effect of Headings and Table of Contents.................. 45 SECTION 1.8 Successors and Assigns.................................... 45 SECTION 1.9 Separability Clause....................................... 45 SECTION 1.10 Benefits of Indenture..................................... 45 SECTION 1.11 Governing Law............................................. 45 SECTION 1.12 Conflict with Trust Indenture Act......................... 46 SECTION 1.13 Legal Holidays............................................ 46 SECTION 1.14 No Personal Liability of Board Members, Officers, Employees and Shareholders................................ 46 SECTION 1.15 Independence of Covenants................................. 47 SECTION 1.16 Exhibits.................................................. 47 SECTION 1.17 Counterparts.............................................. 47 SECTION 1.18 Duplicate Originals....................................... 47 SECTION 1.19 Agent for Service; Submission to Jurisdiction; Waiver of Immunities................................................ 47 SECTION 1.20 Judgment Currency......................................... 48 ARTICLE II SECURITY FORMS............................................................... 49 SECTION 2.1 Forms Generally........................................... 49
i ARTICLE III THE SECURITIES................................................................................ 49 SECTION 3.1 Title and Terms............................................................ 49 SECTION 3.2 Denominations.............................................................. 50 SECTION 3.3 Execution, Authentication, Delivery and Dating............................. 51 SECTION 3.4 Temporary Securities....................................................... 54 SECTION 3.5 Registration, Registration of Transfer and Exchange........................ 54 SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities........................... 56 SECTION 3.7 Payment of Interest; Interest Rights Preserved............................. 57 SECTION 3.8 Persons Deemed Owners...................................................... 58 SECTION 3.9 Cancellation............................................................... 58 SECTION 3.10 Computation of Interest.................................................... 59 SECTION 3.11 "CUSIP" and/or "ISIN" Numbers.............................................. 59 SECTION 3.12 Book-Entry Provisions for Global Securities, Certificated Securities....... 59 SECTION 3.13 Transfer and Exchange of Securities........................................ 60 SECTION 3.14 Special Transfer Provisions................................................ 67 ARTICLE IV SATISFACTION AND DISCHARGE.................................................................... 68 SECTION 4.1 Satisfaction and Discharge of Indenture.................................... 68 SECTION 4.2 Application of Trust Money................................................. 70 ARTICLE V REMEDIES...................................................................................... 70 SECTION 5.1 Events of Default.......................................................... 70 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment......................... 71 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee............ 73 SECTION 5.4 Trustee May File Proofs of Claim........................................... 73 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities................ 74 SECTION 5.6 Application of Money Collected............................................. 75 SECTION 5.7 Limitation on Suits........................................................ 75
ii SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest....... 76 SECTION 5.9 Restoration of Rights and Remedies.............................................. 76 SECTION 5.10 Rights and Remedies Cumulative.................................................. 76 SECTION 5.11 Delay or Omission Not Waiver.................................................... 77 SECTION 5.12 Control by Holders.............................................................. 77 SECTION 5.13 Waiver of Past Defaults......................................................... 77 SECTION 5.14 Waiver of Stay or Extension Laws................................................ 78 ARTICLE VI THE TRUSTEE........................................................................................ 78 SECTION 6.1 Certain Duties and Responsibilities............................................. 78 SECTION 6.2 Notice of Default............................................................... 79 SECTION 6.3 Certain Rights of Trustee....................................................... 80 SECTION 6.4 Trustee Not Responsible for Issuance of Securities.............................. 81 SECTION 6.5 May Hold Securities............................................................. 82 SECTION 6.6 Money Held in Trust............................................................. 82 SECTION 6.7 Compensation and Reimbursement.................................................. 82 SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting Interests.................. 83 SECTION 6.9 Resignation and Removal; Appointment of Successor............................... 84 SECTION 6.10 Acceptance of Appointment by Successor.......................................... 85 SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business..................... 86 SECTION 6.12 Trustee Acting in Other Capacities.............................................. 86 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.................................................. 87 SECTION 7.1 Disclosure of Names and Addresses of Holders.................................... 87 SECTION 7.2 Reports by Trustee.............................................................. 87 SECTION 7.3 Reports by Company.............................................................. 87 ARTICLE VIII
iii CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.................................................... 87 SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms................................. 87 SECTION 8.2 Successor Substituted................................................................ 89 ARTICLE IX SUPPLEMENTAL INDENTURES................................................................................. 89 SECTION 9.1 Indentures Without Consent of Holders................................................ 89 SECTION 9.2 Indentures with Consent of Holders................................................... 90 SECTION 9.3 Execution of Indenture............................................................... 91 SECTION 9.4 Effect of Indentures................................................................. 91 SECTION 9.5 Conformity with Trust Indenture Act.................................................. 91 SECTION 9.6 Reference in Securities to Indentures................................................ 92 SECTION 9.7 Notice of Indentures................................................................. 92 ARTICLE X COVENANTS............................................................................................... 92 SECTION 10.1 Payment of Principal, Premium, if Any, and Interest.................................. 92 SECTION 10.2 Maintenance of Office or Agency...................................................... 93 SECTION 10.3 Money for Security Payments to Be Held in Trust...................................... 94 SECTION 10.4 Corporate Existence.................................................................. 96 SECTION 10.5 Payment of Taxes and Other Claims.................................................... 96 SECTION 10.6 Maintenance of Properties............................................................ 96 SECTION 10.7 Insurance............................................................................ 96 SECTION 10.8 Provision of Financial Statements.................................................... 97 SECTION 10.9 Statement by Officers as to Default.................................................. 97 SECTION 10.10 Purchase of Securities upon Change of Control........................................ 98 SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock... 102 SECTION 10.12 Limitation on Restricted Payments.................................................... 104 SECTION 10.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries......... 107 SECTION 10.14 Limitation on Liens Securing Indebtedness............................................ 109
iv SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries.......................... 109 SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock.............................. 110 SECTION 10.17 Limitation on Transactions with Affiliates..................................... 115 SECTION 10.18 Additional Amounts............................................................. 115 SECTION 10.19 Waiver of Stay, Extension or Usury Laws........................................ 118 SECTION 10.20 Limitation on Lines of Business................................................ 118 SECTION 10.21 Limitation on Status as an Investment Company.................................. 118 ARTICLE XI REDEMPTION OF SECURITIES.......................................................................... 118 SECTION 11.1 Right of Redemption............................................................ 119 SECTION 11.2 Applicability of Article....................................................... 120 SECTION 11.3 Election to Redeem; Notice to Trustee.......................................... 120 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed.............................. 120 SECTION 11.5 Notice of Redemption........................................................... 121 SECTION 11.6 Deposit of Redemption Price.................................................... 122 SECTION 11.7 Securities Payable on Redemption Date.......................................... 122 SECTION 11.8 Securities Redeemed in Part.................................................... 122 ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE................................................................ 123 SECTION 12.1 Company's Option to Effect Defeasance or Covenant Defeasance................... 123 SECTION 12.2 Defeasance and Discharge....................................................... 123 SECTION 12.3 Covenant Defeasance............................................................ 124 SECTION 12.4 Conditions to Defeasance or Covenant Defeasance................................ 124 SECTION 12.5 Deposited Money and U.S. Government Securities to Be Held in Trust; Other Miscellaneous Provisions....................................................... 126 SECTION 12.6 Reinstatement.................................................................. 127
v EXHIBIT A....................................................... A-1 EXHIBIT B....................................................... B-1 EXHIBIT C....................................................... C-1 EXHIBIT D....................................................... D-1 EXHIBIT E....................................................... E-1 EXHIBIT F....................................................... F-2 EXHIBIT G....................................................... G-1 EXHIBIT H....................................................... H-1
vi INDENTURE, dated as of January 20, 2000 by and between United Pan- Europe Communications N.V., a public limited liability company organized and existing under the laws of The Netherlands (herein called the "Company"), having its principal office at Fred. Roeskestraat 123, 1076 EE Amsterdam, The Netherlands, and Citibank, N.A. (London Branch), as Trustee (herein called the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as defined below) of the Company's 11 1/2% Senior Notes due 2010: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. For all purposes of this Indenture, ----------- except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper," as used in TIA Section 311, shall have the meanings assigned to them in the rules of the SEC adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with "GAAP" as defined in this section 1.1; (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, paragraph or other subdivision; and (e) unless otherwise indicated, references to Articles, Sections, paragraphs or other subdivisions are references to such Articles, Sections, paragraphs or other subdivisions of this Indenture. 1 "Acceleration Notice" has the meaning set forth in Section 5.2. "Acquired Indebtedness" means Indebtedness (including Disqualified Capital Stock) of any Person existing at the time such Person becomes a Subsidiary of the Company, including by designation, or is merged or consolidated into or with the Company or one of its Subsidiaries. "Acquisition" means the purchase or other acquisition of any Person or all or substantially all the assets of any Person by any other Person, whether by purchase, merger, consolidation, or other transfer, and whether or not for consideration. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Additional Amounts" has the meaning specified in Section 10.18. "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For purposes of this definition, the term "control" means the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise; provided that with respect to ownership interest in the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power normally entitled to vote in the election of directors, managers or trustees, as applicable, shall for such purposes be deemed to constitute control. "Agent Member" means, with respect to any Depositary, any member of, or participant in, such Depositary. "Applicable Procedures" has the meaning set forth in Section 3.13(b)(ii). "Annualized Consolidated EBITDA" means Consolidated EBITDA for the Reference Period multiplied by four. "Asset Acquisition" means (i) an Investment or capital contribution (by means of transfers of cash or other property to others or payments for property or services of the account or use of others, or otherwise) by the Company or any 2 Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of another Person by the Company or any Subsidiary, or (ii) an acquisition by the Company or any Subsidiary of the property and assets (other than Capital Stock) of any Person other than the Company or any Subsidiary which constitute substantially all of a division, operating unit or line of business of such Person or which is otherwise outside the ordinary course of business. "Asset Sale" has the meaning set forth in Section 10.16. "Average Life" means, as of the date of determination, with respect to any security or instrument, the quotient obtained by dividing (1) the sum of the products (a) of the number of years from the date of determination to the date or dates of each successive scheduled principal (or redemption) payment of such security or instrument and (b) the amount of each such respective principal (or redemption) payment by (2) the sum of all such principal (or redemption) payments. "Beneficial Owner" or "beneficial owner" for purposes of the definition of "Change of Control" and "Affiliate" has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not applicable, except that a "person" shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. "Board Resolution" means a copy of a resolution certified by a managing director or other authorized officer, assistant officer or representative of the Company to have been duly adopted by the Supervisory Board of the Company and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York and Amsterdam, The Netherlands are authorized or obligated by law or executive order to close. "Capital Contribution" means any contribution to the equity of the Company from a direct or indirect parent of the Company for which no consideration other than the issuance of Qualified Capital Stock is paid. "Capitalized Lease Obligation" means, as to any Person, the 3 obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means, with respect to any Corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebted ness that is not itself otherwise capital stock), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that Corporation. "Cash Equivalent" means: (1) securities issued or directly and fully guaranteed or insured by (i) the United States of America or any agency or instrumentality thereof or (ii) any member of the European Economic Area or Switzerland, or any, agency or instrumentality thereof provided that such country, agency or instrumentality has a credit rating at least equal to that of the United States of America (provided that, in each case, the full faith and credit of such respective nation is pledged in support thereof), or (2) time deposits and certificates of deposit and commercial paper issued by the parent Corporation of any domestic (United States) commercial bank of recognized standing having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof), or (3) commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in the case of each of (1), (2), and (3) maturing within one year after the date of acquisition, or (4) Euro or Dollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months, and overnight bank deposits, in each case with any domestic (United States) commercial bank (including the Trustee) having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof) and a Keefe Bank Watch Rating of "B" or better; 4 provided, in the case of (1) through (4), that with respect to any non- domestic Person, Cash Equivalents shall also mean those investments that are comparable to clauses (ii) and (iv) above in such Person's country of organization or country where it conducts business operations. "Cedelbank" means Cedelbank. "Certificated Security" means any certificated Security in fully registered definitive form. "Change of Control" means any merger or consolidation of the Company with or into any Person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the Company's assets, on a Consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction(s), either (A) any "person" or "group" (other than the Parent or any of the Principals) is or becomes the "beneficial owner," directly or indirectly, of more than 35% of the total voting power of all classes of the Company's securities in the aggregate normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee(s) or surviving entity or entities and such "person" or "group" beneficially owns (after giving effect to such transaction) a greater percent age of the total voting power than is at that time beneficially owned by Parent and the Principals (in the aggregate) and none of the Parent nor any of the Principals has the right or ability by voting power, contract or otherwise to elect or nominate for elections a majority of the Company's Supervisory Board, or (B) the Continuing Directors cease for any reason to constitute a majority of the Supervisory Board of the Company then in office, or (C) the Company adopts a plan of liquidation (other than a plan of liquidation as a consequence of which (1) the Parent and the Principals (in the aggregate) beneficially own at least the same percentage of voting power after the consummation of such plan as before or otherwise retain the right or ability, by voting power, to control the Person that acquires the proceeds of such liquidation and (2) the Person that acquires the substantial majority of the proceeds of such liquidation shall have assumed by supplemental indenture the Company's obligations pursuant to this Indenture). 5 "Common Stock" of any Person means Capital Stock of the Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Person, to shares of Capital Stock of any other class of the Person. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Order" or "Company Request" means a written request or order signed in the name of the Company by a member of the Company's management board or its supervisory board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee. "Consolidated Coverage Ratio" of any Person on any date of determination (the "Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate amount of Consolidated EBITDA of such Person attributable to continuing operations and businesses (exclusive of amounts attributable to operations and business permanently discontinued or disposed of) for the Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to such Person's Consolidated Fixed Charges subsequent to the Transaction Date) during the Reference Period; provided that for purposes of such calculation, (i) Acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (ii) transactions giving rise to the need to calculate the Consolidated Coverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (iii) the incurrence of any Indebtedness during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of such Reference Period, and (iv) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital 6 Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Consolidated Invested Equity Capital" means, with respect to any Person as of any date, the sum of the Invested Equity Capital of such Person as of such date and, without duplication, the Invested Equity Capital of each of its Subsidiaries as of such date. For purposes of calculating the Consolidated Invested Equity Capital of any Person as of any date, in order to avoid duplication, the Invested Equity Capital of a Subsidiary of such Person shall not include any amounts that would be included in the Consolidated Invested Equity Capital of any equity owner of such Subsidiary, to the extent that such amounts were utilized by such equity owner prior to such date to permit the incurrence of Indebtedness pursuant to clauses 2(iii) and (c)(3) of Section 10.11. For example, if a direct Subsidiary of the Company has Consolidated Invested Equity Capital of $100 and incurs $225 of such Indebtedness, then a direct or indirect Subsidiary of such Subsidiary will not be deemed to have any Invested Equity Capital based on contributions or loans to it by such first Subsidiary. In addition, the Invested Equity Capital of a Subsidiary of a Person will never be considered to be greater than the Invested Equity Capital of such Person, except as a result of contributions of Invested Equity Capital to such Subsidiary by third parties. "Consolidation" means, with respect to any Person, the consolidation of the accounts of the Subsidiaries with those of such Person, all in accordance with GAAP; provided that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary with the accounts of such Person. The term "Consolidated" has a correlative meaning to the foregoing. "Consolidated EBITDA" means, with respect to any Person, for any period, the Consolidated Net Income of such Person for such period adjusted to add thereto (to the extent deducted from net revenues in determining Consolidated Net Income), without duplication, the sum of (1) Consolidated income tax expense, 7 (2) Consolidated depreciation and amortization expense, (3) Consolidated Fixed Charges, and (4) non-cash stock-based compensation, less the amount of all cash payments made by such Person or any of its Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period; provided that Consolidated income tax expense, depreciation and amortization of a Subsidiary that is not a Wholly Owned Subsidiary shall only be added to the extent of the equity interest of such Person in such Subsidiary. "Consolidated Fixed Charges" of any Person means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of: (a) interest expensed or capitalized, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations) of such Person and its Consolidated Subsidiaries during such period, including (1) original issue discount and non-cash interest payments or accruals on any Indebtedness, (2) the interest portion of all deferred payment obligations, and (3) all commissions, discounts and other fees and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations, in each case to the extent attributable to such period, (b) the amount of dividends accrued or payable (or guaranteed) by such Person or any of its Consolidated Subsidiaries in respect of Preferred Stock (other than by Subsidiaries of such Person to such Person or such Person's Wholly Owned Subsidiaries). For purposes of this definition, (x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty by such Person or a Subsidiary of such Person of an obligation of another Person shall be deemed to be the interest expense 8 attributable to the Indebtedness guaranteed. "Consolidated Net Income" means, with respect to any Person for any period, the net income (or loss) of such Person and its Consolidated Subsidiaries (determined on a Consolidated basis in accordance with GAAP) for such period, adjusted to exclude (only to the extent included in computing such net income (or loss) and without duplication): (a) all gains (but not losses) which are either extraordinary (as determined in accordance with GAAP) or are nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any capital stock), (b) the net income, if positive, of any Person, other than a Consolidated Subsidiary, in which such Person or any of its Consolidated Subsidiaries has an interest, except to the extent of the amount of any dividends or distributions actually paid in cash to such Person or a Consolidated Subsidiary of such Person during such period, but in any case not in excess of such Person's pro rata equity interest share of such Person's net income for such period, (c) the net income or loss of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, and (d) the net income, if positive, of any such Person's Consolidated Subsidiaries to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Consolidated Subsidiary other than this Indenture. "Consolidated Subsidiary" means, for any Person, each Subsidiary (excluding all Unrestricted Subsidiaries) of such Person (whether now existing or hereafter created or acquired) the financial statements of which are Consolidated for financial statement reporting purposes with the financial statements of such Person in accordance with GAAP. 9 "Consolidated Tangible Assets" of any Person means the total amount of assets less applicable reserves and other properly deductible items which under GAAP would be calculated on a Consolidated balance sheet of the Person and its Subsidiaries after deducting all goodwill, trademarks, patents, unamortized debt discount and expense and other like intangibles, which, in each case under GAAP, would be included on such Consolidated balance sheet. "Continuing Director" means during any period of 12 consecutive months after the Issue Date, individuals who at the beginning of any such 12-month period constituted the Supervisory Board of the Company (together with any new supervisory directors whose election by the shareholders was from a list of candidates drawn up by the holder or holders of the Company's priority shares and new supervisory directors designated in or provided for in an agreement regarding the merger, consolidation or sale, transfer or other conveyance, of all or substantially all of the assets of the Company or the Parent, if such agreement was approved by a vote of such majority of supervisory directors). "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at 11 Old Jewry, London EC2R 8DU, except that, with respect to presentation of Securities for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Corporation" includes Corporations, associations, companies and business trusts. "Credit Agreement" means the loan and note issuance agreement dated July 27, 1999 between certain Subsidiaries of the Company and Bank of American International Limited, CIBC World Markets plc, Citibank, N.A., MeesPierson N.V., Paribas, The Royal Bank of Scotland plc, Toronto Dominion Bank Europe Limited and The Toronto Dominion Bank, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or Holders, and, subject to the proviso to the next succeeding sentence, irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Credit 10 Agreement" shall include agreements in respect of Interest Swap and Hedging Obligations with lenders party to the Credit Agreement and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Credit Agreement and all refundings, refinancings and replacements of any Credit Agreement, including any agreement: (1) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding or deleting borrowers or guarantors thereunder, so long as borrowers and guarantors may include one or more of the Company and its Subsidiaries and their respective successors and assigns, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder; provided that on the date such Indebtedness is incurred it would not be prohibited by Section 10.11; or (4) otherwise altering the terms and conditions thereof in a manner not prohibited by the other terms of this Indenture. "CT Corporation System" has the meaning specified in Section 1.19. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" has the meaning specified Section 3.12. "Disqualified Capital Stock" means (a) except as set forth in clause (b), with respect to any Person, Equity Interests of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to 91 days following the Stated Maturity of the Securities and (b) with respect to any Subsidiary of the Company, any Equity Interests of such Subsidiary other than (i) any common equity with no economic preference, privileges, or redemption or repayment 11 provisions or (ii) preferred stock convertible into such common equity of such Subsidiary with no payment of dividends or liquidation preference due or payable thereon on or prior to 91 days following the Stated Maturity of the Securities. "Dollars" or "$" or "U.S. Dollars" means the lawful currency of the United States of America and, in relation to any amount to be advanced or paid under this Indenture or the Securities, funds having immediate value. "DTC" means the Depository Trust Company, its nominees and successors. "Equity Interest" of any Person means any shares, interests, participations or other equivalents (however designated) in such Person's equity, and shall in any event include any Capital Stock issued by, or partnership, participation or membership interests in, such Person. "Equity Offering" means (i) an underwritten public offering or floatation of ordinary shares of the Company which has been registered under the Securities Act, or admitted to listing on the Amsterdam Stock Exchange or its equivalent in any other European Union jurisdiction, in any case resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent), or (ii) a sale of Qualified Capital Stock of the Company to any Person which is (or a controlled Affiliate of a Person which is), engaged principally in a Related Business, resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent); provided, however, that a sale of Qualified Capital Stock of the Company to any subsidiary of the Company or any Person that is a controlled Affiliate of the Company shall not be an Equity Offering. "Euro" or "Euro Symbol" means the currency adopted by those countries participating in the third stage of European monetary union. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "European Economic Area" means the member nations of the European Economic Area pursuant to the Oporto Agreement on the European Economic Area dated May 2, 1992 as amended. "European Union" means the member nations to the third stage of 12 economic and monetary union pursuant to the treaty of Rome establishing the European Community, as amended by the Treaty on European Union, signed at Maastricht on February 7, 1992. "Event of Default" has the meaning set forth under Section 5.1. "Event of Loss" means, with respect to any property or asset, any (1) loss, destruction or damage of such property or asset or (2) any condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto). "Exchange Offer" means the exchange registered with the SEC to exchange Initial Securities for Exchange Securities pursuant to the terms of the Registration Rights Agreement. "Exchange Registration Statement" means an Exchange Registration Statement as defined in the Registration Rights Agreement. "Exchange Securities" means the Securities to be issued pursuant to this Indenture in connection with the offer to exchange Securities for Initial Securities that may be made by the Company pursuant to the Registration Rights Agreement. "Exempted Affiliate Transaction" means (i) Restricted Payments comprised of pro rata dividends paid in cash on any class of Equity Interests and made in compliance with this Indenture, (ii) transactions, at arms-length and as so set forth in a Board Resolution, between or among holders of any Equity Interest of any Subsidiary of the Company and such Subsidiary, so long as such holder is not otherwise an Affiliate of the Company, (iii) transactions between or among the Company, and its Subsidiaries, (iv) the Company or any of its Subsidiaries entering into or performing any employment agreement, stock option agreement or other agreement relating to the terms of employment, compensation or termination of employment in the ordinary course of business of the Company or such Subsidiary, (v) any contract, agreement, arrangement or transaction with any Affiliate in effect as of the Issue Date and any amendment, waiver, variation or other modification in 13 respect of any such contract, agreement, arrangement or transaction so long as such amendment, waiver, variation or other modification is not disadvantageous to the Company and its Subsidiaries in any material respect, (vi) Restricted Payments and Investments permitted under Section 10.12, (vii) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture which are fair to the Company and its Subsidiaries, in the reasonable determination of the Company or Subsidiary, as the case may be, or are on terms no less favorable to the Company or the Subsidiary than those that could be obtained in a comparable arm's length transaction with an entity that is not an Affiliate or Principal and is in the best interests of the Company or the Subsidiary, and (viii) transactions with respect to network capacity or dark or lit communications fiber capacity or telecommunications conduit between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate and joint sales and marketing pursuant to an agreement or agreements between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate, provided that in the case of this clause (viii), such agreements are on terms that are no less favorable to the Company or the Subsidiary than those that could be obtained in an arm's-length transaction with an entity that is not an Affiliate or Principal and are in the best interests of the Company and the Subsidiary entered into in the ordinary course of business. "Existing Agreements" means (i) any and all instruments, as in effect on the Issue Date, between the Company or any of its Subsidiaries and a commercial lending institution or institutions, which makes borrowing of funds available to the Company or any such Subsidiary from such institution or institutions and (ii) any replacements of the instruments in clause (i) entered into by the respective Subsidiary that was party to the instrument so replaced or their respective successors and a commercial lending institution or institutions for an amount up to the maximum amount of the instrument so replaced. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the Issue Date, reduced to the extent such amounts are repaid. "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United States Code, as amended from time to time. "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles 14 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 approved by a significant segment of the accounting profession in the United States as in effect on the Issue Date. "Global Security" means a Regulation S Global Security (or Unrestricted Global Security) or a Restricted Global Security. "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 verb has a corresponding meaning. "Guarantor" is defined to mean any Person obligated under a Guarantee. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, to the extent such liabilities and obligations would appear as a liability upon the Consolidated balance sheet of such Person in accordance with GAAP, (1) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (2) evidenced by bonds, notes, debentures or similar instruments, (3) representing the balance deferred and unpaid of the purchase price of any property or services, 15 except (other than accounts payable or other obligations to trade creditors which have remained unpaid for greater than 90 days past their original due date) those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors; (b) all liabilities and obligations, contingent or otherwise, of such Person (1) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (2) relating to any Capitalized Lease Obligation, or (3) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a)(1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon); (c) all net obligations of such Person under Interest Swap and Hedging Obligations; (d) all liabilities and obligations of others of the kinds described in the preceding clauses (a), (b) or (c) that such Person has guaranteed or provided credit support or that is otherwise its legal liability or which are secured by any assets or property of such Person; (e) any and all deferrals, renewals, extensions, refinancing and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not between or among the same parties; and (f) all Disqualified Capital Stock of such Person (measured at the greater of its voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be 16 determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined in good faith by the Supervisory Board of the Company. The amount of any Indebtedness outstanding as of any date shall be (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, but the accretion of original issue discount in accordance with the original terms of Indebtedness issued with an original issue discount will not be deemed to be an incurrence and (2) the principal amount thereof, excluding any interest thereon, in the case of any other Indebtedness. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Initial Purchasers" means, with respect to the Initial Securities issued pursuant to this Indenture on the Issue Date, each of Donaldson, Lufkin & Jenrette International and the other Initial Purchasers named as such in the Offering Circular "Initial Securities" means the $300,000,000 11 1/2% Senior Notes due 2010 issued under this Indenture on the Issue Date. "Institutional Accredited Investor" means an institutional "Accredited Investor," as defined in Regulation D of the Securities Act. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Adjustment Event" has the meaning set forth in Section 3.1. "Interest Swap and Hedging Obligation" means any obligation of any Person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate 17 of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or floating rate of interest on the same notional amount. "Invested Equity Capital" means, with respect to any Person as of any date, without duplication, the sum of (i) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation in the form of common equity, plus, (ii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of creation by the holders of its common equity (and their Affiliates) in consideration of the issuance of preferred equity or Indebted ness, on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary relative to their respective contributions being ignored for this purpose), plus, (iii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation by the Company or a Wholly Owned Subsidiary of the Company in consideration of the issuance of preferred equity or Indebtedness, and less (iv) the value of all interest, returns in respect of Indebtedness, dividends and other distributions (in whatever form and however designated, valued at fair market value as determined in good faith by the Supervisory Board) made by such Person since the date of its creation to the holders of its common equity (and their Affiliates); provided that in no event shall the aggregate amount of interest, dividends and other distributions made to any holder of common equity of a Person (or its Affiliates) operate to reduce the Invested Equity Capital of such Person by more than the total contributions to such Person (per clauses (i) through (iii) above) by such equity holder (and its Affiliates). "Investment" by any Person in any other Person means (without duplication): (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to 18 make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable, endorsements for collection or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of the Company or to the extent permitted by Section 10.11, the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; (d) the making of any capital contribution by such Person to such other Person; and (e) the designation by the Supervisory Board of the Company of any Person to be an Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an amount equal to the fair market value of the net assets of any Subsidiary (or, if neither the Company nor any of its Subsidiaries has theretofore made an Investment in such subsidiary, in an amount equal to the Investments being made), at the time that such Subsidiary is designated an Unrestricted Subsidiary, and any property transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of the Company shall be deemed an Investment valued at its fair market value at the time of such transfer. Investments shall be measured by the fair market value attributed to the Investment at the time made or re turned, as applicable. "Issue Date" means the date of first issuance of the Initial Securities hereunder. "Leverage Ratio" on any date of determination (the "Transaction Date") for any Person means the ratio, on a pro forma basis, of (a) the aggregate 19 amount of Indebtedness of such Person and its Subsidiaries on a Consolidated basis to (b) the aggregate amount of Annualized Consolidated EBITDA of such Person attributable to continuing operations and business (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of); provided that for purposes of calculating Annualized Consolidated EBITDA for this definition, (1) acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (2) transactions giving rise to the need to calculate the Leverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (3) the incurrence of any Indebtedness or issuance of any Disqualified Capital Stock during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of the Reference Period, and (4) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such Person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or 20 with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. For purposes of this definition, the sale, lease, conveyance, or other transfer by the Company or any Subsidiary of the Company, in the ordinary course of its business and not constituting a security interest in assets serving as collateral for any of their respective obligations, including the granting of indefeasible rights of use or equivalent arrangements with respect to, network capacity, communications fiber capacity or conduit, shall not be a Lien. "Liquidated Damages" means all liquidated damages then owing pursuant to the Registration Rights Agreement. "Maturity," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents received by the Company in the case of a sale, or Capital Contribution in respect, of Qualified Capital Stock and by the Company and its Subsidiaries in respect of an Asset Sale, plus, in the case of an issuance of Qualified Capital Stock upon any exercise, exchange or conversion of securities (including options, warrants, rights and convertible or exchangeable debt) of the Company that were issued for cash on or after July 30, 1999, the amount of cash originally received by the Company upon the issuance of such securities (including options, warrants, rights and convertible or exchangeable debt) less, in each case, the sum of all payments, fees, commissions and (in the case of Asset Sales, reasonable and customary) expenses (including, without limitation, the fees and expenses of legal counsel and investment banking fees and expenses) incurred in connection with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only, less the amount (estimated reasonably and in good faith by the Company) of income, franchise, sales and other applicable taxes required to be paid by the Company or any of its respective Subsidiaries in connection with such Asset Sale in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits and tax credit carryforwards, and similar tax attributes. "New Acquisitions" means the acquisition by the Company or its subsidiaries of @Entertainment, Inc., A2000 Holding N.V., Time Warner Cable 21 France S.A., Reseaux Cables de France S.A., Videopole S.A., Kabel Plus, a.s., SBS Broadcasting S.A., GelreVision N.V., SKT spol. s.r.o. and NBS Broadband Services AB, all substantially as described in the Offering Circular (and each such Person's respective subsidiaries). "Non-Recourse Indebtedness" means Indebtedness of a Person to the extent that under the terms thereof and pursuant to applicable law, no personal recourse could be had against the Company or its Subsidiaries (giving effect to the designations of such Person as an Unrestricted Subsidiary) for the Payment of the principal of or interest or premium or other amounts with respect to such Indebted ness or for any claim based on such Indebtedness and that enforcement of obligations on such Indebtedness is limited solely to recourse against interests in specified assets. "Obligation" means any principal, premium or interest payment, or monetary penalty, or damages, due by the Company under the terms of the Securities or this Indenture, including any Liquidated Damages due pursuant to the terms of the Registration Rights Agreement. "Offering" means the offering of the Securities by the Company. "Offering Circular" means the offering memorandum, dated January 14, 2000, pursuant to which the Securities were offered and sold. "Officers' Certificate" means a certificate signed by a member of the Company's management board or its Supervisory Board, the Chief Executive Officer or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee in the form substantially similar to Exhibit E attached hereto, which shall comply with the Indenture, except in the case of an authentication order pursuant to Section 3.3, which must only be signed by one of the above noted persons. "Opinion of Counsel" means an opinion of counsel in the form substantially similar to Exhibit F attached hereto, who may be counsel to the Company, including an employee of the Company. "Other Senior Notes" means the Company's $600,000,000 11 1/4% Senior Notes due 2010, its (Euro) 200,000,000 11 1/4% Senior Notes due 2010 and its 22 $1,000,000,000 13 3/4% Senior Discount Notes due 2010 pursuant to the Other Senior Notes Indenture. "Other Senior Notes Indenture" means one or more Indentures, dated as of January 20, 2000, between the Company and Citibank, N.A. as trustee, pursuant to which any of the Other Senior Notes were issued. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption U.S. Dollars in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; (iii) Securities, except to the extent provided in Sections 12.2 and 12.3, with respect to which the Company has effected Defeasance and/or Covenant Defeasance as provided in Article Twelve; and (iv) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the 23 calculations required by TIA Section 313, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which any Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Parent" means UnitedGlobalCom, Inc. and its successor(s). "Parent Stock Instrument" means either (a) Indebtedness (including Disqualified Capital Stock) and Qualified Capital Stock of the Company that is convertible or exchangeable into, at the option of the Company or any holder thereof, or secured by, or whose value to the holder thereof is dependent upon any shares of Parent's Capital Stock that were owned by the Company or any of its Subsidiaries as of July 30, 1999; provided that such Indebtedness and Capital Stock of the Company shall have been issued in consideration of cash, the net proceeds of which shall have been received by the Company or (b) the Class A Common Stock of Parent owned by the Company or any of its Subsidiaries as of July 30, 1999 or any like number of shares of Class B Common Stock of Parent issued in exchange for the shares of the Class A Common Stock of Parent held as of July 30, 1999. "Participants" means institutions that have accounts with DTC or its nominee and with respect to the Regulation S Global Securities, institutions that have accounts with Euroclear or Cedelbank or their respective nominees. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Date" means any date on which a payment of principal, premium, if any, interest (or Liquidated Damages, if any) is due to be paid on any of the Securities. "Permitted Indebtedness" means that: 24 (a) the Company may incur Indebtedness evidenced by the Securities and issued pursuant to this Indenture and Indebtedness evidenced by the Other Senior Notes and issued pursuant to the Other Senior Notes Indenture up to the amounts being issued on the original Issue Date; (b) the Company may incur Refinancing Indebtedness with respect to any Indebtedness (including Disqualified Capital Stock), described in clause (a) or this clause (b) of this definition or incurred pursuant to clause (1)(ii) of Section 10.11, and any Subsidiary may incur Refinancing Indebtedness (including Disqualified Capital Stock), described in this clause (b) or clause (2)(c) of Section 10.11 and the Company and its Subsidiaries may incur Refinancing Indebtedness with respect to Indebtedness which is outstanding on the Issue Date (after giving effect to the New Acquisitions) (less the amount of any such Existing Indebtedness repaid on or after the Issue Date or which was refinanced pursuant to this clause (b)); (c) the Company and its Subsidiaries may incur Indebtedness solely in respect of bankers acceptances, letters of credit and performance and surety bonds and completion guarantees (to the extent that such incurrence does not result in the incurrence of any obligation to repay any obligation relating to borrowed money of others), all in the ordinary course of business in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; (d) the Company may incur Indebtedness to any Subsidiary, and any Subsidiary may incur Indebtedness to any other Subsidiary or to the Company; provided that in the case of Indebtedness of the Company, such obligations shall be unsecured and subordinated in all respects to the Company's obligations pursuant to the Securities and the Other Senior Notes and any event that causes such Subsidiary no longer to be a Subsidiary (including by designation to be an Unrestricted Subsidiary) shall be deemed to be a new incurrence of such Indebtedness, if then outstanding, subject to Section 10.11; (e) the Company and its Subsidiaries may incur Interest Swap and Hedging Obligations that are incurred for the purpose of fixing or 25 hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by this Indenture to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; provided that the notional amount of any such Interest Swap and Hedging Obligation does not exceed the principal amount of Indebtedness to which such Interest Swap and Hedging Obligation relates; (f) the Company and its Subsidiaries may guarantee Indebtedness of any of the Company's Subsidiaries, provided that the incurrence of such Indebtedness by such Subsidiary is permitted under this Indenture; and (g) Subsidiaries of the Company may issue preferred stock or Indebtedness to the holders (or their Affiliates) of the common equity of such Subsidiary on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary of the Company relative to their respective contributions being ignored for this purpose). "Permitted Investment" means: (a) Cash Equivalents; (b) intercompany Indebtedness to the extent permitted under clause (d) of the definition of "Permitted Indebtedness"; (c) an Investment by the Company or a Subsidiary of the Company in a Person engaged primarily in a Related Business if as a result of such Investment such Person becomes a Subsidiary of the Company or is merged with or into the Company or a Subsidiary of the Company, so long as the surviving entity is the Company or a Subsidiary of the Company; (d) an Investment in any Subsidiary of the Company; (e) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Company maintains 26 the power to influence or participate in the management of such Person by virtue of representation on such Person's board or directors or through a contractual relationship with such Person or its holders of Capital Stock; (f) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Supervisory Board of the Company or of the relevant Subsidiary determines in its good faith reasonable judgement that the Company or any of its Subsidiaries will receive as a result of such Investment commensurate network services benefits (including by becoming a customer, client, supplier, purchaser or seller of goods or services of or to such Person or Persons) from the arrangements entered into as a result of such Investment; (g) other Investments in any Person or Persons engaged primarily in a Related Business; provided that, after giving pro forma effect to each such Investment, the amount of all such Investments made solely in reliance upon this clause (g) on and after July 30, 1999 that are Outstanding at any time does not exceed in the aggregate $100,000,000 (or the foreign currency equivalent thereof measured on the date of the making of such Investment), plus, unless such amounts shall have been credited under clause (3) of Section 10.12 and utilized to make a Restricted Payment, (w) the amount of the Net Cash Proceeds to the Company from the sale of Qualified Capital Stock (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in a Qualified Exchange), (x) an amount equal to 50% of the Net Cash Proceeds from Special Character Asset Sales, (y) an amount equal to the Net Cash Proceeds to the Company or any of its Subsidiaries of any sale of securities constituting a Parent Stock Instrument (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in connection with a Qualified Exchange) and (z) the amount of Investments made pursuant to this clause (g) after July 30, 1999 that are returned to the Company or any Subsidiary on or prior to the date of any such calculation, which amount shall be the lesser of (i) the amount of the cash invested plus the value of all noncash investments (valued at the fair market value at the time of the Investment, determined in the good faith reasonable judgment of the Company or the relevant Subsidiary) and (ii) the amount of the Net 27 Cash Proceeds received plus the value of noncash proceeds received (valued at the fair market value at the time of the return of such Investment, deter mined in the good faith reasonable judgment of the Company or the relevant Subsidiary); (h) Investments made in the ordinary course of business as partial or full payment for constructing a network relating principally to a Related Business of the Company or any Subsidiary; (i) Investments solely in the form and consisting of Capital Stock of the Company (other than Disqualified Capital Stock); (j) any Investment acquired by the Company or any of its restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (k) an Investment in prepaid expenses and lease, utility and workers' compensation, performance and other similar deposits in the ordinary course of business; (l) loans, advances, or extensions of credit to employees, officers, directors made in the ordinary course of business; (m) the net obligations of any counterparty under Interest Swap and Hedging Obligations obtained in conformity with industry practices; (n) Investments made on or after July 30, 1999 in SBS Broadcasting S.A. not to exceed the amounts required to be made by the Company pursuant to the Investment Agreement by and between, SBS Broadcasting S.A., the Company and United International Holdings Inc., dated June 29, 1999, relating to the acquisition by the Company of Equity Interests in SBS Broadcasting S.A.; and 28 (o) Investments made on or after July 30, 1999 directly or indirectly, in ARA Cable Services Inc. or ARA Programming & Distribution Ltd. of Saudi Arabia, not to exceed $75,000,000. "Permitted Lien" means: (a) Liens existing on the Issue Date; (b) Liens securing the Securities and the Other Senior Notes; (c) Liens securing Indebtedness, or any agreement (including any Equity Interest) relating to any property, asset, or business acquired, of a Person existing at the time such Person becomes a Subsidiary (including by designation) or is merged with or into the Company or a Subsidiary or Liens securing Indebtedness incurred in connection with an Acquisition, provided that such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets than those of the Person (or its businesses) being acquired (or so designated); (d) leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the relative assets of the Company or any Subsidiary; (e) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any of its Subsidiaries in the ordinary course of business; (f) Liens securing Refinancing Indebtedness incurred to refinance any Indebtedness that was previously so secured in a manner no more adverse to the Holders of the Securities than the terms of the Liens securing such refinanced Indebtedness, provided that the Indebtedness secured is not increased and the Lien is not extended to any additional assets or property that would not have been security for the Indebtedness refinanced; 29 (g) Liens securing Indebtedness incurred under the Credit Agreement and other Indebtedness solely of Subsidiaries of the Company incurred in accordance with the terms of this Indenture; (h) Liens in favor of the Company or Liens on assets of Subsidiaries of the Company in favor of other such Subsidiaries; (i) Liens securing Refinancing Indebtedness that complies with the definition of "Refinancing Indebtedness"; (j) Liens securing Acquired Indebtedness and Indebtedness assumed in acquiring Related Assets, provided that such Liens were not put in place in contemplation of the incurrence by the Company or its Subsidiaries of such Indebtedness, such Liens do not extend to any property or assets of the Company or any of its Subsidiaries other than those acquired in connection therewith, and the Investment that is the subject of such acquisition is a Permitted Investment; (k) statutory liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business, provided that (1) the underlying obligations are not overdue for a period of more than 30 days, or (2) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; and (l) Liens not otherwise permitted by this Indenture in an amount not to exceed 5% of the Company's Consolidated Tangible Assets. "Person" means any Corporation, individual, limited liability company, joint stock company, joint venture, partnership, limited liability partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipally or other entity. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for a mutilated 30 security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same Indebtedness as the mutilated, lost, destroyed or stolen Security. "Preferred Stock" means any Equity Interest of any class or classes of a Person (however designated) which is preferred as to payments of dividends, or as to distributions upon any liquidation or dissolution, over Equity Interests of any other class of such Person. "Principals" means Albert M. Carollo, Lawrence F. DeGeorge, Lawrence J. DeGeorge, Curtis Rochelle, Marian Rochelle, Rochelle Investments, Ltd. (so long as it is controlled by Curtis or Marian Rochelle), Gene W. Schneider, G. Schneider Holdings, Co. and The Gene W. Schneider Family Trust (so long as each is controlled by Gene W. Schneider or trustees appointed by him), Janet S. Schneider and Mark L. Schneider, and with respect to any such Person means: (A) any controlling stockholder or 80% (or more) owned Subsidiary of such Person, or with respect to each individual Person, (i) family partnerships, Corporations or other entities holding Equity Interests in the Company, the transferee(s) or the surviving entities or entities solely for the benefit of such Person or any of the Persons listed in (iii) such Person's children, grandchildren, stepchildren, step grandchildren and their spouses, (iv) heirs, legatees and devisees, and (v) trusts solely for the benefit of any of the foregoing; or (B) any trust Corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Person and/or such other Persons referred to in the immediately preceding clause (A). "Pro Forma" or "pro forma" shall have the meaning set forth in Regulation S-X of the Securities Act, unless otherwise specifically stated herein. "Purchase Money Indebtedness" of any Person means any Indebted ness of such Person to any seller or other Person incurred solely to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease), construction, installation or improvement of any after acquired real or personal tangible property which, in the reasonable good faith judgment of the Supervisory Board of the Company, is directly related to a Related Business. "Qualified Capital Stock" means any Capital Stock of the Company that is not Disqualified Capital Stock. 31 "Qualified Exchange" means: (a) any legal defeasance, redemption, retirement, repurchase or other acquisition of Capital Stock, or Indebtedness of the Company issued on or after July 30, 1999 with the Net Cash Proceeds received by the Company from the substantially concurrent sale of its Qualified Capital Stock or, to the extent used to retire Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999, Subordinated Indebtedness of the Company, (b) any exchange of Qualified Capital Stock of the Company for any Capital Stock or Indebtedness of the Company issued on or after July 30, 1999, or (c) any issuance of Subordinated Indebtedness of the Company in exchange for Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999. "Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule 144A. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Period" with regard to any Person means the full fiscal quarter ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Securities or this Indenture, for which Consolidated financial statements of the Company are available. "Refinancing Indebtedness" means Indebtedness (including Disqualified Capital Stock) (a) issued in exchange for, or the proceeds from the issuance and sale of which are used substantially concurrently to repay, redeem, defease, refund, refinance, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to, or a deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any Indebtedness 32 (including Disqualified Capital Stock and Refinancing Indebtedness) in a principal amount (or, if issued with an original issue discount, an original accreted value, determined in accordance with GAAP) or, in the case of Disqualified Capital Stock, liquidation preference, not to exceed (after deduction of reasonable and customary fees and expenses incurred in connection with the Refinancing and the amount of any premium paid in connection with such Refinancing in accordance with the terms of the documents governing the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) refinanced without giving effect to any modification thereof made in connection with or in contemplation of such refinancing) the lesser of (1) the principal amount or, in the case of Disqualified Capital Stock, liquidation preference, of the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) so Refinanced and (2) if such Indebtedness being Refinanced was issued with an original issue discount, the accreted value thereof (as determined in accordance with GAAP) at the time of such Refinancing; provided that (A) such Refinancing Indebtedness shall only be used to refinance Outstanding Indebtedness (including Disqualified Capital Stock) of such Person issuing such Refinancing Indebtedness (except that the Company may refinance Outstanding Indebtedness of a Subsidiary), (B) such Refinancing Indebtedness shall (x) not have an Average Life shorter than the Indebtedness (including Disqualified Capital Stock) to be so refinanced at the time of such Refinancing and (y) in all respects, be no less contractually subordinated or junior, if applicable, to the rights of Holders of the Securities than was the Indebtedness (including Disqualified Capital Stock) to be refinanced, (C) such Refinancing Indebtedness shall have a final stated maturity or redemption date, as applicable, no earlier than the final stated maturity or redemption date, as applicable, of the Indebtedness (including Disqualified Capital Stock) to be so refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured) in a manner no more adverse to the Holders of the Securities than the terms of the Liens (if any) securing such refinanced Indebtedness, including, without limitation, the amount of Indebtedness secured shall not be increased. "Registrar" means an office or agency of the Company in London, where Securities may be presented for registration of transfer or exchange. "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof, between the Initial Purchasers and the Company. "Registration Statement" means the Registration Statement as defined in the Registration Rights Agreement. 33 "Regular Record Date" for the interest payable on any Interest Payment Date means January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" has the meaning specified in Section 3.3. "Related Assets" means all assets, rights, contractual or otherwise, and properties, whether tangible or intangible, used or intended for use in connection with a Related Business; provided that Related Assets shall not include any Equity Interests or indebtedness of, or interests in, any Person. "Related Business" means the business of constructing, creating, developing, marketing or operating one or more cable, telephone or communications systems, including, without limitation, any system for transmitting, or providing service or product for the transmission of, voice, video or data through transmission facilities, Internet service providers or any business reasonably related to any of the foregoing and any business conducted by the Company or any Subsidiary of the Company on the Issue Date; provided that the determination of what constitutes a Related Business shall be made in good faith by the Supervisory Board of the Company. "Related Business Acquisition" means an Asset Acquisition of (i) properties or assets to be used in a Related Business, of any Person that becomes a restricted Subsidiary as a result of such Asset Acquisition or (iii) of the Capital Stock of any Person that becomes an Unrestricted Subsidiary as a result of such Asset Acquisition, but only if such Asset Acquisition would be permitted pursuant to Section 10.12 or as a Permitted Investment; provided that, in the case of clauses (ii) and (iii), such Person's assets and properties consist principally of properties or assets that will be used in a Related Business. "Replacement Assets" means property or assets that will be used in a Related Business of the Company or any Subsidiary and Equity Interests of a Person that becomes a Subsidiary of the Company. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including 34 any vice-president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust mater is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Global Security" has the meaning specified in Section 3.3. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than other Permitted Investments. "Restricted Payment" means, with respect to any Person: (a) the declaration or payment of any dividend or other distribution in respect of Equity Interests of such Person or any parent or Subsidiary of such Person, (b) any payment on account of the purchase, redemption or other acquisition or retirement for value of Equity Interests of such Person or any Subsidiary or parent of such Person, (c) other than with the proceeds from the substantially concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase, redemption, or other acquisition or retirement for value of, any payment in respect of any amendment of the terms of or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by such Person or a parent or Subsidiary of such Person prior to the scheduled maturity, any scheduled repayment of principal, or scheduled sinking fund payment, as the case may be, of such Indebtedness and (d) any Restricted Investment by such Person; provided, however, that the term "Restricted Payment" does not include (1) any dividend, distribution or other payment on or with respect to Equity Interests of a Person or the parent of such Person to the extent payable solely in shares of Qualified Capital Stock of such Person, or (2) any dividend, distribution or other payment to the Company or any of its Subsidiaries by the Company or any of its Subsidiaries, or 35 (3) any payment on account of the exchange of shares of Common Stock of Parent for a like number of substantially identical (except with regard to voting rights) shares of Common Stock of Parent, or (4) payments to or for the account of the Stichting Administratiekantor UPC (the "Foundation") or its successors of amounts related to taxes payable upon the grant of options to certain employees in shares of the Company held by the Foundation, provided that, for purposes of this clause (4), neither the Company nor any of its Subsidiaries shall be liable to any Person in respect of such amounts, other than for the payment of such amounts actually received or to be received by it, to the Foundation. "Restricted Period" means the period through and including the 40/th/ day after the later of the commencement of the Offering and the Issue Date of the Initial Securities. "Restricted Securities" means Restricted Global Securities and Regulation S Global Securities. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the United States Securities and Exchange Commission. "Securities" means, collectively, the "Securities" issued under this Indenture, including the Initial Securities and the Exchange Securities. "Securities Act" means the United States Securities Act of 1933, as amended. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" shall have the meaning provided under Regulation S-X of the Securities Act, as in effect on the Issue Date. "Special Character Asset Sale" means any Asset Sale solely consisting of assets and property or interests therein comprising its interests in chello broad band, UPCtv or Priority Telecom determined by the Company in its good faith 36 reasonable judgment. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity," when used with respect to any Security, means the date specified in any Security as the fixed date on which the final payment of principal and interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company that is subordinated in right of payment by its terms or the terms of any document or instrument relating thereto to the Securities, in any respect or when used in the definitions of Restricted Payment or Qualified Exchange has a final stated maturity on (except for the Securities) or after the Stated Maturity. "Subsidiary," with respect to any Person, means (1) a Corporation a majority of whose Equity Interests with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person, (2) any other Person (other than a Corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has majority ownership interest, or (3) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner and in which such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the Company. Unless the context requires otherwise, Subsidiary means each direct and indirect Subsidiary of the Company. "Supervisory Board" means, with respect to any Person, the supervisory board of directors of such Person or any committee of the supervisory board of directors of such Person authorized, with respect to any particular matter, to exercise the power of the supervisory board of directors of such Person. "Tax" or "Taxes" means any and all present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, and all liabilities with respect thereto, together with any penalties, interest, or additions thereto. 37 "Tax Event" means that as a result of any change in or amendment to the laws, treaties or regulations of any Taxing Authority (or any official or administrative pronouncement or action or judicial decision) interpreting or applying such laws, treaties or regulations where such change or amendment is proposed and becomes effective on or after the Issue Date, in making any payment due or to become due under the Securities, the Company is or would be required on the next succeeding payment date to pay Additional Amounts and the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Company. "Taxing Authority" means any nation or government or any political subdivision thereof or any agency or instrumentality therein and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 9.5. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Global Security" has the meaning set forth in Section 3.3(d). "Unrestricted Securities" means an Unrestricted Global Security and all other Securities that are not Restricted Securities, including Exchange Securities. "Unrestricted Subsidiary" means any subsidiary of the Company that does not own any Equity Interest of, or own or hold any Lien on any property of, the Company or any other Subsidiary of the Company and that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Supervisory Board of the Company); provided that such Subsidiary at the time of such designation (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Subsidiary of the Company, unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such 38 Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries. The Supervisory Board of the Company may designate any Unrestricted Subsidiary to be a Subsidiary, pro vided that (1) no Default or Event of Default is existing or will occur as a consequence thereof and (2) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 (or its foreign currency equivalent) of Indebtedness pursuant to the Debt Incurrence Ratio of Section 10.11. Each such designation shall be evidenced by filing with the Trustee a certified copy of the resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" means direct non-callable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of which (other than directors' qualifying shares) are owned by the Company or one or more Wholly Owned Subsidiaries of the Company. SECTION 1.2 Compliance Certificates and Opinions. Upon any ------------------------------------ application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional 39 certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 10.9(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual , such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual 40 matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be Consolidated (with proper identification of each matter covered therein) and form one instrument. SECTION 1.4 Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. 41 (d) If the Company shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.5 Notices. Any notice or communication shall be ------- sufficiently given if in writing and delivered in person, by facsimile and confirmed by overnight courier, or mailed by first-class mail addressed as follows: if to the Company: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attention: General Counsel and Treasurer 42 Facsimile: 31 20 778 9841 Telephone: 31 20 778 9840 with a copy to: Holme, Roberts & Owen LLP Heathcoat House 20 Savile Row London W1X 1AE England Attention: Paul G. Thompson Facsimile: 44 171 287 9344 Telephone: 44 171 494 5600 if to the Trustee or Paying Agent: Citibank, N.A. 5 Carmelite Street London EC4Y 0PA copies of notices to the Trustee should also go to: Citibank, N.A. 11 Old Jewry London EC2R 8DU Attention: Global Agency and Trust Services Facsimile: 44 171 508 3879 Telephone: 44 171 508 3815 if to the Luxembourg Paying and Transfer Agent: Banque International a Luxembourg 69 route d'Esch Luxembourg L-2953 c/o the Trustee 43 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed, first-class, postage prepaid, to a Holder including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed to him at his address as set forth on the Security Register and shall be sufficiently given to him if so mailed within the time prescribed. To the extent required by the TIA, any notice or communication shall also be mailed to any Person described in TIA Section 313(c). 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, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 1.6 Notice to Holders; Waiver. Where this Indenture provides ------------------------- for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. As long as the Securities are listed on the Luxembourg Stock Exchange and notice is required by the rules of the Luxembourg Stock Exchange, such notice shall be sufficiently given by publication of such notice to Holders of the Securities in English will be in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if such publication is not practicable, in one other leading English language daily newspaper with general circulation in Europe, such newspaper being published on each business day in morning editions, whether or not it shall be published in Saturday, Sunday or holiday editions. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice 44 may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 1.7 Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants and agreements in ---------------------- this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.9 Separability Clause. In case any provision in this ------------------- Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in --------------------- the Securities, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Security Registrar and their successors hereunder and the Holders any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11 Governing Law. This Indenture and the Securities shall ------------- be governed by and construed in accordance with the law of the State of New York including without limitation Section 5-1401 and 5-1402 of the New York General Obligation Law and New York Civil Practice Laws and Rules 327(b), as applied to contracts made and performed within the State of New York, without regard to conflicts of law. The Company hereby irrevocably submits to the jurisdiction of any New York State court sitting in the borough of Manhattan in the city of New York or any federal court sitting in the borough of Manhattan in the city of New York in respect of any suit, action or proceeding arising out of or relating to 45 this Indenture and the Securities, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The Company irrevocably waives, to the fullest extent they may effectively do so under applicable law, trial by jury and any objection which they may now or hereafter have to the laying of the venue of any such suit, action or proceeding bought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. SECTION 1.12 Conflict with Trust Indenture Act. Prior to the issuance --------------------------------- of the Exchange Securities or the effectiveness of the Shelf Registration Statement, the Trust Indenture Act shall apply as a matter of contract to this Indenture for purposes of interpretation, construction and defining the rights and obligations hereunder. Upon the issuance of the Exchange Securities or the effectiveness of the Shelf Registration Statement, this Indenture shall be subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. SECTION 1.13 Legal Holidays. In any case where any Interest Payment -------------- Date, Redemption Date, or Stated Maturity or Maturity of any Security shall not be a Business Day at a place of payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity or Maturity; provided that no interest shall accrue solely by virtue of such delay for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be. 46 SECTION 1.14 No Personal Liability of Board Members, Officers, ------------------------------------------------- Employees and Shareholders. No board member, director, officer, employee, - -------------------------- agent, authorized representative, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a board member, director, officer, employee, agent, authorized representative, incorporator or shareholder of the Company. By accepting a Security, the Trustee on behalf of each Holder waives and releases all such liability (but only such liability). The waiver and release are part of the consideration for issuance of the Securities. SECTION 1.15 Independence of Covenants. All covenants and agreements ------------------------- in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists. SECTION 1.16 Exhibits. All exhibits attached hereto are by this -------- reference made a part hereof with the same effect as if herein set forth in full. SECTION 1.17 Counterparts. This Indenture may be executed in any ------------ number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 1.18 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 1.19 Agent for Service; Submission to Jurisdiction; Waiver of -------------------------------------------------------- Immunities. By the execution and delivery of this Indenture, the Company (i) - ---------- acknowledges that it has, by separate written instruments, designated and appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT Corporation System") (and any successor entity), as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture that may be instituted in any federal or state court in the Borough of Manhattan, City of New York, State of New York or brought under federal or state securities laws, and represent and warrant that CT Corporation System has accepted 47 such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding and (iii) agrees that service of process upon CT Corporation System and written notice of said service to the Company, in accordance with Section 1.5 shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect for as long as any of the Securities remain Outstanding (subject to the limitation set forth in clause (i)); provided, however, that the Company may, and to the extent CT Corporation System ceases to be able to be served on the basis contemplated herein shall, by written notice to the Trustee, designate such additional or alternative agent for service of process under this Section 1.19 that (i) maintains an office located in the Borough of Manhattan City of New York, State of New York, and (ii) is either (x) United States counsel for the Company or (y) a corporate service company which acts as agent for service of process for other persons in the ordinary course of its business. Such written notice shall identify the name of such agent for service of process and the address of the office of such agent for service of process in the Borough of Manhattan, City of New York, State of New York. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court of (i) any jurisdiction in which the Company owns or leases property or assets, (ii) the United States or the State of New York or (iii) the Netherlands or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property and assets or this Agreement or any of the Notes or actions to enforce judgments in respect of any thereof, the Company hereby irrevocably waives such immunity in respect of its obligations under the above-referenced documents, to the extent permitted by law. SECTION 1.20 Judgment Currency. The Company hereby agrees to ----------------- indemnify the Trustee, its directors, its officers and each person, if any, who controls the Trustee within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any loss incurred by such person as a result of any judgment or order being given or made against the Company for any U.S. Dollar amount due under this Agreement and such judgment or order being expressed and paid in a currency (the "Judgment Currency") other than U.S. Dollars and as a result of any variation as between (i) the rate of exchange at which the United States Dollar amount is converted into the Judgment Currency for the purpose of such judgment or 48 order and (ii) the spot rate of exchange in The City of New York at which such party on the date of payment of such judgment or order is able to purchase United States Dollars with the amount of the Judgment Currency actually received by such party. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, United States Dollars. ARTICLE II SECURITY FORMS SECTION 2.1 Forms Generally. The Securities and the Trustee's --------------- certificate of authentication with respect thereto shall be in substantially the form set forth in Exhibit A hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or system on which the Securities may be listed or eligible for trading or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The Certificated Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner permitted by the rules of any securities exchange or system on which the Securities may be listed or eligible for trading, all as determined by the managing directors, officers and authorized representatives of the Company executing such Securities, as evidenced by their execution of such Securities. 49 ARTICLE III THE SECURITIES SECTION 3.1 Title and Terms. The aggregate principal amount of --------------- Securities which may be authenticated and delivered under this Indenture is initially limited to $300,000,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6, 10.10, 10.16 or 11.8. The Initial Securities shall be known and designated as the "$300,000,000 11 1/2% Senior Notes due 2010" and the Exchange Securities shall be known as the "$300,000,000 11 1/2% Series B Senior Notes". The final Stated Maturity of the Securities shall be February 1, 2005 2010. Except as set forth in the next paragraph of this Section 3.1, interest on the Securities will accrue at a rate of 11 1/2% per annum from January 20, 2000 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2000 to the Holders of record on the immediately preceding Regular Record Date. Interest on the Securities will be computed on the basis of a 360-day year comprised of twelve 30-day months. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Other Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the interest rate otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that on and after the date of such Interest Rate Adjustment Event, interest on the Securities will accrue at a rate of 11 3/4% per annum. Any amounts owing as a result of such increase shall be paid to the Holders of record as of the Regular Record Date next following any such Interest Rate Adjustment Event, on the immediately following Interest Payment Date, and thereafter will be payable semiannually in arrears on February 1 and August 1 of each year to the Holders of record on the immediately preceding Regular Record Date. 50 Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6. Such notice shall include the amount to be paid to the Holders of record as of such Regular Record Date on the next following Interest Payment Date. Principal of, premium, if any, and interest on the Securities will be payable, and the Securities may be exchanged or transferred, at the office or agency of the Company in The City of New York and in London, which, unless otherwise provided by the Company, will be the offices of the Trustee. At the option of the Company, interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable as provided in Article Eleven. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Twelve. The Securities will be general, senior, unsecured obligations of the Company, ranking pari passu in right of payment with each other. SECTION 3.2 Denominations. The Securities (including any Global ------------- Security) shall be issuable only in registered form without coupons and only in denominations of US$1,000 or any integral multiple of US$1,000 above such amount. The Securities shall not be issuable in bearer form. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. SECTION 3.3 Execution, Authentication, Delivery and Dating. ---------------------------------------------- (a) The Securities shall be executed on behalf of the Company by its Chief Executive Officer, its President, a Vice President or a managing director (being an executive officer of the Company with due authority granted by the management board of the Company to execute Securities) of the Company. The signature of any of these officers or directors on the Securities may be manual or facsimile signatures of the present or any future such authorized officer or director and may be imprinted or otherwise reproduced on the Securities. 51 Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers or directors of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. In addition, any Security may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Security, shall be the proper officers or directors of the Company, although at the date of such Security or of the execution of this Indenture any such Person was not such officer or director. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. On the Issue Date the Trustee shall authenticate Initial Securities for original issue in the aggregate principal amount not to exceed $300,000,000, upon a written order of the Company in the form of an Officer's Certificate. Such order shall specify the amount of the Initial Securities to be authenticated and the date on which the original issue of Initial Securities is to be authenticated. In addition, the Trustee shall authenticate Exchange Securities for original issue in the aggregate principal amount of up to $300,000,000 upon a written order of the Company in the form of an Officer's Certificate, provided that such Exchange Securities shall be issuable only upon the valid surrender for cancellation of Initial Securities of a like aggregate principal amount in accordance with the Registration Rights Agreement. The Officer's Certificate shall specify the amount of Exchange Securities to be authenticated and the date on which the Exchange Securities are to be authenticated. Upon the written order of the Company in the form of an Officer's Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to 52 reflect any name change of the Company. (b) The terms and provisions contained in the form of Securities shall constitute, and are hereby expressly made, a part of this Indenture and, 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. (c) Restricted Global Securities. (i) The Initial Securities offered ---------------------------- and sold in reliance on Rule 144A shall be issued in the form of one or more global securities (the "Restricted Global Security") in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. (ii) Each Restricted Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as herein after provided. The aggregate principal amount of a Restricted Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding decrease or increase in the aggregate principal amount of a Security that is a Regulation S Global Security (as defined below) or a Security that is an Unrestricted Global Security (as defined below), as hereinafter provided. (d) Regulation S Global Securities. (i) Initial Securities offered ------------------------------ and sold in reliance on Regulation S shall be initially issued in the form of one or more Global Securities in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. Until such time as the Restricted Period shall have terminated, such Global Securities shall be referred to herein as the "Regulation S Global Security." After such time as the Restricted Period shall have terminated, such Regulation S Global Securities shall be referred to herein, as the "Unrestricted Global Securities." (ii) Each Regulation S Global Security and Unrestricted Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and 53 authenticated by the Trustee as hereinafter provided, for credit to the respective accounts at DTC of the depositaries for Euroclear or Cedelbank. The aggregate principal amount of each Regulation S Global Security (or Unrestricted Global Security) may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding decrease or increase in the aggregate principal amount of a Restricted Global Security, as hereinafter provided. (e) The Exchange Securities which are issued in exchange for Initial Securities shall be issued initially in the form of one or more permanent Global Securities in definitive, fully registered form without interest coupons, substantially in the form set forth in Exhibit A, deposited with the Trustee, as custodian for DTC, and shall bear the applicable legends relating to Global Securities set forth in Exhibit A that are required to appear on such Securities. Exchange Securities shall constitute Unrestricted Securities. (f) In case the Company, pursuant to Article Eight, shall be Consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. SECTION 3.4 Temporary Securities. Pending the preparation of -------------------- 54 definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.5 Registration, Registration of Transfer and Exchange. The --------------------------------------------------- Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchange of Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Security Registrar") for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 10.2, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, if the requirements, of such transfer are met, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations of a like aggregate principal amount. 55 At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination and of a like currency and aggregate principal amount (including an exchange of Initial Securities for Exchange Securities), upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, the Securities which the Holder making the exchange is entitled to receive, provided that no exchange of Initial Securities for Exchange Securities shall occur until an Exchange Registration Statement shall have been declared effective by the SEC (confirmed in an Officer's Certificate) and that the Initial Securities to be exchanged for the Exchange Securities shall be cancelled by the Trustee. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6, 10.10, 10.16 or 11.8 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the selection of Securities to be redeemed under Section 11.4 and ending at the close of business on the day of such mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities. If ------------------------------------------------ 56 (i) any mutilated Security is surrendered to the Trustee or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously Outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7 Payment of Interest; Interest Rights Preserved. Interest ---------------------------------------------- on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.2; provided, however, that each installment of interest may at the Company's option be paid (i) by mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.8, to the address of such Person as it appears in the Security 57 Register, or (ii) by wire transfer of such interest in immediately available funds to an account located in the United States maintained by the DTC. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") must be paid by the Company, at its election in each case, as provided in paragraph (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of U.S. Dollars equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such U.S. Dollars, when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 1.6, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following paragraph(2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or system on which the Securities may be listed or eligible for trading, and 58 upon such notice as may be required by such exchange or system, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8 Persons Deemed Owners. Prior to the due presentment of --------------------- a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 3.5 and 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9 Cancellation. All Securities surrendered for payment, ------------ redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. SECTION 3.10 Computation of Interest. Interest on the Securities ----------------------- shall be computed on the basis of a 360-day year comprised of twelve 30-day 59 months. SECTION 3.11 "CUSIP" and/or "ISIN" Numbers. The Company in issuing ----------------------------- the Securities may use a "CUSIP" and/or "ISIN" number (if then generally in use), and if so, the Trustee shall use "CUSIP" and/or "ISIN" numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of such numbers either as printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee in writing of any change in the "CUSIP" or "ISIN" numbers of the Securities. SECTION 3.12 Book-Entry Provisions for Global Securities, Certificated --------------------------------------------------------- Securities. - ---------- Except as indicated below in this Section 3.12, the Securities shall be represented only by Global Securities. The Global Securities shall be deposited with a Depositary for such Securities (and shall be registered in the name of such Depositary or its nominee). The Depositary for the Securities shall be DTC unless the Company appoints a successor Depositary by delivery of a Company Order to the Trustee specifying such successor Depositary. All payments on a Global Security will be made to DTC or its nominee, as the case may be, as the registered owner and Holder of such Global Security. The Company will be fully discharged by payment to or to the order of such Depositary from any responsibility or liability in respect of each amount so paid. Upon receipt of any such payment in respect of a Global Security, DTC will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of DTC. Unless and until it is exchanged in whole or in part for Certificated Securities, a Global Security may not be transferred except as a whole by the relevant Depositary or nominee thereof to another nominee of the Depositary or to a successor of the Depositary or a nominee of such successor. Owners of beneficial interests in Global Securities shall be entitled or required, as the case may be, but only under the circumstances described in this Section 3.12, to receive physical delivery of Certificated Securities. 60 Interests in a Global Security shall be exchangeable or transferable, as the case may be, for Certificated Securities if (i) DTC notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days or (ii) in the case of any Global Security, an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Upon the occurrence of any of the events described in the preceding sentence, the Company shall cause the appropriate Certificated Securities to be delivered to the owners of beneficial interests in the Global Securities or the Participants in DTC, Euroclear or Cedelbank through which such owners hold their beneficial interest. Certificated Securities shall be exchangeable or transferable for interests in other Certificated Securities as described herein. SECTION 3.13 Transfer and Exchange of Securities. ----------------------------------- (a) Obligations with Respect to Transfers and Exchanges of Securities. ----------------------------------------------------------------- Upon surrender for registration of transfer of any Security of a series to the appropriate Registrar, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, and subject to the other provisions of this Section 3.13, Securities of any series may be exchanged for other Securities of such series of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and subject to the other provisions of this Section 3.13, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. 61 Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the appropriate Registrar and be duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or governmental charge payable in connection with any registration of transfer or exchange of Securities. (b) Transfer and Exchange of Global Securities. Notwithstanding any ------------------------------------------ provisions of this Indenture or the Securities, transfers of a Global Security, in whole or in part, transfers and exchanges of interests therein of the kinds described in clauses (ii), (iii) and (iv) below and exchange of interests in Global Securities or of other Securities as described in clause (v) below, shall be made only in accordance with this Section 3.13(b). Transfers and exchanges subject to this Section 3.13 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 3.13. (i) General. A Global Security may not be transferred, ------- in whole or in part, to any Person other than DTC or a nominee thereof or a successor to DTC or its nominee, and no such transfer to any such other Person may be registered; provided that this clause (i) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security of any series to any Person shall be effective under this Indenture or the Securities of such series unless and until such Security has been registered in the name of such Person. Nothing in this Section 3.13(b)(i) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 3.13(b). (ii) Restricted Global Security to Regulation S Global ------------------------------------------------- Security. If the Holder of a beneficial interest in a Restricted -------- Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security of such series, such transfer may be effected, subject to the rules and procedures of 62 DTC, Euroclear and Cedelbank, in each case to the extent applicable (the "Applicable Procedures"), only in accordance with the provisions of this Section 3.13(b)(ii). Upon receipt by the Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar, to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Regulation S Global Security in a principal amount equal to that of the beneficial interest in a Restricted Global Security to be so transferred; (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest; and (C) a certificate in substantially the form set forth in Exhibit B given by the Holder of such beneficial interest, the principal amount of a Restricted Global Security shall be reduced, and the principal amount of a Regulation S Global Security shall be increased, by the principal amount of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar, and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in a Regulation S Global Security having a principal amount equal to the amount so transferred. (iii) Restricted Global Security to Unrestricted Global ------------------------------------------------- Security. If the Holder of a beneficial interest in a Restricted -------- Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iii). Upon receipt by the Registrar, of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar to credit or cause to be credited to a specified Agent Member's account a beneficial interest in an Unrestricted Global Security in a principal amount equal to that of the beneficial interest in a Restricted Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information 63 regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest, and (C) a certificate in substantially the form set forth in Exhibit C given by the Holder of such beneficial interest, the principal amount of the Restricted Global Security shall be reduced, and the principal amount of an Unrestricted Global Security shall be increased, by the principal amount of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in an Unrestricted Global Security having a principal amount equal to the amount so transferred. (iv) Regulation S Global Security or Unrestricted -------------------------------------------- Global Security to Restricted Global Security. If the Holder of a --------------------------------------------- beneficial interest in a Regulation S Global Security of any series or an Unrestricted Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Restricted Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iv). Upon receipt by the Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Restricted Global Security in a principal amount equal to that of the beneficial interest in a Regulation S Global Security or an Unrestricted Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest, and (C) with respect to a transfer of a beneficial interest in a Regulation S Global Security (but not an Unrestricted Global Security) to a Person whom the transferor reasonably believes is a QIB, a certificate in substantially the form set forth in Exhibit D given by the Holder of such beneficial interest, the principal amount of a Restricted Global Security shall be increased, and the principal amount of a Regulation 64 S Global Security or an Unrestricted Global Security shall be reduced, by the principal amount of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Restricted Global Security having a principal amount equal to the amount so transferred. (v) Exchanges of Global Security for Non-Global ------------------------------------------- Security. In the event that a Global Security or any portion -------- thereof is exchanged for Securities other than Global Securities, such other Securities may in turn be exchanged (on transfer or otherwise) for Securities that are not Global Securities or for beneficial interests in a Global Security (if any is then Outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of clauses (i) through (iv) above and (vi) below (including the certification requirements intended to insure that transfers and exchanges of beneficial interests in a Global Security comply with Rule 144A, Rule 144 or Regulation S, as the case may be) and any Applicable Procedures, as may be from time to time adopted by the Company and the Trustee. (vi) Interest in Regulation S Global Security to be ---------------------------------------------- Held Through Euroclear or Cedelbank. Until the termination of the ----------------------------------- Restricted Period with respect thereto, interests in a Regulation S Global Security may be held only through Agent Members acting for and on behalf of Euroclear and Cedelbank, provided that this clause (vi) shall not prohibit any transfer in accordance with Section 3.13(b)(iv) hereof. (c) Legends. Each Restricted Security and Global Security issued ------- hereunder shall, upon issuance, bear the legends set forth in Exhibit A hereto that are required to be applied to such a Security and such required legends shall not be removed from such Security except as provided in the next sentence or Section 3.13(e). The legend required for a Restricted Security may be removed from a Security if there is delivered to the Company and the appropriate Registrar such satisfactory evidence, which may include an opinion of independent counsel licensed 65 to practice law in the State of New York, as may be reasonably required by the Company that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the direction of the Company, shall authenticate and deliver in exchange for such Security another security or securities having an equal aggregate principal amount that does not bear such legend. If such a legend required for a Restricted Security has been removed from a Security as provided above, it shall not be a Restricted Security and no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other security is a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a legend to appear thereon. (d) Global Securities. The provisions of clauses (i), (ii), (iii), ----------------- and (iv) below shall apply only to Global Securities; (i) General. Each Global Security authenticated under ------- this Indenture shall be registered in the name of the appropriate Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor. (ii) Transfer to Persons other than Depositary. ----------------------------------------- Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any person other than the appropriate Depositary or a nominee thereof unless (A) DTC notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days or (B) an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Any Global Security exchanged pursuant to clause (A) above shall be so exchanged in whole and not in part and any Global Security exchanged pursuant to clause (B) above may be exchanged in whole or from time to time in part as directed by DTC. Any Security issued in exchange for a Global Security or any portion thereof shall be a 66 Global Security, provided that any such Security so issued that is registered in the name of a Person other than the appropriate Depositary or a nominee thereof shall not be a Global Security. (iii) Global Security to Certificated Security. ---------------------------------------- Securities issued in exchange for a Global Security or any portion thereof pursuant to clause (ii) above shall be issued in definitive, fully registered form without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the appropriate Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the appropriate Depositary to the Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, in the case of a Global Security, if the Trustee is acting as custodian for DTC or its nominee with respect to such Global Security or, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee, as Authenticating Agent. Upon any such surrender or adjust adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. (iv) In the event of the occurrence of any of the events specified in clause (ii) above, the Company will promptly make available to the Trustee a supply of Certificated Securities in definitive, fully registered form, without interest coupons, sufficient to meet the Trustee's requirements hereunder. (v) No Rights of Agent Members in Global Security. No --------------------------------------------- Agent Member of any Depositary nor any other Persons on whose behalf Agent Members may act shall have any rights under the Indenture with respect to any Global Security, or under any Global Security, and each Depositary or its nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, 67 nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the applicable Depositary or such nominee, as the case may be, or impair, as between DTC, Euroclear and Cedelbank, their respective Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a Holder of any Security. SECTION 3.14 Special Transfer Provisions. --------------------------- (a) Transfers to Institutional Accredited Investors. If Securities ----------------------------------------------- are being transferred to an Institutional Accredited Investor, the Securities shall be accompanied by delivery of a transferee certificate for Institutional Accredited Investors substantially in the form of Exhibit G hereto and an opinion of counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act. (b) Other Transfers. If a Holder proposes to transfer a Security --------------- pursuant to any exemption from the registration requirements of the Securities Act other than as provided for above, the Security Registrar shall only register such transfer or exchange if such transferor delivers to the Security Registrar and the Trustee an Opinion of Counsel satisfactory to the Company and the Security Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture; provided that the Company may, based upon the opinion of its counsel, instruct the Security Registrar by a Company Order not to register such transfer in any case where the proposed transferee is not a QIB, an Institutional Accredited Investor or a non-U.S. Person. (c) General. By its acceptance of any Security bearing Legends, each ------- Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Legends and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.12 or this Section 3.14 for a period of two years, after which time such letters, notices and other written communications shall at the written request of the Company be delivered to the Company. The Company shall have the right to inspect and make copies of all such 68 letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Security Registrar. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture --------------------------------------- shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (1) either (a) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment U.S. Dollars have theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (b) (i) all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable, or (ii) the Company has given irrevocable and unconditional notice of redemption for all of the Outstanding Securities within 60 days of such notice pursuant to the redemption provisions of this Indenture, and the Company, in the case of (i) or (ii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and accrued interest (and Liquidated Damages, if any,) to the date of such deposit; 69 (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; (3) the Company has delivered irrevocable instructions to the Trustee to apply the deposited U.S. Dollars toward the payment of the Securities at Maturity or the Redemption Date, as the case may be, which must be within 60 days thereof; (4) the Holders of the Securities have a valid, perfected, exclusive security interest in such trust; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if U.S. Dollars shall have been deposited with the Trustee pursuant to clause(1)(b) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2 Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default," wherever used ----------------- 70 herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest (or Liquidated Damages, if any) on any Security when it becomes due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of the principal of (or premium, if any, on) any Security as and when the same becomes payable at its Maturity, or upon redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Purchase Price or the Asset Sale Offer Price, or otherwise on Securities validly tendered and not properly withdrawn pursuant to a Change of Control Offer or Asset Sale Offer, as applicable; or (3) failure to perform any other covenant or agreement of the Company under this Indenture or Securities and, except for the provisions under Section 10.10, 10.16, Article Eight and Section 10.12, continued for 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of the Outstanding Securities; (4) a default in Indebtedness of the Company or any of its Subsidiaries with an aggregate amount Outstanding in excess of $50,000,000 (or its foreign currency equivalent) (a) resulting from the failure to pay principal at maturity or otherwise at end of any applicable grace period for such payment pursuant to the original terms of such Indebtedness or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity; or (5) the rendering of a final judgment or final judgments not covered by insurance in an amount in excess of $50,000,000 (or its foreign currency equivalent) at any one time against the Company or any of its Subsidiaries by a court or courts of competent jurisdiction, which judgment or judgments remain unbonded, undischarged or unstayed for a period of 60 days after the date on which the right to appeal all such judgments has expired; or (6) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, 71 arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary or any other applicable federal, state or foreign law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the institution by the Company or any Significant Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the U.S. Federal Bankruptcy Code or any other applicable federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its Indebtedness generally as they become due. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If -------------------------------------------------- an Event of Default (other than an Event of Default specified in Section 5.1(6) or 5.1 (7) relating to the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal and accrued interest (and Liquidated Damages, if any) of all the Securities to be due and payable immediately by a notice in writing to the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), and upon any such declaration such principal, accrued interest (and Liquidated Damages, if any) shall become immediately due and payable. If an Event of Default specified in Section 5.1(6) or 5.1(7) relating to the Company occurs and is continuing, then the principal and accrued interest (and Liquidated Damages, if any) of all the Securities 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 a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article Five, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if 72 (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Outstanding Securities, (B) all unpaid principal of (and premium, if any, on) any Outstanding Securities which has become due otherwise than by such declaration of acceleration, and interest on such unpaid principal at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest on overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all existing Events of Default, other than the non-payment of amounts of principal, (or premium, if any,) and interest on the Securities which have become due solely by such declaration of acceleration, and except a Default with respect to any provision requiring a supermajority approval to amend, which Default may only be waived by such a supermajority, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. The Company covenants that if - ------- (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and interest on any overdue principal (and 73 premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4 Trustee May File Proofs of Claim. In case of the -------------------------------- pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (and Liquidated Damages, if any) owing and unpaid in respect of the Securities and to file such 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 and its agents and counsel) and of the Holders allowed in 74 such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator or 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 the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.5 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. All rights of action and claims under this Indenture or the - ---------- Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6 Application of Money Collected. Any money collected by ------------------------------ the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; 75 SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest (and Liquidated Damages, if any) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.7 Limitation on Suits. No Holder of any Securities shall ------------------- have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) the Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.8 Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- 76 Premium and Interest. Notwithstanding any other provision in this Indenture, - -------------------- the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment as provided herein (including, if applicable, Article Twelve) and in such Security of the principal of (and premium, if any) and (subject to Section 3.7) interest (and Liquidated Damages, if any) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or ---------------------------------- any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise ------------------------------ provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, 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 5.11 Delay or Omission Not Waiver. No delay or omission of ---------------------------- the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12 Control by Holders. The Holders of not less than a ------------------ majority in aggregate principal amount of the Outstanding Securities shall have the 77 right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting unless it has received indemnity reasonably satisfactory to it. SECTION 5.13 Waiver of Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default (1) in respect of the payment of the principal of (or premium, if any) or interest (and Liquidated Damages, if any) on any Security, or (2) in respect of a covenant or provision hereof which cannot be modified or amended without the approval of a supermajority, which Default may only be waived by such a supermajority; or (3) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security 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 thereon. SECTION 5.14 Waiver of Stay or Extension Laws. The Company covenants -------------------------------- (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, 78 which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1 Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) 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 (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and con forming 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 reasonably conform to the requirements of this Indenture. (b) 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 their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 6.1; 79 (2) 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 grossly negligent in ascertaining the pertinent facts; (3) 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 the requisite amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee; and (4) 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 indemnity reasonably satisfactory to it against such risk or liability is not assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. SECTION 6.2 Notice of Default. Within 60 days after being notified ----------------- or becoming aware of the occurrence of any Default hereunder, the Trustee shall transmit, in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to any Responsible Officer of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Security, 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 determines that the with holding of such notice is in the interest of the Holders. SECTION 6.3 Certain Rights of Trustee. Subject to Section 6.1 and to ------------------------- the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, 80 debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Supervisory Board of the Company may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, receive and conclusively rely upon an Officers' Certificate and/or an Opinion of Counsel; (4) the Trustee may consult with counsel and other professional advisers and the written advice of such counsel or advisers or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians, delegates or attorneys and the Trustee shall not be responsible for supervising the actions of such agent, nominee, custodian, delegate or attorney, nor 81 for any misconduct or negligence on the part of any agent, nominee, custodian, delegate or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (9) the Trustee shall be entitled to assume that there has been no Event of Default and that the Company has complied with all of its obligations hereunder, unless a Responsible Officer of the Trustee has knowledge to the contrary thereof. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. SECTION 6.4 Trustee Not Responsible for Issuance of Securities. --------------------------------------------------- The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5 May Hold Securities. The Trustee, any Paying Agent, any ------------------- Security Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.6 Money Held in Trust. Money held by the Trustee in trust ------------------- hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. 82 SECTION 6.7 Compensation and Reimbursement. The Company agrees: ------------------------------ (1) to pay to the Trustee from time to time compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as agreed in writing between the Company and the Trustee; (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's gross negligence or bad faith; and (3) to indemnify the Trustee and its directors, officers, employees and agents for, and to hold them harmless against, any loss, liability or expense (including counsel's fees and expenses) without gross negligence or bad faith on the part of any of them, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself or them selves against any claim or liability in connection with the exercise or performance of any of its or their powers or duties hereunder. Upon the occurrence of an Event of Default or a potential Event of Default or upon the Trustee being required, or considering it necessary, to undertake duties outside the usual scope of a Trustee, the Trustee will be entitled to charge additional fees as agreed upon in writing with the Company. The obligations of the Company under this Section 6.7 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional Indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(6) or (7), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such 83 services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 6.7 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting ---------------------------------------------------- Interests. - --------- (a) There shall be at all times a Trustee hereunder which shall be subject to and comply with the provisions of Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital and surplus of at least $50,000,000. If such Corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then, for the purposes of this Section 6.8, the combined capital and surplus of such Corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.8, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. (b) The Trustee shall be subject to and comply with Section 310(b) of the Trust Indenture Act. SECTION 6.9 Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (b) The Trustee may resign at any time by giving 60 days' written notice thereof to the Company and without assigning any reason thereto or being responsible for any costs or expenses occasioned thereby. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may on behalf of the Company, appoint in its place a reputable financial institution and the Company shall not unreasonably object to such appointment or may petition any court of competent jurisdiction for the appointment 84 of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (2) the Trustee shall cease to be eligible under Section 6.8(a) and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i)the Company, by a Board Resolution, may remove the Trustee or (ii)subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith 85 upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities) as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided for in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. (g) The retiring Trustee shall not be liable for any of the acts or omissions of any successor Trustee appointed hereunder. SECTION 6.10 Acceptance of Appointment by Successor. Every successor -------------------------------------- Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its fees, costs, expenses, charges and any other amounts owed to it hereunder, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirm ing to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.11 Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. Any Corporation into which the Trustee may be merged or converted or - -------- with which it may be Consolidated, or any Corporation resulting from any merger, 86 conversion or consolidation to which the Trustee shall be a party, or any Corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such Corporation shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides that the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.12 Trustee Acting in Other Capacities. To the extent that ----------------------------------- the Trustee, Banque Internationale a Luxembourg or any other Person appointed hereunder as Trustee or Paying Agent is acting as Securities Registrar, Depositary or Paying Agent hereunder, the rights, privileges, immunities and indemnities set forth in this Article Six shall apply to the Trustee in the additional capacities listed above. ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1 Disclosure of Names and Addresses of Holders. Every -------------------------------------------- Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 3.12, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). 87 SECTION 7.2 Reports by Trustee. Within 60 days after May 30 of each ------------------ year commencing with the first May 30 after the first issuance of Securities, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 30 if required by TIA Section 313(a). SECTION 7.3 Reports by Company. The Company shall file with the ------------------ Trustee and deliver to the Holders of Securities the reports and other information required to be provided by it pursuant to Section 10.8. ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or Persons or (ii) directly or indirectly, sell, lease, convey or transfer all or substantially all of its assets (computed on a Consolidated basis) to any other Person or group of affiliated Persons, unless: (1) either (a) the Company is the continuing entity or (b) the resulting, surviving or transferee entity is a Corporation organized under the laws of The Netherlands or of the United States of America or any state or the District of Columbia, any member of the European Economic Area or Switzerland and ex pressly assumes by supplemental indenture all of the obligations of the Company in connection with the Securities and this Indenture; (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) unless such transaction is solely the merger of the Company and one of its previously existing Wholly Owned Subsidiaries and which transaction is not in connection with any other transaction, immediately after giving effect to such transaction, on a pro forma basis, the Consolidated resulting, surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in Section 10.11 or, if not, the Leverage Ratio would immediately thereafter be no greater than 88 the Leverage Ratio immediately prior thereto; (4) each Subsidiary Guarantor, unless such Subsidiary Guarantor is the Person with which the Company has entered into a transaction under this section, shall have by amendment to its Guarantee of the Securities confirmed that its Guarantee of the Securities shall apply to the obligations of the Company or the surviving entity in accordance with the Securities and this Indenture; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each in form attached hereto as Exhibits F and G respectively, stating that such consolidation, merger, conveyance, transfer, lease or acquisition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officers' Certificate. For purposes of this Section 8.1, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Company's interest in which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 8.2 Successor Substituted. Upon any consolidation of the --------------------- Company with or merger of the Company with or into any other Corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person or Persons in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and (except in the case of a lease) 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, and, in the event of any such conveyance or transfer (except in the case of a lease), the Company shall be discharged of all obligations under this Indenture and the Securities except with respect to any obligations that arise from, or are related to, such transaction. 89 ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Indentures Without Consent of Holders. Without the ------------------------------------- consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form and substance satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to provide for uncertificated Securities in addition to or in place of certificated Securities; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 6.10; or (6) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (7) to provide for collateral securing the Company's obligations under this Indenture and the Securities; or (8) to provide for Guarantees by any other Person of the Company's obligations pursuant to this Indenture and the Securities; provided such actions shall not adversely affect the interests of Holders in any material respect. 90 SECTION 9.2 Indentures with Consent of Holders. With the consent of ---------------------------------- the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that: (i) no such modification may, without the consent of Holders of at least 66 2/3% in aggregate principal amount of Outstanding Securities, modify the provisions of Section 10.10 (including the defined terms used therein) in a manner adverse to the Holders; and (ii) no such modification shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of any Security, or reduce the principal amount thereof or the rate of interest (or extend the time for payment of interest, if any) thereon or any premium payable upon the redemption thereof at the option of the Company, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption at the option of the Company, on or after the Redemption Date), or reduce the Change of Control Purchase Price or the Asset Sale Offer Price after the corresponding Change of Control or Asset Sale has occurred or alter the provisions (including the defined terms used therein) regarding the right of the Company to redeem the Securities in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such amendment, supplemental indenture or waiver provided for in this Indenture, or (3) modify any of the waiver provisions, except to increase any required 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 Security affected thereby, or 91 (4) cause the Securities to become subordinate in right of payment to any other Indebtedness. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3 Execution of Indentures. In executing, or accepting the ----------------------- additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is permitted by this Indenture and an Officers' Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Indentures. Upon the execution of any -------------------- supplemental indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5 Conformity with Trust Indenture Act. Every supple mental ----------------------------------- indenture executed pursuant to this Article Nine shall conform as a matter of contract or law to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6 Reference in Securities to Indentures. Securities ------------------------------------- authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may bear a notation in form approved by the Trustee and the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7 Notice of Indentures. Promptly after the execution by -------------------- the Company and the Trustee of any supplemental indenture pursuant to the 92 provisions of Section 9.2, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 1.6, setting forth in general terms the substance of such supplemental indenture. ARTICLE X COVENANTS SECTION 10.1 Payment of Principal, Premium, if Any, and Interest. --------------------------------------------------- (1) The Company covenants and agrees for the benefit of the Holders that it shall duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. (2) For the purpose set forth in paragraph (1) above, the Company shall, no later than 10:00 a.m., New York time, on the Business Day first preceding each Payment Date, transfer to an account specified by the Trustee such amount in immediately available and freely transferable U.S. Dollar funds as shall be sufficient for the purposes of the payment of principal of (and premium, if any) and interest (and Liquidated Damages, if any) due to be paid on the Securities on that date. (3) The Company shall ensure that not later than the second Business Day immediately preceding the date on which any payment is to be made to the Trustee pursuant to this Section 10.1, the Company shall procure that a copy of an irrevocable payment instruction to the bank through which the payment is to be made shall be sent to the Trustee. (4) Unless and until the full amount of any payment due on the Securities has been made to the Trustee, or unless and until the Trustee is satisfied that such payment will be made, neither it nor the other Paying Agents shall be bound to make payments in respect of the Securities hereunder. (5) If the Trustee or a Paying Agent pays any amounts to the Holders or to any other Agent at a time when it has not received payment in full from the Company in respect of such Securities, the Company shall, in addition to paying amounts due under Section 10.1(2), pay to the Trustee on demand interest thereon at such a rate as the Trustee shall certify as the aggregate of 1% per annum and the cost 93 of funding any such payment made by it (as determined by the Trustee) until the receipt in full by the Trustee of the funds due to it pursuant to Section 10.1(2). SECTION 10.2 Maintenance of Office or Agency. The Company shall ------------------------------- maintain in The City of New York and London, and for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands (other than service of process) to or upon the Company in respect of the Securities and this Indenture may be served. The Corporate Trust Office of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company hereby initially designates (1) the Trustee at its address set forth in Section 1.5 hereof as its office or agency in London and Citibank, N.A. (New York branch), 111 Wall Street, New York, New York as its office or agency in New York, for such purposes, (ii) Banque Internationale a Luxembourg, at its office or agency in Luxembourg for such purposes and (iii) the Paying Agent at its address set forth in Section 1.5 hereof. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York and, for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 10.3 Money for Security Payments to Be Held in Trust. If the ----------------------------------------------- Company shall at any time act as its own Paying Agent, it shall, on or before 94 each due date of the principal of (or premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it shall, on or before each due date of the principal of (or premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest, of which it is aware; (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith act under the direction of the Trustee and pay to the Trustee all sums so held in trust by such Paying Agent; and (4) indemnify the Trustee and its officers, directors, employees and agents against any loss, cost or liability caused by, or incurred as a result of, such Paying Agent's acts or omissions. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust 95 by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York and in London, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4 Corporate Existence. Subject to Article Eight, the ------------------- Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to the Company, any such right or franchise or, with respect to any Subsidiary (subject to all the other covenants in this Indenture), any such corporate existence, right or franchise, if the Supervisory Board of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.5 Payment of Taxes and Other Claims. The Company shall pay --------------------------------- or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, 96 materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.6 Maintenance of Properties. The Company shall cause all ------------------------- properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 10.6 shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.7 Insurance. The Company shall at all times keep all of --------- its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by Corporations similarly situated and owning like properties. SECTION 10.8 Provision of Financial Statements. The Company has --------------------------------- agreed that, for so long as any Securities remain Outstanding, whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will deliver to the Trustee and, to each Holder and to prospective purchasers of Securities identified to the Company, within 15 days after the Company is or would have been (if the Company were subject to such reporting obligations) required to file such with the SEC, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in reports filed with the SEC, if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by the Company's certified independent public accountants as such would be required in such reports to the SEC, and, in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required and, unless the SEC will not 97 accept such reports, file with the SEC the annual, quarterly and other reports which it is or would have been required to file with the SEC. Following the effectiveness of the Registration Statement, the Company will file with the Trustee, at the time it files them with the SEC, copies of the annual and quarterly reports and the information, documents and other reports that the Company is required to file with the SEC under Section 13(a) or 15(d) of the Exchange Act. If the Company ceases to be required to file SEC reports under the Exchange Act, the Company will nevertheless continue to file such reports with the Trustee. The Company will furnish copies of the SEC reports to investors who request them in writing. SECTION 10.9 Statement by Officers as to Default. ----------------------------------- (a) The Company shall deliver to the Trustee, on the date of delivery of each quarterly report to be delivered pursuant to Section 10.8, and within 14 days of a request by the Trustee, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 10.9(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the Trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $50,000,000), the Company shall deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers' Certificate specifying such event, notice or other action within five Business Days of its occurrence. SECTION 10.10 Purchase of Securities upon Change of Control. --------------------------------------------- (1) (a) Upon the occurrence of a Change of Control, the Company will be required to make an offer to each Holder to purchase for cash all or a portion of such Holder's Securities (provided that the principal amount of such Securities must be $1,000 or an integral multiple thereof) pursuant to the offer described below (the "Change of Control Offer"), at a purchase price in cash equal to 98 101% of the principal amount thereof plus accrued and unpaid interest (and Liquidated Damages, if any) to the date of purchase (the "Change of Control Purchase Price"). (b) Within 10 Business Days following a Change of Control, the Company must send a notice to each Holder which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no later than 35 Business Days from the date of the Change of Control, other than as may be required by law (the "Change of Control Purchase Date"). The Change of Control Offer shall remain open for 20 Business Days following its commencement (the "Change of Control Offer Period"). Upon expiration of the Change of Control Offer Period, the Company shall promptly purchase all Notes properly tendered in response to the Change of Control Offer. Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, by delivery of a form entitled "Option of Holder to Elect Purchase," obtainable from the Trustee or any Paying Agent substantially in the form of Exhibit H, completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Purchase Date. The Paying Agent promptly will pay the Holders of Securities so accepted an amount equal to the Change of Control Purchase Price (together with accrued and unpaid interest and Liquidated Damages, if any) and the Trustee promptly will authenticate and deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. The notice referred to above shall be a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder of Securities at its address appearing in the Security Register on the date of the Offer offering to purchase up to the principal amount of Securities specified in such Offer at the Change of Control Purchase Price. Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Change of Control Offer which shall be, subject to any contrary requirements of applicable law, 20 Business Days after the date of the Offer and a settlement date (the "Change of Control Purchase Date") for purchase of Securities within five Business Days after the Expiration Date. The Company shall notify the Trustee in writing at least 15 Business Days, or a shorter period that is acceptable to the Trustee, prior to the mailing of the Offer of the Company's obligation to make a Change of Control Offer, and the Offer shall be mailed by the Company or, at the Company's request, by the 99 Trustee in the name and at the expense of the Company. The Offer shall contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable the Holders to make an informed decision with respect to the Change of Control Offer, which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to Section 10.8 (which requirements may be satisfied by delivery of the documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of the financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Change of Control Offer), (iii) if applicable, appropriate pro forma financial information concerning the Change of Control Offer and the events requiring the Company to make the Change of Control Offer and (iv) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer. The Offer shall also state: (a) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (b) the Expiration Date and the Change of Control Purchase Date; (c) the aggregate principal amount of the Outstanding Securities offered to be purchased by the Company in the Change of Control Offer, including, if less than 100%, the manner by which the amount has been determined pursuant to the Section hereof requiring the Change of Control Offer (the "Purchase Amount"); (d) the Change of Control Purchase Price; (e) that the Holder may tender all or any portion of the Securities registered in the name of the Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount; (f) the place or places where the Securities are to be surrendered for tender pursuant to the Change of Control Offer; (g) that any of the Securities not tendered or tendered but not purchased by the Company will continue to accrue interest; 100 (h) that on the Change of Control Purchase Date the Purchase Price will become due and payable upon the Securities being accepted for payment pursuant to the Change of Control Offer and that any interest shall cease to accrue on and after the Change of Control Purchase Date; (i) that each Holder electing to tender the securities in the purchase will be required to surrender the Securities at the place or places specified in the Offer prior to the close of business on the Expiration Date with the Securities being, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly signed by, the Holder or his attorney duly authorized in writing; (j) that Holders will be entitled to withdraw all or any portion of the Securities tendered if the Company or its Paying Agent receives, not later than the close of business on the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder tendered, the certificate number of the Securities the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (k) that (i) if the Securities in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn in the Purchase, the Company shall purchase all the Securities and (ii) if the Securities in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn in the Change of Control Offer, the Company shall purchase the Securities having an aggregate principal amount equal to the Purchase Amount on a pro rata basis with adjustments that the Company may deem appropriate so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased; and (l) that in the case of any Holder whose Securities are purchased only in part, the Company shall sign, and the Trustee shall authenticate and deliver to the Holder of the Securities without service charge, the new Security or Securities, of any authorized denomination as requested by the Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Securities so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Change of Control Offer. 101 The Company will not be required to make an offer to purchase any series of Securities upon a Change of Control if, before the Change of Control occurs, it has exercised its right to redeem all of the Securities of such series as described under Section 11.1. (2) On or before the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) cash sufficient to pay the purchase price (together with accrued and unpaid interest and Liquidated Damages, if any) of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee all Securities so tendered together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. (3) In the event that the Company makes a Change of Control Offer, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act. (4) If the Change of Control Purchase Date hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on such Interest Payment Date will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (and Liquidated Damages, if applicable) will not be payable to Holders who tender the Securities pursuant to the Change of Control Offer. Notwithstanding anything contained in this Indenture to the contrary, the Company will not, and will not permit any of its Subsidiaries to, incur any Indebtedness that is contractually subordinate to any other Indebtedness of the Company unless such Indebtedness is at least as subordinate to the Securities. SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and ------------------------------------------------------- Disqualified Capital Stock. (1) The Company may not, and may not permit any - -------------------------- Subsidiary to, directly or indirectly, issue, assume, guaranty, incur, become directly or indirectly liable with respect to (including as a result of an Acquisition), or otherwise become responsible for, contingently or otherwise (individually and collectively, to "incur" or, as appropriate, an "incurrence"), any 102 Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing if: (i) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to, such incurrence of Indebtedness; and (ii) on the date of such incurrence (the "Incurrence Date"), either (i) the Leverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would not exceed 7.0 to 1.0 (the "Debt Incurrence Ratio"), (ii) the Consolidated Coverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would not be less than 1.75 to 1.0, or (iii) after giving effect on a pro forma basis to such incurrence of Indebtedness, and, to the extent used to retire other Indebtedness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of the Company would not exceed 225% of the Consolidated Invested Equity Capital of the Company, then the Company may incur such Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness). (2) The foregoing limitations of paragraph (1) of this Section 10.11 will not prohibit: (a) if no Event of Default shall have occurred and be continuing, the incurrence by the Company or its Subsidiaries of Indebtedness in an aggregate amount incurred and Outstanding at any time pursuant to this subparagraph (a) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to $400,000,000 (or the equivalent thereof, at the time of incurrence, in the applicable foreign currencies); (b) the incurrence by the Company and its Subsidiaries of Indebtedness pursuant to the Credit Agreement in an aggregate amount incurred and Outstanding at any time pursuant to this paragraph (b) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to (Euro)1 billion, minus the amount of any such Indebtedness (i) 103 retired with the Net Cash Proceeds from any Asset Sale applied to reduce permanently the Outstanding amounts or the commitments with respect to such Indebtedness pursuant to Section 10.16 or (ii) assumed by a transferee in an Asset Sale; (c) the incurrence by any Subsidiary of Indebtedness, if on the Incurrence Date either (1) the Leverage Ratio of such Subsidiary of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would be no more than 7.0 to 1.0, or (2) the Consolidated Coverage Ratio of such Subsidiary for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would be no less than 1.75 to 1.00, or (3) after giving effect on a pro forma basis to such incurrence of such Indebtedness, and, to the extent used to retire other Indebted ness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of such Subsidiary would not exceed 225% of the Consolidated Invested Equity Capital of such Subsidiary, provided in the case of each of clauses (c)(1), (2) and (3), the net proceeds therefrom are used in a Related Business of the Company or any affiliated company of the Company, and provided, further, that for the purposes of this clause (c) a Subsidiary may be a co-obligor or guarantor on such Indebtedness of another Subsidiary of the Company (A) if such co-obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the Equity Interests of the Subsidiary of the Company that incurred such Indebtedness, (B) if all or a portion of the Equity Interests of such co-obligor or guarantor Subsidiary is owned (either directly or indirectly through one or more Subsidiaries of the Company) by the Subsidiary that incurred such Indebtedness or (C) if such co- obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the business that will use the proceeds of such Indebtedness; and (d) if no Event of Default shall have occurred and be continuing, the incurrence by Subsidiaries of the Company of Indebtedness pursuant to the Existing Agreements up to, but not in excess of the maximum applicable amounts of Indebtedness available for borrowing pursuant to the terms of each such Existing Agreement as in effect on the date of the Indenture; provided that, in determining 104 the maximum applicable amounts available, it shall be assumed that the Company satisfies any applicable conditions to borrowing. Indebtedness (including Disqualified Capital Stock) of any Person which is Outstanding at the time such Person becomes a Subsidiary of the Company (including upon designation of any subsidiary or other Person as a Subsidiary) or is merged with or into or Consolidated with the Company or a Subsidiary of the Company shall be deemed to have been incurred at the time such Person becomes such a Subsidiary of the Company or is merged with or into or Consolidated with the Company or a Subsidiary of the Company, as applicable. Upon each incurrence, the Company may designate pursuant to which provision of this Section 10.11 such Indebtedness is being incurred and such Indebtedness shall not be deemed to have been incurred or Outstanding under any other provision of this Section 10.11, except as stated otherwise in the foregoing provisions. SECTION 10.12 Limitation on Restricted Payments. (1) The Company may --------------------------------- not, and may not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment if, after giving effect to such Restricted Payment on a pro forma basis: (A) a Default or an Event of Default shall have occurred and be continuing, (B) the Company is not permitted to incur at least $1.00 (or its foreign currency equivalent) of additional Indebtedness pursuant to the Debt Incurrence Ratio in Section 10.11, or (C) the aggregate amount of all Restricted Payments made by the Company and its Subsidiaries, including after giving effect to such proposed Restricted Payment, on and after July 30, 1999, would exceed, without duplication (and except to the extent otherwise credited pursuant to clause (g) of the definition of "Permitted Investment"), the sum of: (a) (i) the amount of the cumulative Consolidated EBITDA of the Company, if positive, less 150% of the cumulative Consolidated Fixed Charges of the Company, for the period (taken as one accounting period), commencing on the first day of the first full fiscal quarter commencing after July 30, 1999, to and 105 including the last day of the fiscal quarter ended immediately prior to the date of each such calculation for which Consolidated financial statements of the Company are available, provided that such sum shall not be deemed to result in an amount less than zero for purposes of any calculation pursuant to this clause (C)(a)(i); or (ii) if such cumulative Consolidated EBITDA of the Company is zero or less, then the amount of such cumulative Consolidated EBITDA for such period; plus (b) the aggregate Net Cash Proceeds received by the Company from the sale of its Qualified Capital Stock (other than (i) to a Subsidiary of the Company and (ii) to the extent applied in connection with a Qualified Exchange), after July 30, 1999; plus (c) to the extent that any Investment (other than a Permitted Investment) that was made after July 30, 1999 is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the amount of cash or Cash Equivalents received by the Company, but only to the extent of the lesser of (i) the cash or Cash Equivalents transferred as a return of capital with respect to such Investment and (ii) the initial amount of such Investment (in either case, less the cost of disposition, if any); plus (d) in the event an Unrestricted Subsidiary is designated as a Subsidiary, an amount equal to fair market value, at such time, of the Investment of the Company and its Subsidiaries made after July 30, 1999; provided, however, that such amount shall not exceed the amount of Investments previously made in such Subsidiary that were counted as Restricted Payments pursuant to this covenant. (2)(a) The foregoing clauses (B) and (C) of Section 10.12(1), however, will not prohibit: (i) any dividend, distribution or payment of dividends on Disqualified Capital Stock permitted by Section 10.11; and (ii) any repurchase by the Company of any shares of any class or options to acquire such shares from any current, future or former directors, officers or employees of the Company or any of its Subsidiaries or Affiliates, provided that the aggregate amount of all the repurchases made under this clause shall not exceed $10,000,000 in any twelve-month period (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $14,000,000 in any calendar year); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (1) the cash proceeds from the sale of Capital Stock of the Company to its Supervisory Board members, management board members or officers of the Company and its 106 Subsidiaries that occurs after July 30, 1999, plus (2) the cash proceeds of key man life insurance policies received by the Company and its Subsidiaries after July 30, 1999; and (b) the foregoing clauses (A), (B) and (C) of Section 10.12(1) will not prohibit: (i) any dividend, distribution or other payments by any Subsidiary of the Company on its Equity Interests that is paid pro rata to all holders of such Equity Interests; (ii) a Qualified Exchange; (iii) the payment of any dividend on Qualified Capital Stock within 60 days after the date of its declaration if such dividend could have been made on the date of such declaration in compliance with the foregoing provisions; or (iv) the payment of dividends by the Company in cash or Qualified Capital Stock pursuant to the terms of any Parent Stock Instrument that is incurred or issued (as applicable) in compliance with this Indenture. The full amount of any Restricted Payment made pursuant to paragraphs 2(a)(i), (ii) and 2(b)(i), (iii) and (iv), but not pursuant to paragraph 2(b)(ii), however, will be counted as Restricted Payments made for purposes of the calculation of the aggregate amount of Restricted Payments available to be made referred to in Section 10.12(1)(C). For purposes of this section, the amount of any Restricted Payment made or returned, if other than in cash, shall be the fair market value thereof, as determined in the good faith reasonable judgment of the Company's Supervisory Board, unless stated otherwise, at the time made or returned, as applicable. Additionally, on the date of each Restricted Payment, the Company shall deliver an Officers' Certificate to the respective Trustee describing in reasonable detail the nature of such Restricted Payment, stating the amount of such Restricted Payment, stating in reasonable detail the provisions of this Indenture pursuant to which such Restricted Payment was made and certifying that such Restricted Payment was made in compliance with the terms of this Indenture. SECTION 10.13 Limitation on Dividend and Other Payment Restrictions ----------------------------------------------------- Affecting Subsidiaries. (1) The Company may not, and may not permit - ---------------------- 107 any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual restriction on the ability of any Subsidiary: (i) to pay dividends, in cash or otherwise, or make any other distributions to or on behalf of or pay any obligation to or on behalf of the Company or any Subsidiary of the Company; (ii) to make or pay loans or advances to or on behalf of the Company or any Subsidiary of the Company; or (iii) to transfer property or assets to or on behalf of the Company or any Subsidiary of the Company, except: (a) restrictions imposed by the Securities or the Other Senior Notes or the Indenture or the Other Senior Notes Indenture or by other Indebtedness of the Company ranking pari passu with the Securities and the Other Senior Notes, provided that such restrictions are no more restrictive than those imposed by the Indenture and the Securities; (b) restrictions imposed by applicable law; (c) restrictions under Indebtedness outstanding on July 30, 1999, including pursuant to the Credit Agreement; (d) restrictions under any Acquired Indebtedness not incurred in violation of the Indenture or any agreement (including any Equity Interest) relating to any property, asset, or business acquired by the Company or any of its Subsidiaries, which restrictions in each case existed at the time of acquisition, were not put in place in connection with or in anticipation of such acquisition, and are not applicable to any Person, other than the Person acquired, or to any property, asset or business, other than the property, assets and business so acquired; (e) any such restriction or requirement imposed by Indebtedness incurred under the Credit Agreement pursuant to Section 10.11, provided that such restriction or requirement is no more restrictive than that imposed by the Credit Agreement as of July 30, 1999; 108 (f) with respect solely to a Subsidiary of the Company imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all or substantially all of the Equity Interests or assets of such Subsidiary, provided that such restrictions apply solely to the Equity Interests or assets of such Subsidiary which are being sold; (g) restrictions under Purchase Money Indebtedness not incurred in violation of the Indenture, provided that such restrictions relate only to the property financed with such Indebtedness; (h) with respect to any Subsidiary, restrictions contained in the terms of any Indebtedness incurred in compliance with the Indenture, or any agreement pursuant to which such Indebtedness was issued, if (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the Company shall have reasonably determined that the encumbrance or restriction is not materially more disadvantageous to the Holders of the Securities than is customary in comparable financings, and (C) the Company shall have reasonably determined that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Securities; and (i) in connection with and pursuant to permitted Refinancings, replacements of restrictions imposed pursuant to clauses (a), (c), (d), or (g), or this clause (i), of this paragraph that are not more restrictive than those being replaced and do not apply to any other Person or assets than those that would have been covered by the restrictions in the Indebtedness so refinanced. (2) Notwithstanding the provisions of Section 10.13(1), (a) customary provisions restricting subletting, assignment or transfer of any lease, license, conveyance, or similar document or instrument entered into in the ordinary course of business, consistent with industry practice and (b) any asset or property subject to a Lien which is not prohibited to exist with respect to such asset pursuant to the terms of this Indenture may be subject to customary restrictions on the transfer or disposition thereof pursuant to such Lien. SECTION 10.14 Limitation on Liens Securing Indebtedness. The Company ----------------------------------------- may not, and may not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, upon any of their respective assets now owned or acquired on or after the date of this Indenture or 109 upon any income or profits therefrom securing any Indebtedness of the Company, unless the Company provides, and causes its Subsidiaries to provide, concurrently therewith, that the Securities are equally and ratably so secured; provided that if such Indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness shall be subordinate and junior to the Lien securing the Securities with the same relative priority as such Subordinated Indebtedness shall have with respect to the Securities. SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries. ----------------------------------------------------- (1) Notwithstanding the other provisions of this Indenture, the Company may not permit any Subsidiary to, directly or indirectly, Guarantee any Indebtedness of the Company (other than Indebtedness incurred pursuant to the Credit Agreement in accordance with the terms of this Indenture) ("Guaranteed Indebtedness"), then such Subsidiary must become a Guarantor (a "Subsidiary Guarantor") of the Securities on a basis such that the Subsidiary's Guarantee of the Securities shall stand in substantially the same relative ranking in right of payment to the guarantee of such other Indebtedness as the Securities stand in relative ranking to such other Indebtedness; provided that this paragraph shall not be applicable to any guarantee by any Subsidiary that (a) existed at the time such Person became a Subsidiary of the Company and (b) was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company. (2) Subsidiary Guarantees shall be automatically released upon (i) the sale or other disposition of all or substantially all of the Company's and its Subsidiaries' beneficial interest in the Equity Interests or assets of such Subsidiary Guarantor, provided that thereafter such Subsidiary Guarantor shall cease to be a Subsidiary of the Company, (ii) the consolidation or merger of any such Subsidiary Guarantor with any Person other than the Company or a Subsidiary of the Company if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a Subsidiary of the Company (and shall not be a Subsidiary of the successor to the Company), (iii) a Legal Defeasance, or (iv) the unconditional and complete release of such Subsidiary Guarantor from its Guarantee of all Guaranteed Indebtedness. SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock. ------------------------------------------------- (1) The Company may not, and may not permit any Subsidiary to, in one or a series of related transactions, convey, sell, transfer, assign or otherwise dispose of, directly or indirectly, any of the Company's or such Subsidiary's property, business or assets (including by merger or consolidation in the case of a Subsidiary 110 of the Company), and including any sale or other transfer or issuance of any Equity Interests of any Subsidiary of the Company, whether by the Company or a Subsidiary or through the issuance, sale or transfer of Equity Interests by a Subsidiary of the Company, and including any sale and leaseback transaction (any of the foregoing, an "Asset Sale"), unless: (A) (1) the amount equal to the Net Cash Proceeds there from (the "Asset Sale Offer Amount") is applied (i) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the optional redemption of the Securities in accordance with the terms of the Indenture and other Indebtedness of the Company ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to redeem such Indebtedness with the proceeds from such Asset Sale, pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding, or (ii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the repurchase of the Securities and such other Indebtedness ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from such Asset Sale pursuant to a cash offer (subject only to conditions required by applicable law, if any) pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding (the "Asset Sale Offer") at a purchase price of 100% of principal amount (or accreted value in the case of Indebtedness issued with original issue discount) (the "Asset Sale Offer Price") together with accrued and unpaid interest and Liquidated Damages, if any, to the date of payment, made within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 111 days in the case of any other Special Character Asset Sale) of such Asset Sale, or (iii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale), to the repayment of Indebtedness then Outstanding pursuant to the Credit Agreement or, if required by the terms of such Indebtedness, of Indebtedness issued by a Subsidiary of the Company (in respect of which Indebtedness the Company is not a direct or contingent obligor except by virtue of the Company's pledge of Equity Interests of, and other interests of or claim on, such Subsidiary or the Company's guarantee of such Subsidiary's Indebtedness to the extent, in either case, the recourse against the Company is limited to such Equity Interests or claim), or (2) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) following such Asset Sale, the Asset Sale Offer Amount is invested in assets and property which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business of the Company or such Subsidiary (if it continues to be a Subsidiary) immediately following such transaction or is used to make Permitted Investments in the Company or a Subsidiary of the Company (other than Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture), provided that (i) 50% of the Net Cash Proceeds from Special Character Asset Sales and 100% of the net proceeds from any Asset Sale of an Investment made in reliance on clause (g) of the definition of "Permitted Investments" may be reinvested in any Permitted Investment (other than, in either case, Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture) which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business and (ii) 100% of the net proceeds from an Asset Sale constituting the sale of an Investment in any Person (excluding a Person that would be Consolidated with the Company under GAAP and excluding Related Assets of the Company or any of its Subsidiaries) in which the Company or any of its Subsidiaries has an Equity Interest may be reinvested in Investments permitted by clause (e) or (f) of the definition of "Permitted Investments," 112 (B) at least 75% of the total consideration for such Asset Sale or series of related Asset Sales consists of cash, Cash Equivalents, Replacement Assets or the assumption of Indebtedness of a Subsidiary. For purposes of this subparagraph (B), total consideration received means the total consideration received for such Asset Sales, minus the amount of (a) Purchase Money Indebtedness secured solely by the assets sold and assumed by a transferee, provided that the Company and the Subsidiaries are released from any obligation in connection therewith; and (b) property that within 30 days of such Asset Sale is converted into cash or Cash Equivalents, provided that such cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to the original Asset Sale for which such property was received. (C) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect to, on a pro forma basis, such Asset Sale, and (D) in the case of a transaction or series of related transactions exceeding $15,000,000 (or the foreign currency equivalent on the date of the transaction) of consideration to any party thereto, the Supervisory Board of the Company determines in its good faith reasonable judgment that the Company or such Subsidiary, as applicable, receives fair market value for such Asset Sale. (2) An acquisition of Securities pursuant to an Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth in 1(a)(i), (iii), or 1(b) above (the "Excess Proceeds") exceeds $50,000,000 (or the foreign currency equivalent thereof), provided that, in the case of an Asset Sale by a Subsidiary of the Company that is not a Wholly Owned Subsidiary, only the Company's and its Subsidiaries' pro rata portion of such Net Cash Proceeds shall constitute Net Cash Proceeds subject to the provisions of this Section 10.16. Each Asset Sale Offer shall remain open for 20 Business Days following its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company shall apply the Asset Sale Offer Amount, plus an amount equal to accrued and unpaid interest and Liquidated Damages, if any, to the purchase of all Indebtedness properly tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued interest and Liquidated Damages, if any). To the extent that the aggregate amount of Securities and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the Company may apply any remaining Net Cash Proceeds to any 113 purpose consistent with this Indenture, and following the consummation of each Asset Sale Offer the Excess Proceeds amount shall be reset to zero. Notwithstanding, and without complying with, the foregoing provisions of this Section 10.16: (u) the Company and its Subsidiaries may, in the ordinary course of business, (a) convey, sell, transfer, assign or otherwise dispose of inventory and other assets acquired and held for resale in the ordinary course of business and (b) liquidate and otherwise dispose of Cash Equivalents; (v) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets pursuant to and in accordance with Article Eight. (w) the Company and its Subsidiaries may sell or dispose of damaged, worn out or other obsolete personal property in the ordinary course of business so long as such property is no longer necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and the Company and its Subsidiaries may replace personal property in the ordinary course of business so long as the replacement property is necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and sell or dispose of such replaced property in the ordinary course; (x) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets to the Company or any of its Subsidiaries; (y) the Company and each of its Subsidiaries may surrender or waive contract rights or settle, release or surrender contract, tort or other claims of any kind in the ordinary course of business or grant Liens not otherwise prohibited by the Indenture; (z) the Company and its Subsidiaries may exchange assets for property, businesses, or assets held by any Person (including by merger or consolidation in the case of a Subsidiary of the Company); provided that (a) property, businesses and assets, which in one or 114 a series of related transactions exceeds $15,000,000 in value, received by the Company or such Subsidiaries in any such exchange in the good faith reasonable judgment of the Supervisory Board of the Company will immediately constitute, be a part of, or be used in, a Related Business of the Company or such Subsidiaries, (b) the Supervisory Board of the Company has determined that the terms of any exchange, which in one or a series of related transactions exceeds $15,000,000 in fair market value, are fair and reasonable, and (c) any cash or Cash Equivalents received by the Company or any Subsidiary in such exchange shall be treated as having been received as a result of an Asset Sale. All Net Cash Proceeds from an Event of Loss shall be used all within the period and as otherwise provided above in clause (1) of the first paragraph of this Section 10.16. (3) Any Asset Sale Offer shall be made in compliance with all applicable laws, rules, and regulations, including, if applicable, Regulation 14E of the Exchange Act and the rules and regulations thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any applicable securities laws, rules, or regulations conflict with the provisions of this section, compliance by the Company or any of its subsidiaries with such laws, rules or regulations shall not in and of itself cause a breach of its obligations under this section. (4) If the payment date in connection with an Asset Sale Offer hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any, due on such Interest Payment Date) will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (or Liquidated Damages, if applicable) will not be payable to Holders who tender Securities pursuant to such Asset Sale Offer. SECTION 10.17 Limitation on Transactions with Affiliates. The Company ------------------------------------------ may not, and may not permit any Subsidiary on or after the Issue Date to, enter into any contract, agreement, arrangement or transaction with any Affiliate of the Company (an "Affiliate Transaction"), or any series of related Affiliate Transactions, other than Exempted Affiliate Transactions, 115 (1) unless it is determined by the Supervisory Board as evidenced by a Board Resolution that the terms of such Affiliate Transaction are fair and reasonable to the Company and no less favorable to the Company than could have been obtained in an arm's length transaction with a non-Affiliate, and (2) if involving consideration to either party in excess of $15,000,000 (or its foreign currency equivalent), unless such Affiliate Transaction(s) is evidenced by an Officers' Certificate addressed and delivered to the Trustee certifying that such Affiliate Transaction (or Affiliate Transactions) has been approved by a majority of the members of the Supervisory Board of the Company that are disinterested in such transaction, if there are any directors who are so disinterested, and (3) if involving consideration to either party in excess of $15,000,000 or $30,000,000 if there are disinterested directors (or in each case its foreign currency equivalent), unless in addition the Company, prior to the consummation thereof, obtains a written favorable opinion as to the fairness of such transaction to the Company from a financial point of view from an independent investment banking firm of national reputation in the United States or, if pertaining to a matter for which such investment banking firms do not customarily render such opinions, an appraisal or valuation firm of national reputation in the United States. SECTION 10.18 Additional Amounts. All payments made by the Company ------------------ under or with respect to the Securities will be made free and clear of and without withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of any Taxing Authority within The Netherlands, or within any other jurisdiction in which the Company is organized or engaged in business, or any other jurisdiction if payments on the Securities are made from within such jurisdiction (each of the above, a "Relevant Taxing Jurisdiction"), unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is required to withhold or deduct any amount for or on account of Taxes (other than any estate, inheritance, gift, sales, excise, transfer, wealth or personal property tax, or any similar non-income tax, assessment or governmental charge) imposed by a Taxing Authority within a Relevant Taxing Jurisdiction, from any payment made under or with respect to the Securities, the Company will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Securities (including 116 Additional Amounts) after such withholding or deduction (including any withholding or deduction in respect of such Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided that no such Additional Amounts shall be payable with respect to a payment made to a Holder with respect to any Tax or portion thereof that would not have been imposed, payable or due: (1) but for the existence of any present or former connection between the Holder (or the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities) and The Netherlands or other jurisdiction in which the Company is organized or engaged in business other than the holding of the Securities; (2) but for the failure of the Holder to use its reasonable best efforts to comply upon written notice by the Company delivered 60 days prior to any payment date with a request by the Company to satisfy any certification, identification or other reporting requirements which shall include any applicable forms or instructions whether imposed by statute, treaty, regulation or administrative practice concerning the nationality or residence of the Holder or the connection of the Holder with The Netherlands or other jurisdiction in which the Company is organized or engaged in business: (i) provided that Holder's failure to comply with the 60 day requirement described above shall not relieve the Company of the Company's obligation to pay Additional Amounts if the Holder's application for any requested certification, identification or other reporting requirement remains Outstanding or is otherwise pending and the Holder continues to use its reasonable best efforts to obtain such information; (ii) provided, further, that the Company shall pay any Additional Amounts not paid on any payment date as a result of the operation of this clause (2) upon the satisfaction of the relevant certification, identification or other reporting requirements within 30 days after such payment date, provided that the Company shall not, as a result of such satisfaction occurring after the payment date, have already irrevocably paid to the relevant taxing authority the withheld or deducted amount in respect of which such Additional Amounts would have been payable; 117 (3) but for the failure of the Holder (or the beneficial individual owner of, or individual ultimately entitled to obtain an interest in, such Securities) who is an individual citizen or resident of a member state of the European Union to comply with a written notice by the Company delivered 60 days prior to any payment date with a request by the Company to provide any certification, identification or other reporting requirement, whether imposed by statute, treaty, regulation or administrative practice, if such action would otherwise eliminate the requirement for the withholding or deduction of Taxes; or (4) if the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities had been the Holder of the Securities and would not be entitled to the payment of Additional Amounts (excluding the impact of book entry procedures by the Depositary). In addition, Additional Amounts will not be payable with respect to any Tax which is payable and so paid otherwise than by withholding or deduction from payments of, or in respect of principal of, or any interest or Liquidated Damages on, the Securities. The Company will remit the full amount of any withholdings or deductions for or on account of Taxes to the relevant Taxing Authority in accordance with applicable law. The Company will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company will furnish to the Holders, within 60 days after the date the payment of any Taxes so deducted or withheld are due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by the Company or, if such receipts are not obtainable, other evidence of such payments by the Company. At least 30 days prior to each date on which any payment under or with respect to the Securities 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 respective Trustee an Officers' Certificate stating (i) the fact that such Additional Amounts will be payable, (ii) the amounts so payable and (iii) such other information necessary to enable the Trustee to pay such Additional Amounts to the Holders of Securities on the Interest Payment Date. Wherever in this Indenture there is mentioned, in any context, the payment of amounts based upon the principal amount of the Securities, or of principal, premium, if any, interest or Liquidated Damages, if any, or of any other amount payable under or with respect to any of the Securities, such mention shall be deemed to include 118 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 10.19 Waiver of Stay, Extension or Usury Laws. The Company --------------------------------------- covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, 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, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest, if any, on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which 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 shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.20 Limitation on Lines of Business. Neither the Company ------------------------------- nor any of its Subsidiaries shall directly or indirectly engage to any substantial extent in any line or lines of business activity other than that which, in the reasonable good faith judgment of the Supervisory Board, is a Related Business. SECTION 10.21 Limitation on Status as an Investment Company. The --------------------------------------------- Company and its Subsidiaries shall not take any action or conduct their business and operations in such a way as would cause them to be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or would otherwise cause them to become subject to regulation under the Investment Company Act. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1 Right of Redemption. ------------------- (1) Optional Redemption of the Securities The Securities will be redeemable at the option of the Company, in whole or in part, at any time or from time to time on or after February 1, 2005, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices 119 (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest (and Liquidated Damages, if any,) thereon, if any, to the date of redemption: Security Redemption Price YEAR - ---- -------------------- 2005........................ 107.260% 2006........................ 104.840% 2007........................ 102.420% 2008 and thereafter......... 100.000% The Company will publish a redemption notice in accordance with the procedures described under Section 1.6. (2) Redemption Upon Equity Offering Prior to February 1, 2003, upon an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of the Securities may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days, but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a redemption price equal to 111.500% of the principal amount together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Securities originally issued remain Outstanding; and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Offering. (3) Redemption For Changes In Withholding Taxes The Company may, at its option, redeem all, but not less than all, of the Securities then Outstanding, in each case at 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, if a Tax Event has occurred and is continuing. Notice of any such redemption must be given within not less than 30 days nor more than 60 days prior to the redemption date. No redemption pursuant to this paragraph (3) may be made 120 unless, prior to the publication of any notice of redemption as a result of a Tax Event, the Company delivers to the Trustee (i) an Officer's Certificate stating that a Tax Event has occurred (irrespective of whether the amendment or change is then effective), describing the facts leading thereto and stating that the Company cannot avoid the requirement to pay Additional Amounts by taking reasonable measures available to it and (ii) an opinion of counsel reasonably acceptable to the Trustee to the effect that the Company is or will become obligated to pay Additional Amounts as a result of such change or amendment. (4) Mandatory Redemption The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the Securities. SECTION 11.2 Applicability of Article. Redemption of Securities at ------------------------ the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 11.3 Election to Redeem; Notice to Trustee. The election of ------------------------------------- the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 11.4. SECTION 11.4 Selection by Trustee of Securities to Be Redeemed. If ------------------------------------------------- less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption pro rata, by lot or by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Securities; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $1,000. 121 The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 11.5 Notice of Redemption. Notice of redemption shall be -------------------- given in the manner provided for in Section 1.6 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. Each notice of redemption shall state: (1) the Redemption Date, (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 11.7, if any, (3) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of a partial redemption, the principal amount) of the particular Securities to be redeemed, (4) in case any Security is to be redeemed in part only, that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 11.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date, and (6) the place or places where such Securities are to be presented and surrendered for payment of the Redemption Price and accrued interest, if any. 122 Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.6 Deposit of Redemption Price. Prior to any Redemption --------------------------- Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of U.S. Dollars sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.7 Securities Payable on Redemption Date. Notice of ------------------------------------- redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest and Liquidated Damages, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the interest rate borne by the Securities. SECTION 11.8 Securities Redeemed in Part. Any Security which is to be --------------------------- redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount 123 equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.1 Company's Option to Effect Defeasance or Covenant ------------------------------------------------- Defeasance. The Company may, at its option by Board Resolution, at any time - ---------- prior to the Stated Maturity of the Securities, with respect to the Securities, elect to have either Section 12.2 or Section 12.3 be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article Twelve. SECTION 12.2 Defeasance and Discharge. Upon the Company's exercise ------------------------ under Section 12.1 of the option applicable to this Section 12.2, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 12.4 are satisfied (hereinafter, "Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 12.5 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 12.4 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest (and Liquidated Damages, if any) on such Securities when such payments are due and any rights of the Holders with respect to such amounts, (B) the Company's obligations with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3; (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 12.2 notwithstanding the prior exercise of its option under Section 12.3 with respect to the Securities. 124 SECTION 12.3 Covenant Defeasance. Upon the Company's exercise under ------------------- Section 12.1 of the option applicable to this Section 12.3, the Company shall be released from its obligations under any covenant contained in Section 8.1 and in Sections 10.8 through 10.18 with respect to the Outstanding Securities ("Covenant Defeasance") on and after the date the conditions set forth below are satisfied, and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.1(3), 5.1(4) and 5.1(5), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.4 Conditions to Defeasance or Covenant Defeasance. The ----------------------------------------------- following shall be the conditions to application of either Section 12.2 or Section 12.3 to the Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another Trustee satisfying the requirements of Section 6.8 who shall agree to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities: (A) U.S. legal tender, or (B) U.S. Government Obligations or (C) a combination thereof, sufficient, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying Trustee) to pay and discharge, the principal of (and premium, if any) and interest on the Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest; provided that the Holders of Securities must have a valid, perfected, exclusive security interest in such trust. (2) No Default or Event of Default shall have occurred and be 125 continuing on the date of such deposit or, insofar as paragraphs (6) and (7) of Section 5.1 are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound. (4) In the case of an election under Section 12.2, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Defeasance had not occurred. (5) In the case of an election under Section 12.3, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect that (i) the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (6) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such Outstanding Securities over any other of the Company's creditors or with the intent of defeating, hindering, delaying or defrauding any other of the Company's creditors or others; and (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for relating to either the Defeasance under Section 12.2 or the Covenant Defeasance under Section 12.3 (as the case may be) have been complied with; and, in the case of the opinion of counsel, 126 that paragraphs (1) (with respect to the validity and perfection of the security interest), (2), (3) and (5) of this Section 12.4 have been complied with, and the Company shall have delivered to the Trustee an Officers' Certificate, subject to such qualifications and exceptions as the Trustee deems appropriate, to the effect that, assuming no Holder of the Securities is an insider of the Company, the trust funds will not be subject to the effect of any applicable Federal bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. SECTION 12.5 Deposited Money and U.S. Government Securities to Be ---------------------------------------------------- Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the - --------------------------------------------- last paragraph of Section 10.3, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying Trustee, collectively for purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee and (if applicable) its officers, directors, employees and agents against any tax, fee or other charge imposed on or assessed against the U.S. Government Securities deposited pursuant to Section 12.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.4 which, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Defeasance or Covenant Defeasance, as applicable, in accordance with this Article Twelve. SECTION 12.6 Reinstatement. If the Trustee or any Paying Agent is ------------- unable to apply any money in accordance with Section 12.5 by reason of any order or 127 judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.2 or 12.3, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.5; provided, however, that if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. 128 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. UNITED PAN-EUROPE COMMUNICATIONS N.V. By:____________________________________ Name: Title: Citibank, N.A. (London Branch), Trustee By:_____________________________________ Name: Title: EXHIBIT A [FORM OF SECURITIES] [If a Global Security, then insert:] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC"), EUROCLEAR OR CEDELBANK (EACH, A "DEPOSITARY") OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN A DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY A DEPOSITARY TO A NOMINEE OF A DEPOSITARY OR BY A NOMINEE OF A DEPOSITARY TO A DEPOSITARY OR ANOTHER NOMINEE OF A DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. [If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF SUCH DEPOSITARY OR A NOMINEE OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY (AND ANY PAYMENT IS MADE TO ITS NOMINEE OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, A NOMINEE OF A DEPOSITARY, HAS AN INTEREST HEREIN. [If a Restricted Global Security, then insert:] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR A-1 OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY ITS ACCEPTANCE HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) (A "QIB"), OR IS OTHERWISE ACQUIRING THIS SECURITY PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QIB AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO PERSONS THAT ARE NOT U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATIONS UNDER THE SECURITIES ACT ("REGULATION S") OR (E) PURSUANT TO AN OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS SECURITY UNDER CLAUSES (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT A-2 PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATIONS. [If a Regulation S Security, then insert:] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT TO THE SECURITIES) NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. BY ITS ACCEPTANCE HEREOF, THE HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS SECURITY MAY NOT BE OFFERED, TRANSFERRED OR SOLD AS PART OF ITS INITIAL DISTRIBUTION, OTHER THAN TO INDIVIDUALS OR LEGAL ENTITIES, SITUATED IN OR OUTSIDE THE NETHERLANDS, WHO OR WHICH TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF THEIR PROFESSION OR BUSINESS (WHICH INCLUDES BANKS, BROKERS, DEALERS, INSURANCE COMPANIES, PENSION FUNDS, OTHER INSTITUTIONAL INVESTORS AND OTHER PARTIES (INCLUDING TREASURY DEPARTMENTS OF COMMERCIAL ENTERPRISE AND FINANCE COMPANIES OR GROUPS), WHICH REGULARLY TRADE OR INVEST IN SECURITIES). A-3 A-4 United Pan-Europe Communications N.V. $300,000,000 11 1/2% Senior Notes Due 2010 [CUSIP] [ISIN] [Common Code]: [ ] No. [ ] $[ ] United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company," which term includes any successor corporation), for value received, hereby promises to pay to the registered holder, Cede & Co., as nominee of The Depository Trust Company or registered assigns, the principal sum of [ ] DOLLARS or such amount as may be increased or decreased in accordance with the terms of the Indenture and as set forth on the Schedule of Interest but not to exceed $300,000,000 on February 1, 2010. Interest Payment Dates: February 1 and August 1. Record Dates: January 15 and July 15. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-5 IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officer. Dated: January 20, 2000 UNITED PAN-EUROPE COMMUNICATIONS N.V. By:________________________ Authorized Signatory A-6 TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: January 20, 2000 This is one of the Securities referred to in the within-mentioned Indenture. CITIBANK, N.A. Not in its individual capacity, but solely as Trustee By:___________________________ Authorized Signatory A-7 [REVERSE OF NOTE] UNITED PAN-EUROPE COMMUNICATIONS N.V. $300,000,000 11 1/2% SENIOR NOTE DUE 2010 1. Interest. United Pan-Europe Communications N.V., a public limited -------- liability company organized and existing under the laws of The Netherlands (the "Company"), promises to pay, until the principal hereof is paid or made available for payment, interest on the principal amount set forth on the face hereof at a rate of 11 1/2% per annum. Interest hereon will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including January 20, 2000 to but excluding the date on which interest is paid. Interest shall be payable in arrears semi- annually on each February 1 and August 1, commencing on August 1, 2000. 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 on overdue interest (to the full extent permitted by law) at the rate borne by the Securities. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Other Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the interest rate otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that on and after the date of such Interest Rate Adjustment Event, interest on the Securities will accrue at a rate of 11 3/4% per annum. Any amounts owing as a result of such increase shall be paid to the Holders of record as of the Regular Record Date next following any such Interest Rate Adjustment Event, on the immediately following Interest Payment Date, and thereafter will be payable semiannually in arrears on February 1 and August 1 of each year to the Holders of record on the immediately preceding Regular Record Date. Promptly following the occurrence of an Interest Rate Adjustment A-8 Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6 of the Indenture. Such notice shall include the amount to be paid to the Holders of record as of such Regular Record Date on the next following Interest Payment Date. 2. Method of Payment. The Company will pay interest hereon (except ----------------- defaulted interest) to the Persons who are registered Holders at the close of business on January 15 or July 15 next preceding the Interest Payment Date (whether or not a Business Day). Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private Indebtedness. Interest may be paid by check mailed to the Holder entitled thereto at the address indicated on the register maintained by the Registrar for the Securities. 3. Paying Agent and Registrar. Initially, Citibank, N.A. (London -------------------------- Branch) (the "Trustee") and Citibank, N.A. (New York Branch) will act as Paying Agent and Registrar and Banque Internationale a Luxembourg will act as Paying Agent in Luxembourg. The Company may change any Paying Agent or Registrar without notice. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued $300,000,000 11 1/2% Senior Notes --------- due 2010 under an Indenture dated as of January 20, 2000 (the "Indenture") between the Company and the Trustee. This is one of an issue of Securities of the Company issued, or to be issued, under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of them. Capitalized and certain other terms used herein and not otherwise defined have the meanings set forth in the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. 5. Additional Amounts. The Company will pay to the Holders of ------------------ Securities such Additional Amounts as may become payable under Section 10.18 of the Indenture. A-9 6. Optional Redemption of the Securities. The Securities will be ------------------------------------- redeemable at the option of the Company, in whole or in part, at any time or from time to time on or after February 1, 2005, upon not less than 30 nor more than 60 days' prior notice to each Holder of Securities, at the Redemption Prices (expressed as a percentage of principal amount) if redeemed during the 12- month period commencing on February 1 of the years indicated below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date: Security Redemption YEAR Price ---- ------------------- 2005 107.260% 2006 104.840% 2007 102.420% 2008 and thereafter 100.000% 7. Redemption Upon Equity Offering. Prior to February 1, 2003, upon ------------------------------- an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of each of the Securities may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days', but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a Redemption Price equal to 111.500% of the principal amount of the Securities redeemed, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Securities originally issued remain Outstanding; and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Securities. 8. Redemption for Changes in Withholding Taxes. The Company may, at ------------------------------------------- its option, redeem all, but not less than all, of the Securities then Outstanding, at 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date, if a Tax Event has occurred and is continuing. 9. Mandatory Redemption. The Company is not required to make -------------------- mandatory redemption payments or sinking fund payments with respect to the Securities. A-10 10. Notice of Redemption. Notice of redemption will be mailed within -------------------- not less than 30 days nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed at his registered address. On and after the Redemption Date, unless the Company defaults in making the redemption payment, interest ceases to accrue on Securities or portions thereof called for redemption. 11. Purchase of Securities upon Change of Control. The Indenture --------------------------------------------- provides that upon the occurrence of a Change of Control and subject to further limitations contained therein, the Company shall make an offer to purchase Out standing Securities in accordance with the procedures set forth in the Indenture. 12. Registration Rights. Pursuant to a Registration Rights Agreement, ------------------- dated January 20, 2000, among the Company and the Initial Purchasers named therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holder of this Security shall have the right to exchange this Security for notes of a separate series issued under the Indenture which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Securities. The Holders shall be entitled to receive certain payments in the event such Exchange Offer is not consummated ("Liquidated Damages") and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 13. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. Under certain circumstances set forth in the Indenture, the Registrar need not register the transfer of or exchange any Securities. 14. Persons Deemed Owners. The registered Holder of this Security may --------------------- be treated as the owner of this Security for all purposes. 15. Unclaimed Money. If money for the payment of principal 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, all liability of the Trustee and any such Paying Agent with respect to such money shall cease. A-11 16. Amendment, Supplement, Waiver, Etc. The Company and the Trustee ---------------------------------- may, without the consent of the Holders of any Outstanding Securities, amend, waive or supplement the Indenture or the Securities for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies. Other amendments and modifications of the Indenture or the Securities may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities and with other holders of notes of other series issued under the Indenture, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. 17. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments, make certain Investments, create or incur Liens, enter into transactions with Affiliates, enter into agreements restricting the ability of Subsidiaries to pay dividends and make distributions and on the ability of the Company to merge or consolidate with any other person or transfer all or substantially all of the Company's assets. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 18. Defaults and Remedies. Events of Default are set forth in the --------------------- Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than certain events of bankruptcy, insolvency or reorganization affecting the Company) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities under the Indenture may, by written notice to the Trustee and the Company, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall, declare all principal of and accrued interest on all Securities to be immediately due and payable and such amounts shall become immediately due and payable. 19. Trustee Dealings with Company. The Trustee, 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 Trustee. 20. No Recourse Against Others. No board member, director, officer, -------------------------- employee, agent, authorized representative, incorporator or shareholder of the A-12 Company shall have any liability for any obligations of the Company under the Securities or the Indenture for a claim based on, in respect of, or by reason of, such obligations or their creation by reason of his, her or its status as such. Each Holder of Securities by accepting a Security waivers and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 21. Discharge. The Company's obligations pursuant to the Indenture --------- will be discharged, except for obligations pursuant to certain provisions thereof, subject to the terms of the Indenture, upon the payment of all the Securities or upon the irrevocable deposit with the Trustee of U.S. Dollars or U.S. Government Securities denominated in U.S. Dollars sufficient to pay when due principal of and interest on the Securities to maturity or redemption. 22. Authentication. This Security shall not be valid until the -------------- Trustee signs the certificate of authentication on the other side of this Security. 23. Governing Law. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING WITHOUT LIMITATION SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B), AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BOUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New A-13 York in any action or proceeding arising out of or relating to the Indenture or the Securities. 24. 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). 25. Currency of Account. U.S. Dollars are the sole currency of ------------------- account and payment for all sums payable by the Company under the Securities. 26. CUSIP, ISIN and Common Code Numbers. The Company has caused ----------------------------------- CUSIP, ISIN or Common Code numbers, as applicable, to be printed on the Securities and the Trustee may use CUSIP, ISIN or Common Code numbers, as applicable, in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed hereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attn: Treasurer A-14 FORM OF ASSIGNMENT If you, the holder, want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to: (Insert assignee's social security or tax ID number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ of _____________________________________________________________________________ Agent to transfer this Security on the books of the Company. The Agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the United States Securities and Exchange Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as may be permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any Predecessor Security) or the last date on which the Company or any Affiliate of the Company was the owner of this Security (or any Predecessor Security), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [_] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or A-15 [_] (b) this Security is being transferred other than in accordance with (a) above and documents, including a transferee certificate substantially in the form attached hereto, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If neither of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer or registration set forth herein and in Section 3.13 and Section 3.14 of the Indenture shall have been satisfied. Dated: _________ Your signature: _________________________________ (Sign exactly as your name appears on the other side of this Security) By:______________________________________________ NOTICE: To be executed by an executive officer Signature Guaranteed:_____________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) A-16 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED: The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:_____________________ __________________________________________________ NOTICE: To be executed by an executive officer A-17 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY Principal Amount of Amount of Amount decrease in increase in at maturity Principal Principal of this Amount Amount Global at maturity at maturity Security Signature of of this of this following authorized Date of Global Global such decrease officer of Exchange Security Security (or increase) Trustee - ------------- ----------- ----------- ------------- ------------ Initial $ balance as of 20/1/00 A-18 EXHIBIT B FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY (Transfers pursuant to Sections 3.13(b)(ii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/2% Senior Notes Due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$]______ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). ________________________________ CERTIFICATE No(s). _________________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. B-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: 1. the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; 2. the offer of the Specified Securities was not made to a person in the United States; 3 either: (a) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (b) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions have been prearranged with a buyer in the United States; 4. no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; 5. if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; 6. the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and 7. upon completion of the transaction, the beneficial interest being B-2 transferred will be held through an Agent Member acting for and on behalf of Euroclear or Cedelbank. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: _______________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:____________________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) B-3 EXHIBIT C FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (Transfers Pursuant to Sections 3.13(b)(iii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/2% Senior Notes Due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$]_____ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a C-1 person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (A) the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (i) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and C-2 (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after [date one year after the latest date of issuance of any of the Specified Securities] and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (B) the transfer is occurring after [date two years after the latest date of issuance of any of the Specified Securities] and the Owner is not, and during the preceding three months has not been, an Affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: _________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:______________________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) C-3 EXHIBIT D FORM OF TRANSFER CERTIFICATE -- REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY (Transfers to QIBs Pursuant to Sections 3.13(b)(iv) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/2% Senior Notes Due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$]______ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. D-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Restricted Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 144A under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (2) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: _______________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) D-2 EXHIBIT E UNITED PAN-EUROPE COMMUNICATIONS N.V. OFFICERS' CERTIFICATE [Name], [title(s)] of United Pan-Europe Communications N.V., a public limited liability company organized and existing under the laws of The Netherlands (the "Company"), and [name], [title(s)] of the Company, hereby certify pursuant to Sections ____ and ____ of the Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A., as trustee (the "Trustee"), that: (i) he or she has read and understands the provisions of the Indenture and the definitions relating thereto, (ii) the statements made in this Officers' Certificate are based upon an examination of the provisions of the Indenture and upon the relevant books and records of the Company, (iii) in his or her opinion, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not the covenants and conditions of the Indenture relating to the [authentication of the Securities] [execution of the Indenture] [OTHER] have been complied with and (iv) in his or her opinion, such covenants and conditions have been complied with. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate on this ____ day of ____________, ____. By:_______________________________ Name: Titles: By:_______________________________ Name: Titles: E-1 EXHIBIT F [Date] Citibank, N.A. 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Ladies and Gentlemen: We have acted as special counsel to United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company"), in connection with the [initial issuance and sale by the Company of $300,000,000 aggregate principal amount of the Company's 11 1/2% Senior Notes due 2010 (the "Securities"), which will be issued under an Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A. as trustee (the "Trustee")]. This opinion is being furnished to your pursuant to Sections ____ and ____ of the Indenture. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such letter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. As to any facts material to the opinions expressed herein which we did not independently establish or verify, we have relied upon oral or written statements or representations of officers and other representatives of the Company and others. Pursuant to Sections ____ and ____ of the Indenture, we advise you that in F-2 our opinion: 1. We have reviewed Article __ of the Indenture setting forth certain provisions of general application, and in particular, the pertinent provisions of Section ___ of the Indenture setting forth the definitions of certain terms, and Sections ___ and ___ of the Indenture providing that the Trustee is entitled to receive an Officers' Certificate and an Opinion of Counsel in connection with any request by the Company to take any action and setting forth certain requirements with respect to the forms of such documents. We have also reviewed Article ___ of the Indenture, pertaining to ____. 2. In our opinion, we have made such examination or investigation (including an examination of the Officers' Certificate of the Company, dated as of the date hereof, as to the matters addressed in Sections ___ and ___ of the Indenture) as we deem necessary to enable us to express an informed opinion as to whether or not the conditions precedent to [the authentication of the Securities] [the execution of the Indenture] [OTHER] under Section ___ of the Indenture have been complied with. 3. In our opinion, the conditions precedent to be satisfied with respect to the [authentication of the Securities] [execution of the Indenture] [OTHER] under Section __ of the Indenture have been complied with. Members of our firm are admitted to the bar in the States of ______ and New York, and we do not express any opinion as to the laws of any jurisdiction other than the laws of such States and the General Corporation Law of the State of Delaware and the laws of the United States of America. This opinion is furnished to you solely for your benefit in connection with the [authentication of the Securities] [execution of the Indenture] [OTHER] and is not to be relied upon by any other person without our express written permission. Very truly yours, F-3 EXHIBIT G FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS (Transfers Pursuant to Section 3.14(a) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/2% Senior Notes Due 2010 (the "Securities") Ladies and Gentlemen: Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee (the "Indenture"). Terms used but not defined herein have the meanings given to them in the Indenture. This certificate relates to [U.S. $] [____] principal amount of Securities, which are evidenced by the following certificate(s) (the "Securities"): 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold except as permitted in the following sentence. We understand and agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, (x) that such Securities are being offered only in a transaction not involving any public offering within two years after the date of the original issuance of the Securities or if within three months after we cease to be an affiliate (within the meaning of Rule 144 under the Securities Act) of the Company, such Securities may be resold, pledged or transferred only (i) to the Company, (ii) so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person whom we reasonably believe is a "qualified institution buyer" (as defined in Rule 144A) ("QIB") that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is G-1 being made in reliance on Rule 144A (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities), (iii) in an offshore transaction in accordance with Regulation S under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the Note if the Note is not in book-entry form), and, if such transfer is being effected by certain transferors prior to the expiration of the "40-day distribution compliance period" (within the meaning of Rule 903(b)(2) of Regulation S under the Securities Act), a certificate that may be obtained from the Trustee is delivered by the transferee, (iv) to an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities) which has certified to the Company and the Trustee for the Securities that it is such an accredited investor and is acquiring the Securities for investment purposes and not for distribution (provided that no Securities purchased from a foreign purchaser or from any person other than a QIB or an institutional accredited investor pursuant to this clause (iii) shall be permitted to transfer any Securities so purchased to an institutional accredited investor pursuant to this clause (iv) prior to the expiration of the "applicable restricted period" (within the meaning of Regulation S under the Securities Act), (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, or (vi) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States, and we will notify any purchaser of the Securities from us of the above resale restriction, if then applicable. We further understand that in connection with any transfer of the Securities by us that the Company and the Trustee for the Securities may request, and if so requested we will furnish, such certificates, legal opinions and other information as they may reasonably require to confirm that any such transfer complies with the foregoing restrictions. 2. We are able to fend for ourselves in the transactions contemplated by this Offering Circular, we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment and can afford the complete loss of such investment. 3. We understand that the Company, Donaldson, Lufkin & Jenrette Securities International and the other Initial Purchasers named as such in the Offering Circular as the initial purchasers of the Securities ("Initial Purchasers"), and others will rely upon the truth and accuracy of the foregoing acknowledgments, G-2 representations and agreements and we agree that if any of the acknowledgments, representations and warranties deemed to have been made by us by our purchase of Securities, for our own account or of one or more accounts as to each of which we exercise sole investment discretion, are no longer accurate, we shall promptly notify the Company and the Initial Purchasers. 4. We are acquiring the Securities purchased by us for investment purposes and not for distribution of our own account or for one or more accounts as to each of which we exercise sole investment discretion and we are or such account is an institutional "accredited investor" (as defined in rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act). 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, _______________________________ (Name of Purchaser) By:____________________________ Date:__________________________ G-3 EXHIBIT H OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 10.10 of the Indenture, check the box: [_] Section 10.10 If you wish to have a portion of this Security purchased by the Company pursuant to Section 10.10 of the Indenture, state the amount: [$_____________(multiple of $1000)] [(Euro)________(multiple of (Euro)1000)] Dated:_____________________ Your Signature:______________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranteed:___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) H-1 EX-4.7 3 11 1/4% SENIOR NOTES UNITED PAN-EUROPE COMMUNICATIONS N.V. Issuer CITIBANK, N.A. (London Branch) Trustee ____________________ Indenture 11 1/4% SENIOR NOTES DUE 2010 Dated as of January 20, 2000 _____________________ $600,000,000 11 1/4% Senior Notes Due 2010 (Euro)200,000,000 11 1/4% Senior Notes Due 2010 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions.......................................................... 1 SECTION 1.2 Compliance Certificates and Opinions................................. 41 SECTION 1.3 Form of Documents Delivered to Trustee............................... 42 SECTION 1.4 Acts of Holders...................................................... 42 SECTION 1.5 Notices.............................................................. 44 SECTION 1.6 Notice to Holders; Waiver............................................ 46 SECTION 1.7 Effect of Headings and Table of Contents............................. 46 SECTION 1.8 Successors and Assigns............................................... 47 SECTION 1.9 Separability Clause.................................................. 47 SECTION 1.10 Benefits of Indenture................................................ 47 SECTION 1.11 Governing Law........................................................ 47 SECTION 1.12 Conflict with Trust Indenture Act.................................... 47 SECTION 1.13 Legal Holidays....................................................... 48 SECTION 1.14 No Personal Liability of Board Members, Officers, Employees and Shareholders..................................................... 48 SECTION 1.15 Independence of Covenants............................................ 48 SECTION 1.16 Exhibits............................................................. 49 SECTION 1.17 Counterparts......................................................... 49 SECTION 1.18 Duplicate Originals.................................................. 49 SECTION 1.19 Agent for Service; Submission to Jurisdiction; Waiver of Immunities........................................................... 49 SECTION 1.20 Judgment Currency.................................................... 50 ARTICLE II SECURITY FORMS SECTION 2.1 Forms Generally...................................................... 50 ARTICLE III THE SECURITIES SECTION 3.1 Title and Terms...................................................... 51 SECTION 3.2 Denominations........................................................ 52 SECTION 3.3 Execution, Authentication, Delivery and Dating....................... 53 SECTION 3.4 Temporary Securities................................................. 57 SECTION 3.5 Registration, Registration of Transfer and Exchange.................. 57 SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities..................... 59
i SECTION 3.7 Payment of Interest; Interest Rights Preserved................................. 60 SECTION 3.8 Persons Deemed Owners.......................................................... 61 SECTION 3.9 Cancellation................................................................... 62 SECTION 3.10 Computation of Interest........................................................ 62 SECTION 3.11 "CUSIP" and/or "ISIN" Numbers.................................................. 62 SECTION 3.12 Book-Entry Provisions for Global Securities, Certificated Securities........... 63 SECTION 3.13 Transfer and Exchange of Securities............................................ 64 SECTION 3.14 Special Transfer Provisions.................................................... 76 ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture........................................ 77 SECTION 4.2 Application of Trust Money..................................................... 78 ARTICLE V REMEDIES SECTION 5.1 Events of Default.............................................................. 79 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment............................. 80 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee................ 81 SECTION 5.4 Trustee May File Proofs of Claim............................................... 82 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities.................... 83 SECTION 5.6 Application of Money Collected................................................. 84 SECTION 5.7 Limitation on Suits............................................................ 84 SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest...... 85 SECTION 5.9 Restoration of Rights and Remedies............................................. 85 SECTION 5.10 Rights and Remedies Cumulative................................................. 85 SECTION 5.11 Delay or Omission Not Waiver................................................... 86 SECTION 5.12 Control by Holders............................................................. 86 SECTION 5.13 Waiver of Past Defaults........................................................ 86 SECTION 5.14 Waiver of Stay or Extension Laws............................................... 87 ARTICLE VI THE TRUSTEE SECTION 6.1 Certain Duties and Responsibilities............................................ 87 SECTION 6.2 Notice of Default.............................................................. 88 SECTION 6.3 Certain Rights of Trustee...................................................... 89 SECTION 6.4 Trustee Not Responsible for Issuance of Securities............................. 90
ii SECTION 6.5 May Hold Securities....................................................... 90 SECTION 6.6 Money Held in Trust....................................................... 91 SECTION 6.7 Compensation and Reimbursement............................................ 91 SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting Interests............ 92 SECTION 6.9 Resignation and Removal; Appointment of Successor......................... 92 SECTION 6.10 Acceptance of Appointment by Successor.................................... 94 SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business............... 95 SECTION 6.12 Trustee Acting in Other Capacities........................................ 95 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1 Disclosure of Names and Addresses of Holders.............................. 95 SECTION 7.2 Reports by Trustee........................................................ 96 SECTION 7.3 Reports by Company........................................................ 96 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms...................... 96 SECTION 8.2 Successor Substituted..................................................... 97 ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Indentures Without Consent of Holders..................................... 98 SECTION 9.2 Indentures with Consent of Holders........................................ 99 SECTION 9.3 Execution of Indenture.................................................... 100 SECTION 9.4 Effect of Indentures...................................................... 100 SECTION 9.5 Conformity with Trust Indenture Act....................................... 100 SECTION 9.6 Reference in Securities to Indentures..................................... 100 SECTION 9.7 Notice of Indentures...................................................... 101 ARTICLE X COVENANTS SECTION 10.1 Payment of Principal, Premium, if Any, and Interest....................... 101 SECTION 10.2 Maintenance of Office or Agency........................................... 102 SECTION 10.3 Money for Security Payments to Be Held in Trust........................... 103 SECTION 10.4 Corporate Existence....................................................... 104
iii SECTION 10.5 Payment of Taxes and Other Claims.......................................... 105 SECTION 10.6 Maintenance of Properties.................................................. 105 SECTION 10.7 Insurance.................................................................. 105 SECTION 10.8 Provision of Financial Statements.......................................... 105 SECTION 10.9 Statement by Officers as to Default........................................ 106 SECTION 10.10 Purchase of Securities upon Change of Control.............................. 107 SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock.............................................................. 111 SECTION 10.12 Limitation on Restricted Payments.......................................... 113 SECTION 10.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries............................................................... 116 SECTION 10.14 Limitation on Liens Securing Indebtedness.................................. 118 SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries...................... 118 SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock.......................... 119 SECTION 10.17 Limitation on Transactions with Affiliates................................. 124 SECTION 10.18 Additional Amounts......................................................... 124 SECTION 10.19 Waiver of Stay, Extension or Usury Laws.................................... 127 SECTION 10.20 Limitation on Lines of Business............................................ 127 SECTION 10.21 Limitation on Status as an Investment Company.............................. 127 ARTICLE XI REDEMPTION OF SECURITIES.......................................................... 128 SECTION 11.1 Right of Redemption........................................................ 128 SECTION 11.2 Applicability of Article................................................... 129 SECTION 11.3 Election to Redeem; Notice to Trustee...................................... 129 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed.......................... 129 SECTION 11.5 Notice of Redemption....................................................... 130 SECTION 11.6 Deposit of Redemption Price................................................ 130 SECTION 11.7 Securities Payable on Redemption Date...................................... 131 SECTION 11.8 Securities Redeemed in Part................................................ 131 ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE................................................ 132 SECTION 12.1 Company's Option to Effect Defeasance or Covenant Defeasance............... 132 SECTION 12.2 Defeasance and Discharge................................................... 132 SECTION 12.3 Covenant Defeasance........................................................ 132 SECTION 12.4 Conditions to Defeasance or Covenant Defeasance............................ 133
iv SECTION 12.5 Deposited Money and U.S. Government Securities to Be Held in Trust; Other Miscellaneous Provisions......... 135 SECTION 12.6 Reinstatement......................................... 135 EXHIBIT A................................................................ A-1 EXHIBIT B................................................................ B-1 EXHIBIT C................................................................ C-1 EXHIBIT D................................................................ D-1 EXHIBIT E................................................................ E-1 EXHIBIT F................................................................ F-1 EXHIBIT G................................................................ G-1 EXHIBIT H................................................................ H-1 EXHIBIT I................................................................ I-1
v INDENTURE, dated as of January 20, 2000 by and between United Pan- Europe Communications N.V., a public limited liability company organized and existing under the laws of The Netherlands (herein called the "Company"), having its principal office at Fred. Roeskestraat 123, 1076 EE Amsterdam, The Netherlands, and Citibank, N.A. (London Branch), as Trustee (herein called the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as defined below) of the Company's 11 1/4% Senior Notes due 2010 denominated in U.S. Dollars and 11 1/4% Senior Notes due 2010 denominated in Euros: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. For all purposes of this Indenture, except ----------- as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper," as used in TIA Section 311, shall have the meanings assigned to them in the rules of the SEC adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with "GAAP" as defined in this section 1.1; (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, paragraph or other subdivision; and (e) unless otherwise indicated, references to Articles, Sections, paragraphs or other subdivisions are references to such Articles, Sections, paragraphs or other subdivisions of this Indenture. 1 "Acceleration Notice" has the meaning set forth in Section 5.2. "Acquired Indebtedness" means Indebtedness (including Disqualified Capital Stock) of any Person existing at the time such Person becomes a Subsidiary of the Company, including by designation, or is merged or consolidated into or with the Company or one of its Subsidiaries. "Acquisition" means the purchase or other acquisition of any Person or all or substantially all the assets of any Person by any other Person, whether by purchase, merger, consolidation, or other transfer, and whether or not for consideration. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Additional Amounts" has the meaning specified in Section 10.18. "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For purposes of this definition, the term "control" means the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise; provided that with respect to ownership interest in the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power normally entitled to vote in the election of directors, managers or trustees, as applicable, shall for such purposes be deemed to constitute control. "Agent Member" means, with respect to any Depositary, any member of, or participant in, such Depositary. "Applicable Procedures" has the meaning set forth in Section 3.13(b)(ii). "Annualized Consolidated EBITDA" means Consolidated EBITDA for the Reference Period multiplied by four. "Asset Acquisition" means (i) an Investment or capital contribution (by means of transfers of cash or other property to others or payments for property or services of the account or use of others, or otherwise) by the Company or any 2 Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of another Person by the Company or any Subsidiary, or (ii) an acquisition by the Company or any Subsidiary of the property and assets (other than Capital Stock) of any Person other than the Company or any Subsidiary which constitute substantially all of a division, operating unit or line of business of such Person or which is otherwise outside the ordinary course of business. "Asset Sale" has the meaning set forth in Section 10.16. "Average Life" means, as of the date of determination, with respect to any security or instrument, the quotient obtained by dividing (1) the sum of the products (a) of the number of years from the date of determination to the date or dates of each successive scheduled principal (or redemption) payment of such security or instrument and (b) the amount of each such respective principal (or redemption) payment by (2) the sum of all such principal (or redemption) payments. "Beneficial Owner" or "beneficial owner" for purposes of the definition of "Change of Control" and "Affiliate" has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not applicable, except that a "person" shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. "Board Resolution" means a copy of a resolution certified by a managing director or other authorized officer, assistant officer or representative of the Company to have been duly adopted by the Supervisory Board of the Company and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York and Amsterdam, The Netherlands are authorized or obligated by law or executive order to close. "Capital Contribution" means any contribution to the equity of the Company from a direct or indirect parent of the Company for which no consideration other than the issuance of Qualified Capital Stock is paid. 3 "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means, with respect to any Corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebted ness that is not itself otherwise capital stock), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that Corporation. "Cash Equivalent" means: (1) securities issued or directly and fully guaranteed or insured by (i) the United States of America or any agency or instrumentality thereof or (ii) any member of the European Economic Area or Switzerland, or any, agency or instrumentality thereof provided that such country, agency or instrumentality has a credit rating at least equal to that of the United States of America (provided that, in each case, the full faith and credit of such respective nation is pledged in support thereof), or (2) time deposits and certificates of deposit and commercial paper issued by the parent Corporation of any domestic (United States) commercial bank of recognized standing having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof), or (3) commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in the case of each of (1), (2), and (3) maturing within one year after the date of acquisition, or (4) Euro or Dollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months, and overnight bank deposits, in each case with any domestic (United States) commercial bank (including the Trustee) having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof) and a Keefe Bank Watch Rating of "B" or better; 4 provided, in the case of (1) through (4), that with respect to any non- domestic Person, Cash Equivalents shall also mean those investments that are comparable to clauses (ii) and (iv) above in such Person's country of organization or country where it conducts business operations. "Cedelbank" means Cedelbank. "Certificated Security" means any certificated Security in fully registered definitive form. "Change of Control" means any merger or consolidation of the Company with or into any Person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the Company's assets, on a Consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction(s), either (A) any "person" or "group" (other than the Parent or any of the Principals) is or becomes the "beneficial owner," directly or indirectly, of more than 35% of the total voting power of all classes of the Company's securities in the aggregate normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee(s) or surviving entity or entities and such "person" or "group" beneficially owns (after giving effect to such transaction) a greater percent age of the total voting power than is at that time beneficially owned by Parent and the Principals (in the aggregate) and none of the Parent nor any of the Principals has the right or ability by voting power, contract or otherwise to elect or nominate for elections a majority of the Company's Supervisory Board, or (B) the Continuing Directors cease for any reason to constitute a majority of the Supervisory Board of the Company then in office, or (C) the Company adopts a plan of liquidation (other than a plan of liquidation as a consequence of which (1) the Parent and the Principals (in the aggregate) beneficially own at least the same percentage of voting power after the consummation of such plan as before or otherwise retain the right or ability, by voting power, to control the Person that acquires the proceeds of such liquidation and (2) the Person that acquires the substantial majority of the proceeds of such liquidation shall have assumed by supplemental indenture the Company's obligations pursuant to this Indenture). 5 "Common Depositary" means Citivic Nominees Limited, as common depositary for Euroclear and Cedelbank and depositary for the Euro Denominated Securities, together with its successors in such capacity. "Common Stock" of any Person means Capital Stock of the Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Person, to shares of Capital Stock of any other class of the Person. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Order" or "Company Request" means a written request or order signed in the name of the Company by a member of the Company's management board or its supervisory board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee. "Consolidated Coverage Ratio" of any Person on any date of determination (the "Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate amount of Consolidated EBITDA of such Person attributable to continuing operations and businesses (exclusive of amounts attributable to operations and business permanently discontinued or disposed of) for the Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to such Person's Consolidated Fixed Charges subsequent to the Transaction Date) during the Reference Period; provided that for purposes of such calculation, (i) Acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (ii) transactions giving rise to the need to calculate the Consolidated Coverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (iii) the incurrence of any Indebtedness during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date 6 (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of such Reference Period, and (iv) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12- month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Consolidated Invested Equity Capital" means, with respect to any Person as of any date, the sum of the Invested Equity Capital of such Person as of such date and, without duplication, the Invested Equity Capital of each of its Subsidiaries as of such date. For purposes of calculating the Consolidated Invested Equity Capital of any Person as of any date, in order to avoid duplication, the Invested Equity Capital of a Subsidiary of such Person shall not include any amounts that would be included in the Consolidated Invested Equity Capital of any equity owner of such Subsidiary, to the extent that such amounts were utilized by such equity owner prior to such date to permit the incurrence of Indebtedness pursuant to clauses 2(iii) and (c)(3) of Section 10.11. For example, if a direct Subsidiary of the Company has Consolidated Invested Equity Capital of $100 and incurs $225 of such Indebtedness, then a direct or indirect Subsidiary of such Subsidiary will not be deemed to have any Invested Equity Capital based on contributions or loans to it by such first Subsidiary. In addition, the Invested Equity Capital of a Subsidiary of a Person will never be considered to be greater than the Invested Equity Capital of such Person, except as a result of contributions of Invested Equity Capital to such Subsidiary by third parties. "Consolidation" means, with respect to any Person, the consolidation of the accounts of the Subsidiaries with those of such Person, all in accordance with GAAP; provided that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary with the accounts of such Person. The term "Consolidated" has a correlative meaning to the foregoing. "Consolidated EBITDA" means, with respect to any Person, for any period, the Consolidated Net Income of such Person for such period adjusted to add thereto (to the extent deducted from net revenues in determining Consolidated Net Income), without duplication, the sum of 7 (1) Consolidated income tax expense, (2) Consolidated depreciation and amortization expense, (3) Consolidated Fixed Charges, and (4) non-cash stock-based compensation, less the amount of all cash payments made by such Person or any of its Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period; provided that Consolidated income tax expense, depreciation and amortization of a Subsidiary that is not a Wholly Owned Subsidiary shall only be added to the extent of the equity interest of such Person in such Subsidiary. "Consolidated Fixed Charges" of any Person means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of: (a) interest expensed or capitalized, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations) of such Person and its Consolidated Subsidiaries during such period, including (1) original issue discount and non-cash interest payments or accruals on any Indebtedness, (2) the interest portion of all deferred payment obligations, and (3) all commissions, discounts and other fees and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations, in each case to the extent attributable to such period, (b) the amount of dividends accrued or payable (or guaranteed) by such Person or any of its Consolidated Subsidiaries in respect of Preferred Stock (other than by Subsidiaries of such Person to such Person or such Person's Wholly Owned Subsidiaries). For purposes of this definition, (x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty by such Person or a Subsidiary of such 8 Person of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Consolidated Net Income" means, with respect to any Person for any period, the net income (or loss) of such Person and its Consolidated Subsidiaries (determined on a Consolidated basis in accordance with GAAP) for such period, adjusted to exclude (only to the extent included in computing such net income (or loss) and without duplication): (a) all gains (but not losses) which are either extraordinary (as determined in accordance with GAAP) or are nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any capital stock), (b) the net income, if positive, of any Person, other than a Consolidated Subsidiary, in which such Person or any of its Consolidated Subsidiaries has an interest, except to the extent of the amount of any dividends or distributions actually paid in cash to such Person or a Consolidated Subsidiary of such Person during such period, but in any case not in excess of such Person's pro rata equity interest share of such Person's net income for such period, (c) the net income or loss of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, and (d) the net income, if positive, of any such Person's Consolidated Subsidiaries to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Consolidated Subsidiary other than this Indenture. "Consolidated Subsidiary" means, for any Person, each Subsidiary (excluding all Unrestricted Subsidiaries) of such Person (whether now existing or hereafter created or acquired) the financial statements of which are Consolidated for financial statement reporting purposes with the financial statements of such Person in accordance with GAAP. 9 "Consolidated Tangible Assets" of any Person means the total amount of assets less applicable reserves and other properly deductible items which under GAAP would be calculated on a Consolidated balance sheet of the Person and its Subsidiaries after deducting all goodwill, trademarks, patents, unamortized debt discount and expense and other like intangibles, which, in each case under GAAP, would be included on such Consolidated balance sheet. "Continuing Director" means during any period of 12 consecutive months after the Issue Date, individuals who at the beginning of any such 12-month period constituted the Supervisory Board of the Company (together with any new supervisory directors whose election by the shareholders was from a list of candidates drawn up by the holder or holders of the Company's priority shares and new supervisory directors designated in or provided for in an agreement regarding the merger, consolidation or sale, transfer or other conveyance, of all or substantially all of the assets of the Company or the Parent, if such agreement was approved by a vote of such majority of supervisory directors). "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at 11 Old Jewry, London EC2R 8DU, except that, with respect to presentation of Securities for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Corporation" includes Corporations, associations, companies and business trusts. "Credit Agreement" means the loan and note issuance agreement dated July 27, 1999 between certain Subsidiaries of the Company and Bank of American International Limited, CIBC World Markets plc, Citibank, N.A., MeesPierson N.V., Paribas, The Royal Bank of Scotland plc, Toronto Dominion Bank Europe Limited and The Toronto Dominion Bank, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or Holders, and, subject to the proviso to the next succeeding sentence, irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Credit 10 Agreement" shall include agreements in respect of Interest Swap and Hedging Obligations with lenders party to the Credit Agreement and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Credit Agreement and all refundings, refinancings and replacements of any Credit Agreement, including any agreement: (1) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding or deleting borrowers or guarantors thereunder, so long as borrowers and guarantors may include one or more of the Company and its Subsidiaries and their respective successors and assigns, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder; provided that on the date such Indebtedness is incurred it would not be prohibited by Section 10.11; or (4) otherwise altering the terms and conditions thereof in a manner not prohibited by the other terms of this Indenture. "CT Corporation System" has the meaning specified in Section 1.19. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" has the meaning specified in Section 3.12. "Disqualified Capital Stock" means (a) except as set forth in clause (b), with respect to any Person, Equity Interests of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to 91 days following the Stated Maturity of the Securities and (b) with respect to any Subsidiary of the Company, any Equity Interests of such Subsidiary other than (i) any common equity with no economic preference, privileges, or redemption or repayment 11 provisions or (ii) preferred stock convertible into such common equity of such Subsidiary with no payment of dividends or liquidation preference due or payable thereon on or prior to 91 days following the Stated Maturity of the Securities. "Dollar Denominated Securities" means the $600,000,000 11 1/4% Senior Notes due 2010, together with the Exchange Dollar Denominated Securities. "Dollars" or "$" or "U.S. Dollars" means the lawful currency of the United States of America and, in relation to any amount to be advanced or paid under this Indenture or the Securities, funds having immediate value. "Dollar Paying Agent" means an office or agency of the Company where Dollar Denominated Securities may be presented for payment. "Dollar Registrar" means an office or agency of the Company in London, where Dollar Denominated Securities may be presented for registration of transfer or exchange. "DTC" means the Depository Trust Company, its nominees and successors. "EEA Government Obligation" means direct non-callable obligations of, or non-callable obligations guaranteed by, any member nation of the European Union for the payment of which obligation or guarantee the full faith and credit of the respective nation is pledged; provided that such nation has a credit rating at least equal to that of the highest rated member nation of the European Economic Area. "Equity Interest" of any Person means any shares, interests, participations or other equivalents (however designated) in such Person's equity, and shall in any event include any Capital Stock issued by, or partnership, participation or membership interests in, such Person. "Equity Offering" means (i) an underwritten public offering or floatation of ordinary shares of the Company which has been registered under the Securities Act, or admitted to listing on the Amsterdam Stock Exchange or its equivalent in any other European Union jurisdiction, in any case resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent), or (ii) a sale of Qualified Capital Stock of the Company to any Person which is (or a controlled Affiliate of a Person which is), engaged principally in a 12 Related Business, resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent); provided, however, that a sale of Qualified Capital Stock of the Company to any subsidiary of the Company or any Person that is a controlled Affiliate of the Company shall not be an Equity Offering. "Euro" or "(Euro)" means the currency adopted by those countries participating in the third stage of European monetary union. "Euro Denominated Securities" means the (Euro)200,000,000 11 1/4% Senior Notes due 2010, together with the Exchange Euro Denominated Securities. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "European Economic Area" means the member nations of the European Economic Area pursuant to the Oporto Agreement on the European Economic Area dated May 2, 1992 as amended. "European Legal Tender" means legal tender in the countries constituting the European Monetary Union, EEA Government Obligations or a combination thereof. "European Union" means the member nations to the third stage of economic and monetary union pursuant to the treaty of Rome establishing the European Community, as amended by the Treaty on European Union, signed at Maastricht on February 7, 1992. "Euro Paying Agent" means an office or agency of the Company where Euro Denominated Securities may be presented for payment. "Euro Registrar" means an office or agency of the Company where Euro Denominated Securities may be presented for registration of transfer or exchange. "Event of Default" has the meaning set forth under Section 5.1. "Event of Loss" means, with respect to any property or asset, any (1) loss, destruction or damage of such property or asset or (2) any condemnation, 13 seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto). "Exchange Dollar Denominated Securities" means the Dollar Denominated Securities to be issued pursuant to this Indenture in connection with the offer to exchange Securities for Initial Securities that may be made by the Company pursuant to the Registration Rights Agreement. "Exchange Euro Denominated Securities" means the Euro Denominated Securities to be issued pursuant to this Indenture in connection with the offer to exchange Securities for Initial Securities that may be made by the Company pursuant to the Registration Rights Agreement. "Exchange Offer" means the exchange registered with the SEC to exchange Initial Securities for Exchange Securities pursuant to the terms of the Registration Rights Agreement. "Exchange Registration Statement" means an Exchange Registration Statement as defined in the Registration Rights Agreement. "Exchange Securities" means the Exchange Dollar Denominated Securities and the Exchange Euro Denominated Securities. "Exempted Affiliate Transaction" means (i) Restricted Payments comprised of pro rata dividends paid in cash on any class of Equity Interests and made in compliance with this Indenture, (ii) transactions, at arms-length and as so set forth in a Board Resolution, between or among holders of any Equity Interest of any Subsidiary of the Company and such Subsidiary, so long as such holder is not otherwise an Affiliate of the Company, (iii) transactions between or among the Company, and its Subsidiaries, (iv) the Company or any of its Subsidiaries entering into or performing any employment agreement, stock option agreement or other agreement relating to the terms of employment, compensation or termination of employment in the ordinary course of business of the Company or such Subsidiary, (v) any contract, agreement, arrangement or transaction with any Affiliate in effect as of the Issue Date and any amendment, waiver, variation or other modification in 14 respect of any such contract, agreement, arrangement or transaction so long as such amendment, waiver, variation or other modification is not disadvantageous to the Company and its Subsidiaries in any material respect, (vi) Restricted Payments and Investments permitted under Section 10.12, (vii) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture which are fair to the Company and its Subsidiaries, in the reasonable determination of the Company or Subsidiary, as the case may be, or are on terms no less favorable to the Company or the Subsidiary than those that could be obtained in a comparable arm's length transaction with an entity that is not an Affiliate or Principal and is in the best interests of the Company or the Subsidiary, and (viii) transactions with respect to network capacity or dark or lit communications fiber capacity or telecommunications conduit between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate and joint sales and marketing pursuant to an agreement or agreements between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate, provided that in the case of this clause (viii), such agreements are on terms that are no less favorable to the Company or the Subsidiary than those that could be obtained in an arm's-length transaction with an entity that is not an Affiliate or Principal and are in the best interests of the Company and the Subsidiary entered into in the ordinary course of business. "Existing Agreements" means (i) any and all instruments, as in effect on the Issue Date, between the Company or any of its Subsidiaries and a commercial lending institution or institutions, which makes borrowing of funds available to the Company or any such Subsidiary from such institution or institutions and (ii) any replacements of the instruments in clause (i) entered into by the respective Subsidiary that was party to the instrument so replaced or their respective successors and a commercial lending institution or institutions for an amount up to the maximum amount of the instrument so replaced. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the Issue Date, reduced to the extent such amounts are repaid. "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United States Code, as amended from time to time. "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and 15 pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession in the United States as in effect on the Issue Date. "Global Security" means a Regulation S Global Security (or Unrestricted Global Security) or a Restricted Global Security. "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 verb has a corresponding meaning. "Guarantor" is defined to mean any Person obligated under a Guarantee. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, to the extent such liabilities and obligations would appear as a liability upon the Consolidated balance sheet of such Person in accordance with GAAP, (1) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (2) evidenced by bonds, notes, debentures or similar instruments, (3) representing the balance deferred and unpaid of the purchase price of any property or services, except (other than accounts payable or other obligations to trade creditors which have remained unpaid for greater than 90 days past 16 their original due date) those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors; (b) all liabilities and obligations, contingent or otherwise, of such Person (1) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (2) relating to any Capitalized Lease Obligation, or (3) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a)(1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon); (c) all net obligations of such Person under Interest Swap and Hedging Obligations; (d) all liabilities and obligations of others of the kinds described in the preceding clauses (a), (b) or (c) that such Person has guaranteed or provided credit support or that is otherwise its legal liability or which are secured by any assets or property of such Person; (e) any and all deferrals, renewals, extensions, refinancing and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not between or among the same parties; and (f) all Disqualified Capital Stock of such Person (measured at the greater of its voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital 17 Stock, such fair market value to be determined in good faith by the Supervisory Board of the Company. The amount of any Indebtedness outstanding as of any date shall be (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, but the accretion of original issue discount in accordance with the original terms of Indebtedness issued with an original issue discount will not be deemed to be an incurrence and (2) the principal amount thereof, excluding any interest thereon, in the case of any other Indebtedness. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Initial Purchasers" means, with respect to the Initial Securities issued pursuant to this Indenture on the Issue Date, each of Donaldson, Lufkin & Jenrette International and the other Initial Purchasers named as such in the Offering Circular. "Initial Securities" means the $600,000,000 11 1/4% Senior Notes due 2010 and the (Euro)200,000,000 11 1/4% Senior Notes due 2010, issued under this Indenture on the Issue Date. "Institutional Accredited Investor" means an institutional "Accredited Investor," as defined in Regulation D of the Securities Act. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Adjustment Event" has the meaning set forth in Section 3.1. "Interest Swap and Hedging Obligation" means any obligation of any Person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate 18 of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or floating rate of interest on the same notional amount. "Invested Equity Capital" means, with respect to any Person as of any date, without duplication, the sum of (i) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation in the form of common equity, plus, (ii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of creation by the holders of its common equity (and their Affiliates) in consideration of the issuance of preferred equity or Indebtedness, on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary relative to their respective contributions being ignored for this purpose), plus, (iii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation by the Company or a Wholly Owned Subsidiary of the Company in consideration of the issuance of preferred equity or Indebtedness, and less (iv) the value of all interest, returns in respect of Indebtedness, dividends and other distributions (in whatever form and however designated, valued at fair market value as determined in good faith by the Supervisory Board) made by such Person since the date of its creation to the holders of its common equity (and their Affiliates); provided that in no event shall the aggregate amount of interest, dividends and other distributions made to any holder of common equity of a Person (or its Affiliates) operate to reduce the Invested Equity Capital of such Person by more than the total contributions to such Person (per clauses (i) through (iii) above) by such equity holder (and its Affiliates). "Investment" by any Person in any other Person means (without duplication): (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to make any such acquisition; 19 (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable, endorsements for collection or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of the Company or to the extent permitted by Section 10.11, the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; (d) the making of any capital contribution by such Person to such other Person; and (e) the designation by the Supervisory Board of the Company of any Person to be an Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an amount equal to the fair market value of the net assets of any Subsidiary (or, if neither the Company nor any of its Subsidiaries has theretofore made an Investment in such subsidiary, in an amount equal to the Investments being made), at the time that such Subsidiary is designated an Unrestricted Subsidiary, and any property transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of the Company shall be deemed an Investment valued at its fair market value at the time of such transfer. Investments shall be measured by the fair market value attributed to the Investment at the time made or returned, as applicable. "Issue Date" means the date of first issuance of the Initial Securities hereunder. "Leverage Ratio" on any date of determination (the "Transaction Date") for any Person means the ratio, on a pro forma basis, of (a) the aggregate amount of Indebtedness of such Person and its Subsidiaries on a Consolidated basis to (b) the aggregate amount of Annualized Consolidated EBITDA of such Person attributable to continuing operations and business (exclusive of amounts attributable 20 to operations and businesses permanently discontinued or disposed of); provided that for purposes of calculating Annualized Consolidated EBITDA for this definition, (1) acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (2) transactions giving rise to the need to calculate the Leverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (3) the incurrence of any Indebtedness or issuance of any Disqualified Capital Stock during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of the Reference Period, and (4) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such Person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. For purposes of this definition, the sale, lease, conveyance, or other transfer by the Company or any Subsidiary of the Company, in the ordinary course of its business and not constituting a security interest in assets serving as collateral for any of their respective obligations, including the granting of 21 indefeasible rights of use or equivalent arrangements with respect to, network capacity, communications fiber capacity or conduit, shall not be a Lien. "Liquidated Damages" means all liquidated damages then owing pursuant to the Registration Rights Agreement. "Maturity," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents received by the Company in the case of a sale, or Capital Contribution in respect, of Qualified Capital Stock and by the Company and its Subsidiaries in respect of an Asset Sale, plus, in the case of an issuance of Qualified Capital Stock upon any exercise, exchange or conversion of securities (including options, warrants, rights and convertible or exchangeable debt) of the Company that were issued for cash on or after July 30, 1999, the amount of cash originally received by the Company upon the issuance of such securities (including options, warrants, rights and convertible or exchangeable debt) less, in each case, the sum of all payments, fees, commissions and (in the case of Asset Sales, reasonable and customary) expenses (including, without limitation, the fees and expenses of legal counsel and investment banking fees and expenses) incurred in connection with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only, less the amount (estimated reasonably and in good faith by the Company) of income, franchise, sales and other applicable taxes required to be paid by the Company or any of its respective Subsidiaries in connection with such Asset Sale in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits and tax credit carryforwards, and similar tax attributes. "New Acquisitions" means the acquisition by the Company or its subsidiaries of @Entertainment, Inc., A2000 Holding N.V., Time Warner Cable France S.A., Reseaux Cables de France S.A., Videopole S.A., Kabel Plus, a.s., SBS Broadcasting S.A., GelreVision N.V., SKT spol. s.r.o. and NBS Broadband Services AB, all substantially as described in the Offering Circular (and each such Person's respective subsidiaries). 22 "Non-Recourse Indebtedness" means Indebtedness of a Person to the extent that under the terms thereof and pursuant to applicable law, no personal recourse could be had against the Company or its Subsidiaries (giving effect to the designations of such Person as an Unrestricted Subsidiary) for the Payment of the principal of or interest or premium or other amounts with respect to such Indebtedness or for any claim based on such Indebtedness and that enforcement of obligations on such Indebtedness is limited solely to recourse against interests in specified assets. "Obligation" means any principal, premium or interest payment, or monetary penalty, or damages, due by the Company under the terms of the Securities or this Indenture, including any Liquidated Damages due pursuant to the terms of the Registration Rights Agreement. "Offering" means the offering of the Securities by the Company. "Offering Circular" means the offering memorandum, dated January 14, 2000, pursuant to which the Securities were offered and sold. "Officers' Certificate" means a certificate signed by a member of the Company's management board or its Supervisory Board, the Chief Executive Officer or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee in the form substantially similar to Exhibit F attached hereto, which shall comply with the Indenture, except in the case of an authentication order pursuant to Section 3.3, which must only be signed by one of the above noted persons. "Opinion of Counsel" means an opinion of counsel in the form substantially similar to Exhibit G attached hereto, who may be counsel to the Company, including an employee of the Company. "Other Senior Notes" means the Company's $300,000,000 11 1/2% Senior Notes due 2010, and its $1,000,000,000 13 3/4% Senior Discount Notes due 2010 issued pursuant to the Other Senior Notes Indenture. "Other Senior Notes Indenture" means one or more Indentures, dated as of January 20, 2000, between the Company and Citibank, N.A. as trustee, pursuant to which the Other Senior Notes were issued. 23 "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; (iii) Securities, except to the extent provided in Sections 12.2 and 12.3, with respect to which the Company has effected Defeasance and/or Covenant Defeasance as provided in Article Twelve; and (iv) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or 24 waiver, only Securities which any Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Parent" means UnitedGlobalCom, Inc. and its successor(s). "Parent Stock Instrument" means either (a) Indebtedness (including Disqualified Capital Stock) and Qualified Capital Stock of the Company that is convertible or exchangeable into, at the option of the Company or any holder thereof, or secured by, or whose value to the holder thereof is dependent upon any shares of Parent's Capital Stock that were owned by the Company or any of its Subsidiaries as of July 30, 1999; provided that such Indebtedness and Capital Stock of the Company shall have been issued in consideration of cash, the net proceeds of which shall have been received by the Company or (b) the Class A Common Stock of Parent owned by the Company or any of its Subsidiaries as of July 30, 1999 or any like number of shares of Class B Common Stock of Parent issued in exchange for the shares of the Class A Common Stock of Parent held as of July 30, 1999. "Participants" means (i) with respect to the Dollar Denominated Securities, institutions that have accounts with DTC or its nominee and (ii) with respect to the Euro Denominated Securities, institutions that have accounts with Euroclear or Cedelbank or their respective nominees. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Date" means any date on which a payment of principal, premium, if any, interest (or Liquidated Damages, if any) is due to be paid on any of the Securities. "Permitted Indebtedness" means that: (a) the Company may incur Indebtedness evidenced by the Securities and issued pursuant to this Indenture and Indebtedness evidenced by the Other Senior Notes and issued pursuant to the Other 25 Senior Notes Indenture up to the amounts being issued on the original Issue Date; (b) the Company may incur Refinancing Indebtedness with respect to any Indebtedness (including Disqualified Capital Stock), described in clause (a) or this clause (b) of this definition or incurred pursuant to clause (1)(ii) of Section 10.11, and any Subsidiary may incur Refinancing Indebtedness (including Disqualified Capital Stock), described in this clause (b) or clause (2)(c) of Section 10.11 and the Company and its Subsidiaries may incur Refinancing Indebtedness with respect to Indebtedness which is outstanding on the Issue Date (after giving effect to the New Acquisitions) (less the amount of any such Existing Indebtedness repaid on or after the Issue Date or which was refinanced pursuant to this clause (b)); (c) the Company and its Subsidiaries may incur Indebtedness solely in respect of bankers acceptances, letters of credit and performance and surety bonds and completion guarantees (to the extent that such incurrence does not result in the incurrence of any obligation to repay any obligation relating to borrowed money of others), all in the ordinary course of business in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; (d) the Company may incur Indebtedness to any Subsidiary, and any Subsidiary may incur Indebtedness to any other Subsidiary or to the Company; provided that in the case of Indebtedness of the Company, such obligations shall be unsecured and subordinated in all respects to the Company's obligations pursuant to the Securities and the Other Senior Notes and any event that causes such Subsidiary no longer to be a Subsidiary (including by designation to be an Unrestricted Subsidiary) shall be deemed to be a new incurrence of such Indebtedness, if then outstanding, subject to Section 10.11; (e) the Company and its Subsidiaries may incur Interest Swap and Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by this Indenture to be outstanding or any receivable or liability the payment of which is 26 determined by reference to a foreign currency; provided that the notional amount of any such Interest Swap and Hedging Obligation does not exceed the principal amount of Indebtedness to which such Interest Swap and Hedging Obligation relates; (f) the Company and its Subsidiaries may guarantee Indebtedness of any of the Company's Subsidiaries, provided that the incurrence of such Indebtedness by such Subsidiary is permitted under this Indenture; and (g) Subsidiaries of the Company may issue preferred stock or Indebtedness to the holders (or their Affiliates) of the common equity of such Subsidiary on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary of the Company relative to their respective contributions being ignored for this purpose). "Permitted Investment" means: (a) Cash Equivalents; (b) intercompany Indebtedness to the extent permitted under clause (d) of the definition of "Permitted Indebtedness"; (c) an Investment by the Company or a Subsidiary of the Company in a Person engaged primarily in a Related Business if as a result of such Investment such Person becomes a Subsidiary of the Company or is merged with or into the Company or a Subsidiary of the Company, so long as the surviving entity is the Company or a Subsidiary of the Company; (d) an Investment in any Subsidiary of the Company; (e) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Company maintains the power to influence or participate in the management of such Person by virtue of representation on such Person's board or directors 27 or through a contractual relationship with such Person or its holders of Capital Stock; (f) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Supervisory Board of the Company or of the relevant Subsidiary determines in its good faith reasonable judgement that the Company or any of its Subsidiaries will receive as a result of such Investment commensurate network services benefits (including by becoming a customer, client, supplier, purchaser or seller of goods or services of or to such Person or Persons) from the arrangements entered into as a result of such Investment; (g) other Investments in any Person or Persons engaged primarily in a Related Business; provided that, after giving pro forma effect to each such Investment, the amount of all such Investments made solely in reliance upon this clause (g) on and after July 30, 1999 that are Outstanding at any time does not exceed in the aggregate $100,000,000 (or the foreign currency equivalent thereof measured on the date of the making of such Investment), plus, unless such amounts shall have been credited under clause (3) of Section 10.12 and utilized to make a Restricted Payment, (w) the amount of the Net Cash Proceeds to the Company from the sale of Qualified Capital Stock (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in a Qualified Exchange), (x) an amount equal to 50% of the Net Cash Proceeds from Special Character Asset Sales, (y) an amount equal to the Net Cash Proceeds to the Company or any of its Subsidiaries of any sale of securities constituting a Parent Stock Instrument (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in connection with a Qualified Exchange) and (z) the amount of Investments made pursuant to this clause (g) after July 30, 1999 that are returned to the Company or any Subsidiary on or prior to the date of any such calculation, which amount shall be the lesser of (i) the amount of the cash invested plus the value of all noncash investments (valued at the fair market value at the time of the Investment, determined in the good faith reasonable judgment of the Company or the relevant Subsidiary) and (ii) the amount of the Net Cash Proceeds received plus the value of noncash proceeds received (valued at the fair market value at the time of the return of such 28 Investment, determined in the good faith reasonable judgment of the Company or the relevant Subsidiary); (h) Investments made in the ordinary course of business as partial or full payment for constructing a network relating principally to a Related Business of the Company or any Subsidiary; (i) Investments solely in the form and consisting of Capital Stock of the Company (other than Disqualified Capital Stock); (j) any Investment acquired by the Company or any of its restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (k) an Investment in prepaid expenses and lease, utility and workers' compensation, performance and other similar deposits in the ordinary course of business; (l) loans, advances, or extensions of credit to employees, officers, directors made in the ordinary course of business; (m) the net obligations of any counterparty under Interest Swap and Hedging Obligations obtained in conformity with industry practices; (n) Investments made on or after July 30, 1999 in SBS Broadcasting S.A. not to exceed the amounts required to be made by the Company pursuant to the Investment Agreement by and between, SBS Broadcasting S.A., the Company and United International Holdings Inc., dated June 29, 1999, relating to the acquisition by the Company of Equity Interests in SBS Broadcasting S.A.; and 29 (o) Investments made on or after July 30, 1999 directly or indirectly, in ARA Cable Services Inc. or ARA Programming & Distribution Ltd. of Saudi Arabia, not to exceed $75,000,000. "Permitted Lien" means: (a) Liens existing on the Issue Date; (b) Liens securing the Securities and the Other Senior Notes; (c) Liens securing Indebtedness, or any agreement (including any Equity Interest) relating to any property, asset, or business acquired, of a Person existing at the time such Person becomes a Subsidiary (including by designation) or is merged with or into the Company or a Subsidiary or Liens securing Indebtedness incurred in connection with an Acquisition, provided that such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets than those of the Person (or its businesses) being acquired (or so designated); (d) leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the relative assets of the Company or any Subsidiary; (e) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any of its Subsidiaries in the ordinary course of business; (f) Liens securing Refinancing Indebtedness incurred to refinance any Indebtedness that was previously so secured in a manner no more adverse to the Holders of the Securities than the terms of the Liens securing such refinanced Indebtedness, provided that the Indebtedness secured is not increased and the Lien is not extended to any additional assets or property that would not have been security for the Indebtedness refinanced; 30 (g) Liens securing Indebtedness incurred under the Credit Agreement and other Indebtedness solely of Subsidiaries of the Company incurred in accordance with the terms of this Indenture; (h) Liens in favor of the Company or Liens on assets of Subsidiaries of the Company in favor of other such Subsidiaries; (i) Liens securing Refinancing Indebtedness that complies with the definition of "Refinancing Indebtedness"; (j) Liens securing Acquired Indebtedness and Indebtedness assumed in acquiring Related Assets, provided that such Liens were not put in place in contemplation of the incurrence by the Company or its Subsidiaries of such Indebtedness, such Liens do not extend to any property or assets of the Company or any of its Subsidiaries other than those acquired in connection therewith, and the Investment that is the subject of such acquisition is a Permitted Investment; (k) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business, provided that (1) the underlying obligations are not overdue for a period of more than 30 days, or (2) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; and (l) Liens not otherwise permitted by this Indenture in an amount not to exceed 5% of the Company's Consolidated Tangible Assets. "Person" means any Corporation, individual, limited liability company, joint stock company, joint venture, partnership, limited liability partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipally or other entity. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for a mutilated 31 security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same Indebtedness as the mutilated, lost, destroyed or stolen Security. "Preferred Stock" means any Equity Interest of any class or classes of a Person (however designated) which is preferred as to payments of dividends, or as to distributions upon any liquidation or dissolution, over Equity Interests of any other class of such Person. "Principals" means Albert M. Carollo, Lawrence F. DeGeorge, Lawrence J. DeGeorge, Curtis Rochelle, Marian Rochelle, Rochelle Investments, Ltd. (so long as it is controlled by Curtis or Marian Rochelle), Gene W. Schneider, G. Schneider Holdings, Co. and The Gene W. Schneider Family Trust (so long as each is controlled by Gene W. Schneider or trustees appointed by him), Janet S. Schneider and Mark L. Schneider, and with respect to any such Person means: (A) any controlling stockholder or 80% (or more) owned Subsidiary of such Person, or with respect to each individual Person, (i) family partnerships, Corporations or other entities holding Equity Interests in the Company, the transferee(s) or the surviving entities or entities solely for the benefit of such Person or any of the Persons listed in (ii), (iii), (iv) or (v) below, (ii) such Person's spouse, (iii) such Person's children, grandchildren, stepchildren, step grandchildren and their spouses, (iv) heirs, legatees and devisees, and (v) trusts solely for the benefit of any of the foregoing; or (B) any trust Corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Person and/or such other Persons referred to in the immediately preceding clause (A). "Pro Forma" or "pro forma" shall have the meaning set forth in Regulation S-X of the Securities Act, unless otherwise specifically stated herein. "Purchase Money Indebtedness" of any Person means any Indebtedness of such Person to any seller or other Person incurred solely to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease), construction, installation or improvement of any after acquired real or personal tangible property which, in the reasonable good faith judgment of the Supervisory Board of the Company, is directly related to a Related Business. "Qualified Capital Stock" means any Capital Stock of the Company that is not Disqualified Capital Stock. 32 "Qualified Exchange" means: (a) any legal defeasance, redemption, retirement, repurchase or other acquisition of Capital Stock, or Indebtedness of the Company issued on or after July 30, 1999 with the Net Cash Proceeds received by the Company from the substantially concurrent sale of its Qualified Capital Stock or, to the extent used to retire Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999, Subordinated Indebtedness of the Company, (b) any exchange of Qualified Capital Stock of the Company for any Capital Stock or Indebtedness of the Company issued on or after July 30, 1999, or (c) any issuance of Subordinated Indebtedness of the Company in exchange for Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999. "Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule 144A. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Period" with regard to any Person means the full fiscal quarter ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Securities or this Indenture, for which Consolidated financial statements of the Company are available. "Refinancing Indebtedness" means Indebtedness (including Disqualified Capital Stock) (a) issued in exchange for, or the proceeds from the issuance and sale of which are used substantially concurrently to repay, redeem, defease, refund, refinance, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to, or a deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any Indebtedness 33 (including Disqualified Capital Stock and Refinancing Indebtedness) in a principal amount (or, if issued with an original issue discount, an original accreted value, determined in accordance with GAAP) or, in the case of Disqualified Capital Stock, liquidation preference, not to exceed (after deduction of reasonable and customary fees and expenses incurred in connection with the Refinancing and the amount of any premium paid in connection with such Refinancing in accordance with the terms of the documents governing the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) refinanced without giving effect to any modification thereof made in connection with or in contemplation of such refinancing) the lesser of (1) the principal amount or, in the case of Disqualified Capital Stock, liquidation preference, of the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) so Refinanced and (2) if such Indebtedness being Refinanced was issued with an original issue discount, the accreted value thereof (as determined in accordance with GAAP) at the time of such Refinancing; provided that (A) such Refinancing Indebtedness shall only be used to refinance Outstanding Indebtedness (including Disqualified Capital Stock) of such Person issuing such Refinancing Indebtedness (except that the Company may refinance Outstanding Indebtedness of a Subsidiary), (B) such Refinancing Indebtedness shall (x) not have an Average Life shorter than the Indebtedness (including Disqualified Capital Stock) to be so refinanced at the time of such Refinancing and (y) in all respects, be no less contractually subordinated or junior, if applicable, to the rights of Holders of the Securities than was the Indebtedness (including Disqualified Capital Stock) to be refinanced, (C) such Refinancing Indebtedness shall have a final stated maturity or redemption date, as applicable, no earlier than the final stated maturity or redemption date, as applicable, of the Indebtedness (including Disqualified Capital Stock) to be so refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured) in a manner no more adverse to the Holders of the Securities than the terms of the Liens (if any) securing such refinanced Indebtedness, including, without limitation, the amount of Indebtedness secured shall not be increased. "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof, between the Initial Purchasers and the Company. "Registration Statement" means the Registration Statement as defined in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. 34 "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" has the meaning specified in Section 3.3. "Related Assets" means all assets, rights, contractual or otherwise, and properties, whether tangible or intangible, used or intended for use in connection with a Related Business; provided that Related Assets shall not include any Equity Interests or indebtedness of, or interests in, any Person. "Related Business" means the business of constructing, creating, developing, marketing or operating one or more cable, telephone or communications systems, including, without limitation, any system for transmitting, or providing service or product for the transmission of, voice, video or data through transmission facilities, Internet service providers or any business reasonably related to any of the foregoing and any business conducted by the Company or any Subsidiary of the Company on the Issue Date; provided that the determination of what constitutes a Related Business shall be made in good faith by the Supervisory Board of the Company. "Related Business Acquisition" means an Asset Acquisition of (i) properties or assets to be used in a Related Business, (ii) of the Capital Stock of any Person that becomes a restricted Subsidiary as a result of such Asset Acquisition or (iii) of the Capital Stock of any Person that becomes an Unrestricted Subsidiary as a result of such Asset Acquisition, but only if such Asset Acquisition would be permitted pursuant to Section 10.12 or as a Permitted Investment; provided that, in the case of clauses (ii) and (iii), such Person's assets and properties consist principally of properties or assets that will be used in a Related Business. "Replacement Assets" means property or assets that will be used in a Related Business of the Company or any Subsidiary and Equity Interests of a Person that becomes a Subsidiary of the Company. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice-president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such 35 person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Dollar Denominated Global Security" means a Restricted Global Security representing Dollar Denominated Securities. "Restricted Euro Denominated Global Securities" means a Restricted Global Security representing Euro Denominated Securities. "Restricted Global Security" has the meaning specified in Section 3.3. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than other Permitted Investments. "Restricted Payment" means, with respect to any Person: (a) the declaration or payment of any dividend or other distribution in respect of Equity Interests of such Person or any parent or Subsidiary of such Person, (b) any payment on account of the purchase, redemption or other acquisition or retirement for value of Equity Interests of such Person or any Subsidiary or parent of such Person, (c) other than with the proceeds from the substantially concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase, redemption, or other acquisition or retirement for value of, any payment in respect of any amendment of the terms of or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by such Person or a parent or Subsidiary of such Person prior to the scheduled maturity, any scheduled repayment of principal, or scheduled sinking fund payment, as the case may be, of such Indebtedness and (d) any Restricted Investment by such Person; provided, however, that the term "Restricted Payment" does not include (1) any dividend, distribution or other payment on or with respect to Equity Interests of a Person or the parent of such Person to the extent payable solely in shares of Qualified 36 Capital Stock of such Person, or (2) any dividend, distribution or other payment to the Company or any of its Subsidiaries by the Company or any of its Subsidiaries, or (3) any payment on account of the exchange of shares of Common Stock of Parent for a like number of substantially identical (except with regard to voting rights) shares of Common Stock of Parent, or (4) payments to or for the account of the Stichting Administratiekantor UPC (the "Foundation") or its successors of amounts related to taxes payable upon the grant of options to certain employees in shares of the Company held by the Foundation, provided that, for purposes of this clause (4), neither the Company nor any of its Subsidiaries shall be liable to any Person in respect of such amounts, other than for the payment of such amounts actually received or to be received by it, to the Foundation. "Restricted Period" means the period through and including the 40/th/ day after the later of the commencement of the Offering and the Issue Date of the Initial Securities. "Restricted Securities" means Restricted Global Securities and Regulation S Global Securities. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the United States Securities and Exchange Commission. "Securities" means, collectively, the "Securities" issued under this Indenture, including the Initial Securities and the Exchange Securities. "Securities Act" means the United States Securities Act of 1933, as amended. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" shall have the meaning provided under Regulation S-X of the Securities Act, as in effect on the Issue Date. 37 "Special Character Asset Sale" means any Asset Sale solely consisting of assets and property or interests therein comprising its interests in chello broadband, UPCtv or Priority Telecom determined by the Company in its good faith reasonable judgment. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity," when used with respect to any Security, means the date specified in any Security as the fixed date on which the final payment of principal and interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company that is subordinated in right of payment by its terms or the terms of any document or instrument relating thereto to the Securities, in any respect or when used in the definitions of Restricted Payment or Qualified Exchange has a final stated maturity on (except for the Securities) or after the Stated Maturity. "Subsidiary," with respect to any Person, means (1) a Corporation a majority of whose Equity Interests with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person, (2) any other Person (other than a Corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has majority ownership interest, or (3) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner and in which such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the Company. Unless the context requires otherwise, Subsidiary means each direct and indirect Subsidiary of the Company. "Supervisory Board" means, with respect to any Person, the supervisory board of directors of such Person or any committee of the supervisory board of directors of such Person authorized, with respect to any particular matter, to exercise the power of the supervisory board of directors of such Person. 38 "TARGET" means the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system. "Tax" or "Taxes" means any and all present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, and all liabilities with respect thereto, together with any penalties, interest, or additions thereto. "Tax Event" means that as a result of any change in or amendment to the laws, treaties or regulations of any Taxing Authority (or any official or administrative pronouncement or action or judicial decision) interpreting or applying such laws, treaties or regulations where such change or amendment is proposed and becomes effective on or after the Issue Date, in making any payment due or to become due under the Securities, the Company is or would be required on the next succeeding payment date to pay Additional Amounts and the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Company. "Taxing Authority" means any nation or government or any political subdivision thereof or any agency or instrumentality therein and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 9.5. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Global Security" has the meaning set forth in Section 3.3(d). "Unrestricted Securities" means an Unrestricted Global Security and all other Securities that are not Restricted Securities, including Exchange Dollar Denominated Securities and Exchange Euro Denominated Securities. 39 "Unrestricted Subsidiary" means any subsidiary of the Company that does not own any Equity Interest of, or own or hold any Lien on any property of, the Company or any other Subsidiary of the Company and that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Supervisory Board of the Company); provided that such Subsidiary at the time of such designation (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Subsidiary of the Company, unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries. The Supervisory Board of the Company may designate any Unrestricted Subsidiary to be a Subsidiary, provided that (1) no Default or Event of Default is existing or will occur as a consequence thereof and (2) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 (or its foreign currency equivalent) of Indebtedness pursuant to the Debt Incurrence Ratio of Section 10.11. Each such designation shall be evidenced by filing with the Trustee a certified copy of the resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" means direct non-callable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of which (other than directors' qualifying shares) are owned by the Company or one or more Wholly Owned Subsidiaries of the Company. 40 SECTION 1.2 Compliance Certificates and Opinions. Upon any ------------------------------------ application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 10.9(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, 41 and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be Consolidated (with proper identification of each matter covered therein) and form one instrument. SECTION 1.4 Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take 42 acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. (d) If the Company shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. 43 SECTION 1.5 Notices. Any notice or communication shall be ------- sufficiently given if in writing and delivered in person, by facsimile and confirmed by overnight courier, or mailed by first-class mail addressed as follows: if to the Company: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attention: General Counsel and Treasurer Facsimile: 31 20 778 9841 Telephone: 31 20 778 9840 with a copy to: Holme, Roberts & Owen LLP Heathcoat House 20 Savile Row London W1X 1AE England Attention: Paul G. Thompson Facsimile: 44 171 287 9344 Telephone: 44 171 494 5600 if to the Trustee or Paying Agent: Citibank, N.A. 5 Carmelite Street London EC4Y 0PA copies of notices to the Trustee should also go to: Citibank, N.A. 11 Old Jewry 44 London EC2R 8DU Attention: Global Agency and Trust Services Facsimile: 44 171 508 3879 Telephone: 44 171 508 3815 if to the Luxembourg Paying and Transfer Agent: Banque International a Luxembourg 69 route d'Esch Luxembourg L-2953 c/o the Trustee The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed, first-class, postage prepaid, to a Holder including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed to him at his address as set forth on the Security Register and shall be sufficiently given to him if so mailed within the time prescribed. To the extent required by the TIA, any notice or communication shall also be mailed to any Person described in TIA Section 313(c). 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, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 1.6 Notice to Holders; Waiver. Where this Indenture provides ------------------------- for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. As long as the Securities are listed on the Luxembourg Stock Exchange and notice is required by the rules of the Luxembourg Stock Exchange, such notice 45 shall be sufficiently given by publication of such notice to Holders of the Securities in English will be in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if such publication is not practicable, in one other leading English language daily newspaper with general circulation in Europe, such newspaper being published on each business day in morning editions, whether or not it shall be published in Saturday, Sunday or holiday editions. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 1.7 Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants and agreements in ---------------------- this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.9 Separability Clause. In case any provision in this ------------------- Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in --------------------- the Securities, express or implied, shall give to any Person, other than the parties 46 hereto, any Paying Agent, any Security Registrar and their successors hereunder and the Holders any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11 Governing Law. This Indenture and the Securities shall ------------- be governed by and construed in accordance with the law of the State of New York including without limitation Section 5-1401 and 5-1402 of the New York General Obligation Law and New York Civil Practice Laws and Rules 327(b), as applied to contracts made and performed within the State of New York, without regard to conflicts of law. The Company hereby irrevocably submits to the jurisdiction of any New York State court sitting in the borough of Manhattan in the city of New York or any federal court sitting in the borough of Manhattan in the city of New York in respect of any suit, action or proceeding arising out of or relating to this Indenture and the Securities, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The Company irrevocably waives, to the fullest extent they may effectively do so under applicable law, trial by jury and any objection which they may now or hereafter have to the laying of the venue of any such suit, action or proceeding bought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. SECTION 1.12 Conflict with Trust Indenture Act. Prior to the issuance --------------------------------- of the Exchange Securities or the effectiveness of the Shelf Registration Statement, the Trust Indenture Act shall apply as a matter of contract to this Indenture for purposes of interpretation, construction and defining the rights and obligations hereunder. Upon the issuance of the Exchange Securities or the effectiveness of the Shelf Registration Statement, this Indenture shall be subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision 47 shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. SECTION 1.13 Legal Holidays. In any case where any Interest Payment -------------- Date, Redemption Date, or Stated Maturity or Maturity of any Security shall not be a Business Day at a place of payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity or Maturity; provided that no interest shall accrue solely by virtue of such delay for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be. SECTION 1.14 No Personal Liability of Board Members, Officers, ------------------------------------------------- Employees and Shareholders. No board member, director, officer, employee, - -------------------------- agent, authorized representative, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a board member, director, officer, employee, agent, authorized representative, incorporator or shareholder of the Company. By accepting a Security, the Trustee on behalf of each Holder waives and releases all such liability (but only such liability). The waiver and release are part of the consideration for issuance of the Securities. SECTION 1.15 Independence of Covenants. All covenants and agreements ------------------------- in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists. SECTION 1.16 Exhibits. All exhibits attached hereto are by this -------- reference made a part hereof with the same effect as if herein set forth in full. SECTION 1.17 Counterparts. This Indenture may be executed in any ------------ number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 48 SECTION 1.18 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 1.19 Agent for Service; Submission to Jurisdiction; Waiver of -------------------------------------------------------- Immunities. By the execution and delivery of this Indenture, the Company (i) - ---------- acknowledges that it has, by separate written instruments, designated and appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT Corporation System") (and any successor entity), as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture that may be instituted in any federal or state court in the Borough of Manhattan, City of New York, State of New York or brought under federal or state securities laws, and represent and warrant that CT Corporation System has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding and (iii) agrees that service of process upon CT Corporation System and written notice of said service to the Company, in accordance with Section 1.5 shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect for as long as any of the Securities remain Outstanding (subject to the limitation set forth in clause (i)); provided, however, that the Company may, and to the extent CT Corporation System ceases to be able to be served on the basis contemplated herein shall, by written notice to the Trustee, designate such additional or alternative agent for service of process under this Section 1.19 that (i) maintains an office located in the Borough of Manhattan City of New York, State of New York, and (ii) is either (x) United States counsel for the Company or (y) a corporate service company which acts as agent for service of process for other persons in the ordinary course of its business. Such written notice shall identify the name of such agent for service of process and the address of the office of such agent for service of process in the Borough of Manhattan, City of New York, State of New York. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court of (i) any jurisdiction in which the Company owns or leases property or assets, (ii) the United States or the State of New York or (iii) the Netherlands or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property and assets or this Agreement or any of the Notes or 49 actions to enforce judgments in respect of any thereof, the Company hereby irrevocably waives such immunity in respect of its obligations under the above- referenced documents, to the extent permitted by law. SECTION 1.20 Judgment Currency. The Company hereby agrees to ----------------- indemnify the Trustee, its directors, its officers and each person, if any, who controls the Trustee within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any loss incurred by such person as a result of any judgment or order being given or made against the Company for any U.S. Dollar amount due under this Agreement and such judgment or order being expressed and paid in a currency (the "Judgment Currency") other than U.S. Dollars and as a result of any variation as between (i) the rate of exchange at which the U.S. Dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which such party on the date of payment of such judgment or order is able to purchase U.S. Dollars with the amount of the Judgment Currency actually received by such party. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, U.S. Dollars. ARTICLE II SECURITY FORMS SECTION 2.1 Forms Generally. The Securities and the Trustee's --------------- certificate of authentication with respect thereto shall be in substantially the form set forth in Exhibit A hereto with respect to the Dollar Denominated Securities and Exhibit B hereto with respect to the Euro Denominated Securities, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or system on which the Securities may be listed or eligible for trading or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. 50 The Certificated Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner permitted by the rules of any securities exchange or system on which the Securities may be listed or eligible for trading, all as determined by the managing directors, officers and authorized representatives of the Company executing such Securities, as evidenced by their execution of such Securities. ARTICLE III THE SECURITIES SECTION 3.1 Title and Terms. The aggregate principal amount of --------------- Dollar Denominated Securities and Euro Denominated Securities which may be authenticated and delivered under this Indenture is initially limited to $600,000,000 and (Euro)200,000,000, respectively, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6, 10.10, 10.16 or 11.8. The Initial Securities shall be known and designated as the "$600,000,000 11 1/4% Series A Senior Notes due 2010" and the "(Euro)200,000,000 11 1/4% Series A Senior Notes due 2010" and the Exchange Securities shall be known as the "$600,000,000 11 1/4% Series B Senior Notes" and the "(Euro)200,000,000 11 1/4% Series B Senior Notes". The final Stated Maturity of the Securities shall be February 1, 2010. Except as set forth in the next paragraph of this Section 3.1, interest on the Dollar Denominated Securities will accrue at a rate of 11 1/4% per annum from January 20, 2000 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2000 to the Holders of record on the immediately preceding Regular Record Date. Except as set forth in the next paragraph of this Section 3.1, interest on the Euro Denominated Securities will accrue at a rate of 11 1/4% per annum from January 20, 2000 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2000 to the Holders of record on the immediately preceding Regular Record Date. Interest on the Securities will be computed on the basis of a 360-day year comprised of twelve 30-day months. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for 51 cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Other Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the interest rate otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that, on and after the date of such Interest Rate Adjustment Event, interest on the Dollar Denominated Securities will accrue at a rate of 11 1/2% per annum. Any amounts owing as a result of such increase shall be paid to the Holders of record as of the Regular Record Date next following any such Interest Rate Adjustment Event, on the immediately following Interest Payment Date, and thereafter will be payable semiannually in arrears on February 1 and August 1 of each year to the Holders of record on the immediately preceding Regular Record Date. Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6. Such notice shall include the amount to be paid to the Holders of record as of such Regular Record Date on the next following Interest Payment Date. Principal of, premium, if any, and interest on the Securities will be payable, and the Securities may be exchanged or transferred, at the office or agency of the Company in The City of New York and in London, which, unless otherwise provided by the Company, will be the offices of the Trustee. At the option of the Company, interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable as provided in Article Eleven. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Twelve. The Securities will be general, senior, unsecured obligations of the Company, ranking pari passu in right of payment with each other. SECTION 3.2 Denominations. The Securities (including any Global ------------- Security) shall be issuable only in registered form without coupons and only in 52 denominations of US$1,000 in the case of the Dollar Denominated Securities or (Euro)1,000 in the case of Euro Denominated Securities or any integral multiple of US$1,000 or (Euro)1,000, as the case may be, above such amount. The Securities shall not be issuable in bearer form. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. SECTION 3.3 Execution, Authentication, Delivery and Dating. ---------------------------------------------- (a) The Securities shall be executed on behalf of the Company by its Chief Executive Officer, its President, a Vice President or a managing director (being an executive officer of the Company with due authority granted by the management board of the Company to execute Securities) of the Company. The signature of any of these officers or directors on the Securities may be manual or facsimile signatures of the present or any future such authorized officer or director and may be imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers or directors of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. In addition, any Security may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Security, shall be the proper officers or directors of the Company, although at the date of such Security or of the execution of this Indenture any such Person was not such officer or director. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be 53 conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. On the Issue Date the Trustee shall authenticate Initial Securities for original issue in the aggregate principal amount not to exceed $600,000,000 and (Euro)200,000,000, respectively, upon a written order of the Company in the form of an Officer's Certificate. Such order shall specify the amount of the Initial Securities to be authenticated and the date on which the original issue of Initial Securities is to be authenticated. In addition, the Trustee shall authenticate Exchange Securities for original issue in the aggregate principal amount of up to $600,000,000 and (Euro)200,000,000, in each case upon a written order of the Company in the form of an Officer's Certificate, provided that such Exchange Securities shall be issuable only upon the valid surrender for cancellation of Initial Securities of a like aggregate principal amount in accordance with the Registration Rights Agreement. The Officer's Certificate shall specify the amount of Exchange Securities to be authenticated and the date on which the Exchange Securities are to be authenticated. Upon the written order of the Company in the form of an Officer's Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. (b) The terms and provisions contained in the form of Securities shall constitute, and are hereby expressly made, a part of this Indenture and, 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. (c) Restricted Global Securities. (i) The Initial Securities offered ---------------------------- and sold in reliance on Rule 144A shall be issued in the form of one or more global securities (the "Restricted Global Security") in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. (ii) Each Restricted Dollar Denominated Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of a Restricted Dollar Denominated Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding 54 decrease or increase in the aggregate principal amount of a Dollar Denominated Security that is a Regulation S Global Security (a "Regulation S Dollar Denominated Global Security") or a Dollar Denominated Security that is an Unrestricted Global Security (an "Unrestricted Dollar Denominated Global Security"), as hereinafter provided. (iii) Each Restricted Euro Denominated Global Security shall be registered in the name of the Common Depositary or its nominee and deposited with the Common Depositary, on behalf of Euroclear and Cedelbank, duly executed by the Company and authenticated by the Trustee as hereinafter provided for credit to the respective accounts of Euroclear and Cedelbank. The aggregate principal amount of a Restricted Euro Denominated Global Security may from time to time be increased or decreased by adjustments made on the records of the Common Depositary, in connection with a corresponding decrease or increase in the aggregate principal amount of a Euro Denominated Security that is a Regulation S Global Security (a "Regulation S Euro Denominated Global Security") or a Euro Denominated Security that is an Unrestricted Global Security (an "Unrestricted Euro Denominated Global Security"), as hereinafter provided. (d) Regulation S Global Securities. (i) Initial Securities ------------------------------ offered and sold in reliance on Regulation S shall be initially issued in the form of one or more Global Securities in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. Until such time as the Restricted Period shall have terminated, such Global Securities shall be referred to herein as the "Regulation S Global Security." After such time as the Restricted Period shall have terminated, such Regulation S Global Securities shall be referred to herein, as the "Unrestricted Global Securities." (ii) Each Regulation S Dollar Denominated Global Security and Unrestricted Dollar Denominated Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as herein after provided, for credit to the respective accounts at DTC of 55 the depositaries for Euroclear or Cedelbank. The aggregate principal amount of each Regulation S Dollar Denominated Global Security (or Unrestricted Dollar Denominated Global Security) may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding decrease or increase in the aggregate principal amount of a Restricted Dollar Denominated Global Security, as hereinafter provided. (iii) The Regulation S Euro Denominated Global Security and Unrestricted Euro Denominated Global Security shall be registered in the name of the Common Depositary or its nominee and deposited with the Common Depositary, as custodian for Euroclear and Cedelbank, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit to the respective accounts of Euroclear and Cedelbank. The aggregate principal amount of a Regulation S Euro Denominated Global Security or an Unrestricted Global Security may from time to time be increased or decreased by adjustments made on the records of the Common Depositary, as custodian for Euroclear and Cedelbank, in connection with a corresponding decrease or increase in the aggregate principal amount of a Restricted Euro Denominated Global Security, as hereinafter provided. (e) The Exchange Dollar Denominated Securities and the Exchange Euro Denominated Securities which are issued in exchange for initial Dollar Denominated Securities and initial Euro Denominated Securities respectively shall be issued initially in the form of one or more permanent Global Securities in definitive, fully registered form without interest coupons, substantially in the form set forth in Exhibit A and Exhibit B respectively, deposited with the Trustee, as custodian for DTC in the case of the Exchange Dollar Denominated Securities, and deposited with the Common Depositary, on behalf of Euroclear and Cedelbank in the case of the Exchange Euro Denominated Securities, and shall bear the applicable legends relating to Global Securities set forth in Exhibit A and Exhibit B that are required to appear on such Securities. Exchange Dollar Denominated Securities and Exchange Euro Denominated Securities shall constitute Unrestricted Securities. (f) In case the Company, pursuant to Article Eight, shall be Consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any 56 Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. SECTION 3.4 Temporary Securities. Pending the preparation of -------------------- definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. 57 SECTION 3.5 Registration, Registration of Transfer and Exchange. The --------------------------------------------------- Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchange of Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Security Registrar") for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 10.2, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, if the requirements, of such transfer are met, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination and of a like currency and aggregate principal amount (including an exchange of Initial Securities for Exchange securities), upon surrender of the Securities to be exchanged at such office or agency provided that Dollar Denominated Securities may not be exchanged for Euro Denominated Securities, and vice versa. Whenever any Securities are so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, the Securities which the Holder making the exchange is entitled to receive, provided that no exchange of Initial Securities for Exchange Securities shall occur until an Exchange Registration Statement shall have been declared effective by the SEC (confirmed in an Officer's Certificate) and that the Initial Securities to be exchanged for the Exchange Securities shall be cancelled by the Trustee. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. 58 Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6, 10.10, 10.16 or 11.8 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the selection of Securities to be redeemed under Section 11.4 and ending at the close of business on the day of such mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities. If (i) ------------------------------------------------ any mutilated Security is surrendered to the Trustee or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously Outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other 59 governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7 Payment of Interest; Interest Rights Preserved. Interest ---------------------------------------------- on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.2; provided, however, that each installment of interest may at the Company's option be paid (i) by mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.8, to the address of such Person as it appears in the Security Register, or (ii) by wire transfer of such interest in immediately available funds to an account, in the case of the Dollar Denominated Securities, located in the United States maintained by the DTC, and, in the case of the Euro Denominated Securities, to an account located in Europe. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") must be paid by the Company, at its election in each case, as provided in paragraph (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the 60 payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 1.6, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following paragraph(2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or system on which the Securities may be listed or eligible for trading, and upon such notice as may be required by such exchange or system, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8 Persons Deemed Owners. Prior to the due presentment of --------------------- a Security for registration of transfer, the Company, the Trustee and 61 any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 3.5 and 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9 Cancellation. All Securities surrendered for payment, ------------ redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. SECTION 3.10 Computation of Interest. Interest on the Securities ----------------------- shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 3.11 "CUSIP" and/or "ISIN" Numbers. The Company in issuing ----------------------------- the Securities may use a "CUSIP" and/or "ISIN" number (if then generally in use), and if so, the Trustee and the Common Depositary shall use "CUSIP" and/or "ISIN" numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of such numbers either as printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee 62 and the Common Depositary in writing of any change in the "CUSIP" or "ISIN" numbers of the Securities. SECTION 3.12 Book-Entry Provisions for Global Securities, ------------------------------------------- Certificated Securities. - ----------------------- Except as indicated below in this Section 3.12, the Securities shall be represented only by Global Securities. The Global Securities shall be deposited with a Depositary for such Securities (and shall be registered in the name of such Depositary or its nominee). The Depositary for the Dollar Denominated Securities shall be DTC unless the Company appoints a successor Depositary by delivery of a Company Order to the Trustee specifying such successor Depositary. The Depositary for the Euro Denominated Securities shall be Citibank, N.A. unless Euroclear and Cedelbank appoint a successor Depositary (which shall be the "Common Depositary"). All payments on a Dollar Denominated Global Security will be made to DTC or its nominee, as the case may be, as the registered owner and Holder of such Dollar Denominated Global Security. All payments on a Euro Denominated Global Security will be made to the order of the Common Depositary or its nominee, as the case may be, as the registered holder of such Euro Denominated Global Security. In each case, the Company will be fully discharged by payment to or to the order of such Depositary from any responsibility or liability in respect of each amount so paid. Upon receipt of any such payment in respect of a Dollar Denominated Global Security, DTC will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Dollar Denominated Global Security as shown on the records of DTC. The Common Depositary will instruct the Euro Paying Agent to make payments in respect of the Euro Denominated Securities to Euroclear and Cedelbank in amounts proportionate to their respective beneficial interests in the principal amount of each Euro Denominated Global Security, and Euroclear and Cedelbank will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of Euroclear and Cedelbank. Unless and until it is exchanged in whole or in part for Certificated Securities, a Global Security may not be transferred except as a whole by the relevant Depositary or nominee thereof to another nominee of the Depositary or to a successor of the Depositary or a nominee of such successor. 63 Owners of beneficial interests in Global Securities shall be entitled or required, as the case may be, but only under the circumstances described in this Section 3.12, to receive physical delivery of Certificated Securities. Interests in a Global Security shall be exchangeable or transferable, as the case may be, for Certificated Securities if (i) in the case of a Dollar Denominated Global Security, DTC notifies the Company that it is unwilling or unable to continue as Depositary for such Dollar Denominated Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days, (ii) in the case of a Euro Denominated Global Security, Euroclear and Cedelbank notify the Company that they are unwilling or unable to continue as clearing agencies for such Euro Denominated Global Security, (iii) in the case of a Euro Denominated Global Security, the Common Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Euro Denominated Global Security, and a successor Common Depositary is not appointed within one hundred and twenty (120) days or (iv) in the case of any Global Security, an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Upon the occurrence of any of the events described in the preceding sentence, the Company shall cause the appropriate Certificated Securities to be delivered to the owners of beneficial interests in the Global Securities or the Participants in DTC, Euroclear or Cedelbank through which such owners hold their beneficial interest. Certificated Securities shall be exchangeable or transferable for interests in other Certificated Securities as described herein. SECTION 3.13 Transfer and Exchange of Securities. ----------------------------------- (a) Obligations with Respect to Transfers and Exchanges of Securities. ----------------------------------------------------------------- Upon surrender for registration of transfer of any Security of a series to the appropriate Registrar, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, and subject to the other provisions of this Section 3.13, Securities of any series may be exchanged for other Securities of such series of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever 64 any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and subject to the other provisions of this Section 3.13, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee or the Common Depositary) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the appropriate Registrar and be duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or governmental charge payable in connection with any registration of transfer or exchange of Securities. (b) Transfer and Exchange of Dollar Denominated Global Securities. ------------------------------------------------------------- Notwithstanding any provisions of this Indenture or the Securities, transfers of a Dollar Denominated Global Security, in whole or in part, transfers and exchanges of interests therein of the kinds described in clauses (ii), (iii) and (iv) below and exchange of interests in Dollar Denominated Global Securities or of other Dollar Denominated Securities as described in clause (v) below, shall be made only in accordance with this Section 3.13(b). Transfers and exchanges subject to this Section 3.13 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 3.13. (i) General. A Dollar Denominated Global Security may not be ------- transferred, in whole or in part, to any Person other than DTC or a nominee thereof or a successor to DTC or its nominee, and no such transfer to any such other Person may be registered; provided that this clause (i) shall not prohibit any transfer of a Dollar Denominated Security that is issued in exchange for a Dollar Denominated Global Security but is not itself a Dollar Denominated Global Security. No transfer of a Dollar Denominated 65 Security of any series to any Person shall be effective under this Indenture or the Dollar Denominated Securities of such series unless and until such Dollar Denominated Security has been registered in the name of such Person. Nothing in this Section 3.13(b)(i) shall prohibit or render ineffective any transfer of a beneficial interest in a Dollar Denominated Global Security effected in accordance with the other provisions of this Section 3.13(b). (ii) Restricted Global Security to Regulation S Global Security. ---------------------------------------------------------- If the Holder of a beneficial interest in a Restricted Dollar Denominated Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Dollar Denominated Global Security of such series, such transfer may be effected, subject to the rules and procedures of DTC, Euroclear and Cedelbank, in each case to the extent applicable (the "Applicable Procedures"), only in accordance with the provisions of this Section 3.13(b)(ii). Upon receipt by the Dollar Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Dollar Registrar, to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Regulation S Dollar Denominated Global Security in a principal amount equal to that of the beneficial interest in a Restricted Dollar Denominated Global Security to be so transferred; (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member (and/or the Euroclear or Cedelbank account, as the case may be) to be credited with, and the account of the Agent Member to be debited for, such beneficial interest; and (C) a certificate in substantially the form set forth in Exhibit C given by the Holder of such beneficial interest, the principal amount of a Restricted Dollar Denominated Global Security shall be reduced, and the principal amount of a Regulation S Dollar Denominated Global Security shall be increased, by the principal amount of the beneficial interest in a Restricted Dollar Denominated Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Dollar Registrar, and the Dollar Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified 66 in such instructions (which shall be the Agent Member for Euroclear or Cedelbank or both, as the case may be) a beneficial interest in a Regulation S Dollar Denominated Global Security having a principal amount equal to the amount so transferred. (iii) Restricted Dollar Denominated Global Security to ------------------------------------------------ Unrestricted Dollar Denominated Global Security. If the Holder of a ----------------------------------------------- beneficial interest in a Restricted Dollar Denominated Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Dollar Denominated Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iii). Upon receipt by the Dollar Registrar, of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Dollar Registrar to credit or cause to be credited to a specified Agent Member's account a beneficial interest in an Unrestricted Dollar Denominated Global Security in a principal amount equal to that of the beneficial interest in a Restricted Dollar Denominated Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member (and, if applicable, the Euroclear or Cedelbank account, as the case may be) to be credited with, and the account of the Agent Member to be debited for, such beneficial interest, and (C) a certificate in substantially the form set forth in Exhibit D given by the Holder of such beneficial interest, the principal amount of the Restricted Dollar Denominated Global Security shall be reduced, and the principal amount of an Unrestricted Dollar Denominated Global Security shall be increased, by the principal amount of the beneficial interest in a Restricted Global Dollar Denominated Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Dollar Registrar and the Dollar Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in an Unrestricted Dollar Denominated Global Security having a principal amount equal to the amount so transferred. 67 (iv) Regulation S Dollar Denominated Global Security or -------------------------------------------------- Unrestricted Dollar Denominated Global Security to Restricted Dollar -------------------------------------------------------------------- Denominated Global Security. If the Holder of a beneficial interest in a --------------------------- Regulation S Dollar Denominated Global Security of any series or an Unrestricted Dollar Denominated Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Restricted Dollar Denominated Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iv). Upon receipt by the Dollar Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Dollar Registrar to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Restricted Dollar Denominated Global Security in a principal amount equal to that of the beneficial interest in a Regulation S Dollar Denominated Global Security or an Unrestricted Dollar Denominated Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member (and, if applicable, the Euroclear or Cedelbank account, as the case may be) to be debited for, such beneficial interest, and (C) with respect to a transfer of a beneficial interest in a Regulation S Dollar Denominated Global Security (but not an Unrestricted Dollar Denominated Global Security) to a Person whom the transferor reasonably believes is a QIB, a certificate in substantially the form set forth in Exhibit E given by the Holder of such beneficial interest, the principal amount of a Restricted Dollar Denominated Global Security shall be increased, and the principal amount of a Regulation S Dollar Denominated Global Security or an Unrestricted Dollar Denominated Global Security shall be reduced, by the principal amount of the beneficial interest in a Restricted Dollar Denominated Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Dollar Registrar and the Dollar Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Restricted Dollar 68 Denominated Global Security having a principal amount equal to the amount so transferred. (v) Exchanges of Dollar Denominated Global Security for Dollar ---------------------------------------------------------- Denominated Non-Global Security. In the event that a Dollar Denominated ------------------------------- Global Security or any portion thereof is exchanged for Dollar Denominated Securities other than Dollar Denominated Global Securities, such other Dollar Denominated Securities may in turn be exchanged (on transfer or otherwise) for Securities that are not Dollar Denominated Global Securities or for beneficial interests in a Dollar Denominated Global Security (if any is then Outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of clauses (i) through (iv) above and (vi) below (including the certification requirements intended to insure that transfers and exchanges of beneficial interests in a Dollar Denominated Global Security comply with Rule 144A, Rule 144 or Regulation S, as the case may be) and any Applicable Procedures, as may be from time to time adopted by the Company and the Trustee. (vi) Interest in Regulation S Dollar Denominated Global Security ----------------------------------------------------------- to be Held Through Euroclear or Cedelbank. Until the termination of the ----------------------------------------- Restricted Period with respect thereto, interests in a Regulation S Global Security may be held only through Agent Members acting for and on behalf of Euroclear and Cedelbank, provided that this clause (vi) shall not prohibit any transfer in accordance with Section 3.13(b)(iv) hereof. (c) Transfer and Exchange of Euro Denominated Global Securities. ----------------------------------------------------------- Notwithstanding any provisions of this Indenture or the Euro Denominated Securities, transfers of a Euro Denominated Global Security, in whole or in part, transfers and exchanges of interests therein of the kinds described in clauses (ii), (iii) and (iv) below and exchange of interests in Euro Denominated Global Securities or of other Euro Denominated Securities as described in clause (v) below, shall be made only in accordance with this Section 3.13(c). Transfers and exchanges subject to this Section 3.13 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 3.13. 69 (i) General. A Euro Denominated Global Security may not be ------- transferred, in whole or in part, to any Person other than the Common Depositary or a nominee thereof or a successor Common Depositary or its nominee, and no such transfer to any such other Person may be registered; provided that this clause (i) shall not prohibit any transfer of a Euro Denominated Security that is issued in exchange for a Euro Denominated Global Security but is not itself a Euro Denominated Global Security. No transfer of a Euro Denominated Security to any Person shall be effective under this Indenture or the Euro Denominated Securities unless and until such Euro Denominated Security has been registered in the name of such Person. Nothing in this Section 3.13(c)(i) shall prohibit or render ineffective any transfer of a beneficial interest in a Euro Denominated Global Security effected in accordance with the other provisions of this Section 3.13(c). (ii) Restricted Euro Denominated Global Security to Regulation S ----------------------------------------------------------- Euro Denominated Global Security. If the Holder of a beneficial interest -------------------------------- in a Restricted Euro Denominated Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Euro Denominated Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with the provisions of this Section 3.13(c)(ii). Upon receipt by the Euro Registrar of (A) written instructions given in accordance with the Applicable Procedures from Euroclear or Cedelbank directing the Euro Registrar to credit or cause to be credited to Euroclear's or Cedelbank's account a beneficial interest in a Regulation S Euro Denominated Global Security in a principal amount equal to that of the beneficial interest in a Restricted Euro Denominated Global Security to be so transferred; (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of Euroclear or Cedelbank to be credited with, and the account of Euroclear or Cedelbank to be debited for, such beneficial interest and (C) a certificate in substantially the form set forth in Exhibit C given by the Holder of such beneficial interest, the principal amount of a Restricted Euro Denominated Global Security shall be reduced, and the principal amount of a Regulation S Euro Denominated Global Security shall be increased, by the principal 70 amount of the beneficial interest in a Restricted Euro Denominated Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Euro Registrar and the Euro Registrar shall instruct the Common Depositary or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of Euroclear or Cedelbank a beneficial interest in a Regulation S Euro Denominated Global Security having a principal amount equal to the amount so transferred. (iii) Restricted Euro Denominated Global Security to Unrestricted ----------------------------------------------------------- Euro Denominated Global Security. If the Holder of a beneficial interest -------------------------------- in a Restricted Euro Denominated Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Euro Denominated Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(c)(iii). Upon receipt by the Euro Registrar of (A) written instructions given in accordance with the Applicable Procedures from Euroclear or Cedelbank directing the Euro Registrar to credit or cause to be credited to Euroclear's or Cedelbank's account a beneficial interest in an Unrestricted Euro Denominated Global Security in a principal amount equal to that of the beneficial interest in a Restricted Euro Denominated Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of Euroclear or Cedelbank to be credited with, and the account of Euroclear or Cedelbank to be debited for, such beneficial interest and (C) a certificate in substantially the form set forth in Exhibit D given by the Holder of such beneficial interest, the principal amount of the Restricted Euro Denominated Global Security shall be reduced, and the principal amount of an Unrestricted Euro Denominated Global Security shall be increased, by the principal amount of the beneficial interest in a Restricted Euro Denominated Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Euro Registrar and the Euro Registrar shall instruct the Common Depositary or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of Euroclear or Cedelbank a beneficial interest 71 in a Regulation S Euro Denominated Global Security having a principal amount equal to the amount so transferred. (iv) Regulation S Euro Denominated Global Security or ------------------------------------------------ Unrestricted Euro Denominated Global Security to Restricted Euro ---------------------------------------------------------------- Denominated Global Security. If the Holder of a beneficial interest in a --------------------------- Regulation S Euro Denominated Global Security or an Unrestricted Euro Denominated Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Restricted Euro Denominated Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(c)(iv). Upon receipt by the Euro Registrar of (A) written instructions given in accordance with the Applicable Procedures from Euroclear or Cedelbank directing the Euro Registrar to credit or cause to be credited to Euroclear's or Cedelbank's account a beneficial interest in a Restricted Euro Denominated Global Security in a principal amount equal to that of the beneficial interest in a Regulation S Euro Denominated Global Security or an Unrestricted Euro Denominated Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of Euroclear or Cedelbank to be credited with, and the account of Euroclear or Cedelbank to be debited for, such beneficial interest and (C) with respect to a transfer of a beneficial interest in a Regulation S Euro Denominated Global Security (but not an Unrestricted Euro Denominated Global Security) to a Person whom the transferor reasonably believes is a QIB, a certificate in substantially the form set forth in Exhibit E given by the Holder of such beneficial interest, the principal amount of a Restricted Euro Denominated Global Security shall be increased, and the principal amount of a Regulation S Euro Denominated Global Security or an Unrestricted Euro Denominated Global Security shall be reduced, by the principal amount of the beneficial interest in a Restricted Euro Denominated Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Euro Registrar and the Euro Registrar shall instruct the Common Depositary or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial 72 interest in a Restricted Euro Denominated Global Security having a principal amount equal to the amount so transferred. (v) Exchanges of Euro Denominated Global Security for Euro ------------------------------------------------------ Denominated Non-Global Security. In the event that a Euro Denominated ------------------------------- Global Security or any portion thereof is exchanged for Securities other than Euro Denominated Global Securities, such other Securities may in turn be exchanged (on transfer or otherwise) for Securities that are not Euro Denominated Global Securities or for beneficial interests in a Euro Denominated Global Security (if any is then Outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of clauses (i) through (iv) above and (vi) below (including the certification requirements intended to insure that transfers and exchanges of beneficial interests in a Euro Denominated Global Security comply with Rule 144A, Rule 144 or Regulation S, as the case may be) and any Applicable Procedures, as may be from time to time adopted by the Company and the Trustee. (vi) Interest in Euro Denominated Global Security to be Held ------------------------------------------------------- Through Euroclear or Cedelbank. Interests in a Euro Denominated Global ------------------------------ Security may be held only through Agent Members acting for and on behalf of Euroclear and Cedelbank, provided that this clause (vi) shall not prohibit any transfer in accordance with Section 3.13(c)(iv) hereof. (d) Legends. Each Restricted Security and Global Security issued ------- hereunder shall, upon issuance, bear the legends set forth in Exhibit A hereto that are required to be applied to such a Security and such required legends shall not be removed from such Security except as provided in the next sentence or Section 3.13(e). The legend required for a Restricted Security may be removed from a Security if there is delivered to the Company and the appropriate Registrar such satisfactory evidence, which may include an opinion of independent counsel licensed to practice law in the State of New York, as may be reasonably required by the Company that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the direction of the Company, shall authenticate and deliver in exchange for such Security another security or securities having an equal aggregate principal 73 amount that does not bear such legend. If such a legend required for a Restricted Security has been removed from a Security as provided above, it shall not be a Restricted Security and no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other security is a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a legend to appear thereon. (e) Global Securities. The provisions of clauses (i), (ii), (iii), ----------------- and (iv) below shall apply only to Global Securities; (i) General. Each Global Security authenticated under this ------- Indenture shall be registered in the name of the appropriate Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor. (ii) Transfer to Persons other than Depositary. Notwithstanding ----------------------------------------- any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any person other than the appropriate Depositary or a nominee thereof unless (A) in the case of a Dollar Denominated Global Security, DTC notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days, (B) in the case of a Euro Denominated Global Security, Euroclear and Cedelbank notify the Company that they are unwilling or unable to continue as clearing agencies for such Euro Denominated Global Security, (C) in the case of a Euro Denominated Global Security, the Common Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Euro Denominated Global Security, and a successor Common Depositary is not appointed within one hundred and twenty (120) days or (D) in the case of any Global Security, an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Any Global Security exchanged pursuant to clause (A), (B) or (C) above shall be so exchanged in whole and not in part and any Global Security 74 exchanged pursuant to clause (D) above may be exchanged in whole or from time to time in part as directed by DTC. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security, provided that any such Security so issued that is registered in the name of a Person other than the appropriate Depositary or a nominee thereof shall not be a Global Security. (iii) Global Security to Certificated Security. Securities ---------------------------------------- issued in exchange for a Global Security or any portion thereof pursuant to clause (ii) above shall be issued in definitive, fully registered form without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the appropriate Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the appropriate Depositary to the Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, in the case of a Dollar Denominated Global Security, if the Trustee is acting as custodian for DTC or its nominee with respect to such Global Security or, in the case of a Euro Denominated Global Security, if the Common Depositary is acting as Depositary for Euroclear and Cedelbank, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee, as Authenticating Agent, or of the Common Depositary. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the appropriate Depositary or an authorized representative thereof. (iv) In the event of the occurrence of any of the events specified in clause (ii) above, the Company will promptly make available to the Trustee a supply of Certificated Securities in definitive, fully registered form, without interest coupons, sufficient to meet the Trustee's requirements hereunder. (v) No Rights of Agent Members in Global Security. No Agent --------------------------------------------- Member of any Depositary nor any other Persons 75 on whose behalf Agent Members may act (including Euroclear and Cedelbank and account Holders and Participants therein) shall have any rights under the Indenture with respect to any Global Security, or under any Global Security, and each Depositary or its nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the applicable Depositary or such nominee, as the case may be, or impair, as between DTC, Euroclear and Cedelbank, their respective Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a Holder of any Security. SECTION 3.1 Special Transfer Provisions. --------------------------- (a) Transfers to Institutional Accredited Investors. If Securities ----------------------------------------------- are being transferred to an Institutional Accredited Investor, the Securities shall be accompanied by delivery of a transferee certificate for Institutional Accredited Investors substantially in the form of Exhibit H hereto and an opinion of counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act. (b) Other Transfers. If a Holder proposes to transfer a Security --------------- pursuant to any exemption from the registration requirements of the Securities Act other than as provided for above, the Security Registrar shall only register such transfer or exchange if such transferor delivers to the Security Registrar and the Trustee an Opinion of Counsel satisfactory to the Company and the Security Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture; provided that the Company may, based upon the opinion of its counsel, instruct the Security Registrar by a Company Order not to register such transfer in any case where the proposed transferee is not a QIB, an Institutional Accredited Investor or a non-U.S. Person. (c) General. By its acceptance of any Security bearing Legends, each ------- Holder of such a Security acknowledges the restrictions on transfer of such 76 Security set forth in this Indenture and in the Legends and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.12 or this Section 3.14 for a period of two years, after which time such letters, notices and other written communications shall at the written request of the Company be delivered to the Company. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Security Registrar. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture --------------------------------------- shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (1) either (a) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) have theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (b) (i) all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable, or (ii) the Company has given irrevocable and unconditional notice of redemption for all of the Outstanding 77 Securities within 60 days of such notice pursuant to the redemption provisions of this Indenture, and the Company, in the case of (i) or (ii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and accrued interest (and Liquidated Damages, if any,) to the date of such deposit; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; (3) the Company has delivered irrevocable instructions to the Trustee to apply the deposited U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) toward the payment of the Securities at Maturity or the Redemption Date, as the case may be, which must be within 60 days thereof; (4) the Holders of the Securities have a valid, perfected, exclusive security interest in such trust; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) shall have been deposited with the Trustee pursuant to clause(1)(b) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2 Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, 78 to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default," wherever used ----------------- herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest (or Liquidated Damages, if any) on any Security when it becomes due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of the principal of (or premium, if any, on) any Security as and when the same becomes payable at its Maturity, or upon redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Purchase Price or the Asset Sale Offer Price, or otherwise on Securities validly tendered and not properly withdrawn pursuant to a Change of Control Offer or Asset Sale Offer, as applicable; or (3) failure to perform any other covenant or agreement of the Company under this Indenture or Securities and, except for the provisions under Section 10.10, 10.16, Article Eight and Section 10.12, continued for 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of the Outstanding Securities; (4) a default in Indebtedness of the Company or any of its Subsidiaries with an aggregate amount Outstanding in excess of $50,000,000 (or its foreign currency equivalent) (a) resulting from the failure to pay principal at maturity or otherwise at end of any applicable grace period for such payment pursuant to the 79 original terms of such Indebtedness or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity; or (5) the rendering of a final judgment or final judgments not covered by insurance in an amount in excess of $50,000,000 (or its foreign currency equivalent) at any one time against the Company or any of its Subsidiaries by a court or courts of competent jurisdiction, which judgment or judgments remain unbonded, undischarged or unstayed for a period of 60 days after the date on which the right to appeal all such judgments has expired; or (6) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary or any other applicable federal, state or foreign law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the institution by the Company or any Significant Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the U.S. Federal Bankruptcy Code or any other applicable federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its Indebtedness generally as they become due. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If -------------------------------------------------- an Event of Default (other than an Event of Default specified in Section 5.1(6) or 5.1 (7) relating to the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal and accrued interest (and Liquidated Damages, if any) of all the Securities to be due and payable immediately by a notice in writing to the Company (and to the Trustee if given by Holders) (an 80 "Acceleration Notice"), and upon any such declaration such principal, accrued interest (and Liquidated Damages, if any) shall become immediately due and payable. If an Event of Default specified in Section 5.1(6) or 5.1(7) relating to the Company occurs and is continuing, then the principal and accrued interest (and Liquidated Damages, if any) of all the Securities 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 a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article Five, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Outstanding Securities, (B) all unpaid principal of (and premium, if any, on) any Outstanding Securities which has become due otherwise than by such declaration of acceleration, and interest on such unpaid principal at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest on overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all existing Events of Default, other than the non-payment of amounts of principal, (or premium, if any,) and interest on the Securities which have become due solely by such declaration of acceleration, and except a Default with respect to any provision requiring a supermajority approval to amend, which Default may only be waived by such a supermajority, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. 81 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. The Company covenants that if - ------- (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4 Trustee May File Proofs of Claim. In case of the pendency -------------------------------- of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as herein expressed or by 82 declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (and Liquidated Damages, if any) owing and unpaid in respect of the Securities and to file such 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 and its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator or 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 the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.5 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. All rights of action and claims under this Indenture or the - ---------- Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of 83 the Trustee and its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6 Application of Money Collected. Any money collected by ------------------------------ the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest (and Liquidated Damages, if any) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.7 Limitation on Suits. No Holder of any Securities shall ------------------- have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) the Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and 84 (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.8 Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium and Interest. Notwithstanding any other provision in this Indenture, - -------------------- the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment as provided herein (including, if applicable, Article Twelve) and in such Security of the principal of (and premium, if any) and (subject to Section 3.7) interest (and Liquidated Damages, if any) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or ---------------------------------- any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise ------------------------------ provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, 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. 85 SECTION 5.11 Delay or Omission Not Waiver. No delay or omission of ---------------------------- the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12 Control by Holders. The Holders of not less than a ------------------ majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting unless it has received indemnity reasonably satisfactory to it. SECTION 5.13 Waiver of Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default (1) in respect of the payment of the principal of (or premium, if any) or interest (and Liquidated Damages, if any) on any Security, or (2) in respect of a covenant or provision hereof which cannot be modified or amended without the approval of a supermajority, which Default may only be waived by such a supermajority; or 86 (3) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security 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 thereon. SECTION 5.14 Waiver of Stay or Extension Laws. The Company covenants -------------------------------- (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1 Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) 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 (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; 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 87 determine whether or not they reasonably conform to the requirements of this Indenture. (b) 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 their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 6.1; (2) 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 grossly negligent in ascertaining the pertinent facts; (3) 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 the requisite amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee; and (4) 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 indemnity reasonably satisfactory to it against such risk or liability is not assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. SECTION 6.2 Notice of Default. Within 60 days after being notified ----------------- or becoming aware of the occurrence of any Default hereunder, the Trustee shall transmit, in the manner and to the extent provided in TIA Section 313(c), notice of 88 such Default hereunder known to any Responsible Officer of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Security, 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 determines that the withholding of such notice is in the interest of the Holders. SECTION 6.3 Certain Rights of Trustee. Subject to Section 6.1 and to ------------------------- the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Supervisory Board of the Company may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, receive and conclusively rely upon an Officers' Certificate and/or an Opinion of Counsel; (4) the Trustee may consult with counsel and other professional advisers and the written advice of such counsel or advisers or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; 89 (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians, delegates or attorneys and the Trustee shall not be responsible for supervising the actions of such agent, nominee, custodian, delegate or attorney, nor for any misconduct or negligence on the part of any agent, nominee, custodian, delegate or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (9) the Trustee shall be entitled to assume that there has been no Event of Default and that the Company has complied with all of its obligations hereunder, unless a Responsible Officer of the Trustee has knowledge to the contrary thereof. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. SECTION 6.4 Trustee Not Responsible for Issuance of Securities. -------------------------------------------------- The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. 90 SECTION 6.5 May Hold Securities. The Trustee, any Paying Agent, any ------------------- Security Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.6 Money Held in Trust. Money held by the Trustee in trust ------------------- hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 6.7 Compensation and Reimbursement. The Company agrees: ------------------------------ (1) to pay to the Trustee from time to time compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as agreed in writing between the Company and the Trustee; (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's gross negligence or bad faith; and (3) to indemnify the Trustee and its directors, officers, employees and agents for, and to hold them harmless against, any loss, liability or expense (including counsel's fees and expenses) without gross negligence or bad faith on the part of any of them, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself or themselves against any claim or liability in connection with the exercise or performance of any of its or their powers or duties hereunder. Upon the occurrence of an Event of Default or a potential Event of Default or upon the Trustee being required, or considering it necessary, to undertake duties outside the usual scope of a Trustee, the Trustee will be entitled to charge additional fees as agreed upon in writing with the Company. 91 The obligations of the Company under this Section 6.7 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional Indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(6) or (7), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 6.7 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting ---------------------------------------------------- Interests. - --------- (a) There shall be at all times a Trustee hereunder which shall be subject to and comply with the provisions of Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital and surplus of at least $50,000,000. If such Corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then, for the purposes of this Section 6.8, the combined capital and surplus of such Corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.8, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. (b) The Trustee shall be subject to and comply with Section 310(b) of the Trust Indenture Act. SECTION 6.9 Resignation and Removal; Appointment of Successor. ------------------------------------------------- 92 (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (b) The Trustee may resign at any time by giving 60 days' written notice thereof to the Company and without assigning any reason thereto or being responsible for any costs or expenses occasioned thereby. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may on behalf of the Company, appoint in its place a reputable financial institution and the Company shall not unreasonably object to such appointment or may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (2) the Trustee shall cease to be eligible under Section 6.8(a) and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i)the Company, by a Board Resolution, may remove the Trustee or (ii)subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a 93 Security for at least six months, (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities) as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided for in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. (g) The retiring Trustee shall not be liable for any of the acts or omissions of any successor Trustee appointed hereunder. SECTION 6.1 Acceptance of Appointment by Successor. Every successor -------------------------------------- Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its fees, costs, expenses, charges and any other amounts owed to it hereunder, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee 94 all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.1 Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. Any Corporation into which the Trustee may be merged or converted or - -------- with which it may be Consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such Corporation shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides that the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.1 Trustee Acting in Other Capacities. To the extent that ----------------------------------- the Trustee, Banque Internationale a Luxembourg or any other Person appointed hereunder as Trustee or Paying Agent is acting as Securities Registrar, Common Depositary, Depositary or Paying Agent hereunder, the rights, privileges, immunities and indemnities set forth in this Article Six shall apply to the Trustee in the additional capacities listed above. ARTICLE VII 95 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1 Disclosure of Names and Addresses of Holders. Every -------------------------------------------- Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 3.12, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 7.2 Reports by Trustee. Within 60 days after May 30 of each ------------------ year commencing with the first May 30 after the first issuance of Securities, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 30 if required by TIA Section 313(a). SECTION 7.3 Reports by Company. The Company shall file with the ------------------ Trustee and deliver to the Holders of Securities the reports and other information required to be provided by it pursuant to Section 10.8. ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or Persons or (ii) directly or indirectly, sell, lease, convey or transfer all or substantially all of its assets (computed on a Consolidated basis) to any other Person or group of affiliated Persons, unless: (1) either (a) the Company is the continuing entity or (b) the resulting, surviving or transferee entity is a Corporation organized under the laws of The Netherlands or of the United States of America or any state or the District of Columbia, any member of the European Economic Area or Switzerland and expressly assumes by supplemental indenture all of the obligations of the Company in connection with the Securities and this Indenture; 96 (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) unless such transaction is solely the merger of the Company and one of its previously existing Wholly Owned Subsidiaries and which transaction is not in connection with any other transaction, immediately after giving effect to such transaction, on a pro forma basis, the Consolidated resulting, surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in Section 10.11 or, if not, the Leverage Ratio would immediately thereafter be no greater than the Leverage Ratio immediately prior thereto; (4) each Subsidiary Guarantor, unless such Subsidiary Guarantor is the Person with which the Company has entered into a transaction under this section, shall have by amendment to its Guarantee of the Securities confirmed that its Guarantee of the Securities shall apply to the obligations of the Company or the surviving entity in accordance with the Securities and this Indenture; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each in form attached hereto as Exhibits F and G respectively, stating that such consolidation, merger, conveyance, transfer, lease or acquisition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officers' Certificate. For purposes of this Section 8.1, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Company's interest in which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 8.2 Successor Substituted. Upon any consolidation of the --------------------- Company with or merger of the Company with or into any other Corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person or Persons in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and 97 (except in the case of a lease) 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, and, in the event of any such conveyance or transfer (except in the case of a lease), the Company shall be discharged of all obligations under this Indenture and the Securities except with respect to any obligations that arise from, or are related to, such transaction. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Indentures Without Consent of Holders. Without the ------------------------------------- consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form and substance satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to provide for uncertificated Securities in addition to or in place of certificated Securities; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 6.10; or (6) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or 98 (7) to provide for collateral securing the Company's obligations under this Indenture and the Securities; or (8) to provide for Guarantees by any other Person of the Company's obligations pursuant to this Indenture and the Securities; provided such actions shall not adversely affect the interests of Holders in any material respect. SECTION 9.2 Indentures with Consent of Holders. With the consent of ---------------------------------- the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that: (i) no such modification may, without the consent of Holders of at least 66 2/3% in aggregate principal amount of Outstanding Securities, modify the provisions of Section 10.10 (including the defined terms used therein) in a manner adverse to the Holders; and (ii) no such modification shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of any Security, or reduce the principal amount thereof or the rate of interest (or extend the time for payment of interest, if any) thereon or any premium payable upon the redemption thereof at the option of the Company, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption at the option of the Company, on or after the Redemption Date), or reduce the Change of Control Purchase Price or the Asset Sale Offer Price after the corresponding Change of Control or Asset Sale has occurred or alter the provisions (including the defined terms used therein) regarding the right of the Company to redeem the Securities in a manner adverse to the Holders, or 99 (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such amendment, supplemental indenture or waiver provided for in this Indenture, or (3) modify any of the waiver provisions, except to increase any required 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 Security affected thereby, or (4) cause the Securities to become subordinate in right of payment to any other Indebtedness. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3 Execution of Indentures. In executing, or accepting the ----------------------- additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is permitted by this Indenture and an Officers' Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Indentures. Upon the execution of any -------------------- supplemental indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5 Conformity with Trust Indenture Act. Every supplemental ----------------------------------- indenture executed pursuant to this Article Nine shall conform as a matter of contract or law to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6 Reference in Securities to Indentures. Securities ------------------------------------- authenticated and delivered after the execution of any supplemental indenture 100 pursuant to this Article Nine may bear a notation in form approved by the Trustee and the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7 Notice of Indentures. Promptly after the execution by -------------------- the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 9.2, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 1.6, setting forth in general terms the substance of such supplemental indenture. ARTICLE X COVENANTS SECTION 10.1 Payment of Principal, Premium, if Any, and Interest. --------------------------------------------------- (1) The Company covenants and agrees for the benefit of the Holders that it shall duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. (2) For the purpose set forth in paragraph (1) above, the Company shall, no later than 10:00 a.m., New York time, on the Business Day first preceding each Payment Date, transfer to an account specified by the Trustee such amount in immediately available and freely transferable U.S. Dollar funds, in the case of Dollar Denominated Securities, or Euro funds in the case of Euro Denominated Securities, as shall be sufficient for the purposes of the payment of principal of (and premium, if any) and interest (and Liquidated Damages, if any) due to be paid on the Securities on that date. (3) The Company shall ensure that not later than the second Business Day immediately preceding the date on which any payment is to be made to the Trustee pursuant to this Section 10.1, the Company shall procure that a copy of an irrevocable payment instruction to the bank through which the payment is to be made shall be sent to the Trustee. 101 (4) Unless and until the full amount of any payment due on the Securities has been made to the Trustee, or unless and until the Trustee is satisfied that such payment will be made, neither it nor the other Paying Agents shall be bound to make payments in respect of the Securities hereunder. (5) If the Trustee or a Paying Agent pays any amounts to the Holders or to any other Agent at a time when it has not received payment in full from the Company in respect of such Securities, the Company shall, in addition to paying amounts due under Section 10.1(2), pay to the Trustee on demand interest thereon at such a rate as the Trustee shall certify as the aggregate of 1% per annum and the cost of funding any such payment made by it (as determined by the Trustee) until the receipt in full by the Trustee of the funds due to it pursuant to Section 10.1(2). SECTION 10.2 Maintenance of Office or Agency. The Company shall ------------------------------- maintain in The City of New York and London, and for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands (other than service of process) to or upon the Company in respect of the Securities and this Indenture may be served. The Corporate Trust Office of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company hereby initially designates (1) the Trustee at its address set forth in Section 1.5 hereof as its office or agency in London and Citibank, N.A. (New York branch), 111 Wall Street, New York, New York as its office or agency in New York, for such purposes, (ii) Banque Internationale a Luxembourg, at its office or agency in Luxembourg for such purposes and (iii) the Paying Agent at its address set forth in Section 1.5 hereof. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may 102 be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York and, for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 10.3 Money for Security Payments to Be Held in Trust. If the ----------------------------------------------- Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of (or premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it shall, on or before each due date of the principal of (or premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest, of which it is aware; 103 (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith act under the direction of the Trustee and pay to the Trustee all sums so held in trust by such Paying Agent; and (4) indemnify the Trustee and its officers, directors, employees and agents against any loss, cost or liability caused by, or incurred as a result of, such Paying Agent's acts or omissions. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York and in London, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4 Corporate Existence. Subject to Article Eight, the ------------------- Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to the Company, any such right or franchise or, with respect to any Subsidiary (subject to all the other 104 covenants in this Indenture), any such corporate existence, right or franchise, if the Supervisory Board of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.5 Payment of Taxes and Other Claims. The Company shall pay --------------------------------- or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.6 Maintenance of Properties. The Company shall cause all ------------------------- properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 10.6 shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.7 Insurance. The Company shall at all times keep all of ---------- its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by Corporations similarly situated and owning like properties. SECTION 10.8 Provision of Financial Statements. The Company has --------------------------------- agreed that, for so long as any Securities remain Outstanding, whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the 105 Exchange Act, the Company will deliver to the Trustee and, to each Holder and to prospective purchasers of Securities identified to the Company, within 15 days after the Company is or would have been (if the Company were subject to such reporting obligations) required to file such with the SEC, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in reports filed with the SEC, if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by the Company's certified independent public accountants as such would be required in such reports to the SEC, and, in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required and, unless the SEC will not accept such reports, file with the SEC the annual, quarterly and other reports which it is or would have been required to file with the SEC. Following the effectiveness of the Registration Statement, the Company will file with the Trustee, at the time it files them with the SEC, copies of the annual and quarterly reports and the information, documents and other reports that the Company is required to file with the SEC under Section 13(a) or 15(d) of the Exchange Act. If the Company ceases to be required to file SEC reports under the Exchange Act, the Company will nevertheless continue to file such reports with the Trustee. The Company will furnish copies of the SEC reports to investors who request them in writing. SECTION 10.9 Statement by Officers as to Default. ----------------------------------- (a) The Company shall deliver to the Trustee, on the date of delivery of each quarterly report to be delivered pursuant to Section 10.8, and within 14 days of a request by the Trustee, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 10.9(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the Trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $50,000,000), the Company shall deliver to the Trustee by 106 registered or certified mail or by facsimile transmission an Officers' Certificate specifying such event, notice or other action within five Business Days of its occurrence. SECTION 10.10 Purchase of Securities upon Change of Control. --------------------------------------------- (1) (a) Upon the occurrence of a Change of Control, the Company will be required to make an offer to each Holder to purchase for cash all or a portion of such Holder's Securities (provided that the principal amount of such Securities must be $1,000 (or (Euro)1,000, as applicable) or an integral multiple thereof) pursuant to the offer described below (the "Change of Control Offer"), at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest (and Liquidated Damages, if any) to the date of purchase (the "Change of Control Purchase Price"). (b) Within 10 Business Days following a Change of Control, the Company must send a notice to each Holder which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no later than 35 Business Days from the date of the Change of Control, other than as may be required by law (the "Change of Control Purchase Date"). The Change of Control Offer shall remain open for 20 Business Days following its commencement (the "Change of Control Offer Period"). Upon expiration of the Change of Control Offer Period, the Company shall promptly purchase all Notes properly tendered in response to the Change of Control Offer. Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, by delivery of a form entitled "Option of Holder to Elect Purchase," obtainable from the Trustee or any Paying Agent substantially in the form of Exhibit I, completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Purchase Date. The Paying Agent promptly will pay the Holders of Securities so accepted an amount equal to the Change of Control Purchase Price (together with accrued and unpaid interest and Liquidated Damages, if any) and the Trustee promptly will authenticate and deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. The notice referred to above shall be a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder of Securities at 107 its address appearing in the Security Register on the date of the Offer offering to purchase up to the principal amount of Securities specified in such Offer at the Change of Control Purchase Price. Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Change of Control Offer which shall be, subject to any contrary requirements of applicable law, 20 Business Days after the date of the Offer and a settlement date (the "Change of Control Purchase Date") for purchase of Securities within five Business Days after the Expiration Date. The Company shall notify the Trustee in writing at least 15 Business Days, or a shorter period that is acceptable to the Trustee, prior to the mailing of the Offer of the Company's obligation to make a Change of Control Offer, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable the Holders to make an informed decision with respect to the Change of Control Offer, which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to Section 10.8 (which requirements may be satisfied by delivery of the documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of the financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Change of Control Offer), (iii) if applicable, appropriate pro forma financial information concerning the Change of Control Offer and the events requiring the Company to make the Change of Control Offer and (iv) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer. The Offer shall also state: (a) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (b) the Expiration Date and the Change of Control Purchase Date; (c) the aggregate principal amount of the Outstanding Securities offered to be purchased by the Company in the Change of Control Offer, including, if less than 100%, the manner by which the amount has been determined pursuant to the Section hereof requiring the Change of Control Offer (the "Purchase Amount"); 108 (d) the Change of Control Purchase Price; (e) that the Holder may tender all or any portion of the Securities registered in the name of the Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 or (EURO)1,000 principal amount; (f) the place or places where the Securities are to be surrendered for tender pursuant to the Change of Control Offer; (g) that any of the Securities not tendered or tendered but not purchased by the Company will continue to accrue interest; (h) that on the Change of Control Purchase Date the Purchase Price will become due and payable upon the Securities being accepted for payment pursuant to the Change of Control Offer and that any interest shall cease to accrue on and after the Change of Control Purchase Date; (i) that each Holder electing to tender the securities in the purchase will be required to surrender the Securities at the place or places specified in the Offer prior to the close of business on the Expiration Date with the Securities being, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly signed by, the Holder or his attorney duly authorized in writing; (j) that Holders will be entitled to withdraw all or any portion of the Securities tendered if the Company or its Paying Agent receives, not later than the close of business on the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder tendered, the certificate number of the Securities the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (k) that (i) if the Securities in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn in the Purchase, the Company shall purchase all the Securities and (ii) if the Securities in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn in the Change of Control Offer, the Company shall purchase the Securities having an aggregate principal amount equal to the Purchase Amount on a pro rata basis with adjustments that the Company may deem appropriate so that only 109 Securities in denominations of $1,000 or (EURO)1,000 or integral multiples thereof shall be purchased; and (1) that in the case of any Holder whose Securities are purchased only in part, the Company shall sign, and the Trustee shall authenticate and deliver to the Holder of the Securities without service charge, the new Security or Securities, of any authorized denomination as requested by the Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Securities so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Change of Control Offer. The Company will not be required to make an offer to purchase any series of Securities upon a Change of Control if, before the Change of Control occurs, it has exercised its right to redeem all of the Securities of such series as described under Section 11.1. (2) On or before the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) cash sufficient to pay the purchase price (together with accrued and unpaid interest and Liquidated Damages, if any) of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee all Securities so tendered together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. (3) In the event that the Company makes a Change of Control Offer, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act. (4) If the Change of Control Purchase Date hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on such Interest Payment Date will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (and 110 Liquidated Damages, if applicable) will not be payable to Holders who tender the Securities pursuant to the Change of Control Offer. Notwithstanding anything contained in this Indenture to the contrary, the Company will not, and will not permit any of its Subsidiaries to, incur any Indebtedness that is contractually subordinate to any other Indebtedness of the Company unless such Indebtedness is at least as subordinate to the Securities. SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and ------------------------------------------------------- Disqualified Capital Stock. (1) The Company may not, and may not permit any - -------------------------- Subsidiary to, directly or indirectly, issue, assume, guaranty, incur, become directly or indirectly liable with respect to (including as a result of an Acquisition), or otherwise become responsible for, contingently or otherwise (individually and collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing if: (i) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to, such incurrence of Indebtedness; and (ii) on the date of such incurrence (the "Incurrence Date"), either (i) the Leverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would not exceed 7.0 to 1.0 (the "Debt Incurrence Ratio"), (ii) the Consolidated Coverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would not be less than 1.75 to 1.0, or (iii) after giving effect on a pro forma basis to such incurrence of Indebtedness, and, to the extent used to retire other Indebtedness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of the Company would not exceed 225% of the Consolidated Invested Equity Capital of the Company, then the Company may incur such Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness). (2) The foregoing limitations of paragraph (1) of this Section 10.11 will not prohibit: 111 (a) if no Event of Default shall have occurred and be continuing, the incurrence by the Company or its Subsidiaries of Indebtedness in an aggregate amount incurred and Outstanding at any time pursuant to this subparagraph (a) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to $400,000,000 (or the equivalent thereof, at the time of incurrence, in the applicable foreign currencies); (b) the incurrence by the Company and its Subsidiaries of Indebtedness pursuant to the Credit Agreement in an aggregate amount incurred and Outstanding at any time pursuant to this paragraph (b) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to (EURO)1 billion, minus the amount of any such Indebtedness (i) retired with the Net Cash Proceeds from any Asset Sale applied to reduce permanently the Outstanding amounts or the commitments with respect to such Indebtedness pursuant to Section 10.16 or (ii) assumed by a transferee in an Asset Sale; (c) the incurrence by any Subsidiary of Indebtedness, if on the Incurrence Date either (1) the Leverage Ratio of such Subsidiary of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would be no more than 7.0 to 1.0, or (2) the Consolidated Coverage Ratio of such Subsidiary for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would be no less than 1.75 to 1.00, or (3) after giving effect on a pro forma basis to such incurrence of such Indebtedness, and, to the extent used to retire other Indebtedness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of such Subsidiary would not exceed 225% of the Consolidated Invested Equity Capital of such Subsidiary, provided in the case of each of clauses (c)(1), (2) and (3), the net proceeds therefrom are used in a Related Business of the Company or any affiliated company of the Company, and provided, further, that for the purposes of this clause (c) a Subsidiary may be a co-obligor or guarantor on such Indebtedness of another Subsidiary of the Company (A) if such co-obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the Equity Interests of the Subsidiary of the Company that incurred such Indebtedness, (B) if all or a portion of the Equity Interests of such co-obligor or guarantor Subsidiary is owned (either directly or indirectly through one or more Subsidiaries of the Company) by the Subsidiary that incurred such Indebtedness or 112 (C) if such co-obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the business that will use the proceeds of such Indebtedness; and (d) if no Event of Default shall have occurred and be continuing, the incurrence by Subsidiaries of the Company of Indebtedness pursuant to the Existing Agreements up to, but not in excess of the maximum applicable amounts of Indebtedness available for borrowing pursuant to the terms of each such Existing Agreement as in effect on the date of the Indenture; provided that, in determining the maximum applicable amounts available, it shall be assumed that the Company satisfies any applicable conditions to borrowing. Indebtedness (including Disqualified Capital Stock) of any Person which is Outstanding at the time such Person becomes a Subsidiary of the Company (including upon designation of any subsidiary or other Person as a Subsidiary) or is merged with or into or Consolidated with the Company or a Subsidiary of the Company shall be deemed to have been incurred at the time such Person becomes such a Subsidiary of the Company or is merged with or into or Consolidated with the Company or a Subsidiary of the Company, as applicable. Upon each incurrence, the Company may designate pursuant to which provision of this Section 10.11 such Indebtedness is being incurred and such Indebtedness shall not be deemed to have been incurred or Outstanding under any other provision of this Section 10.11, except as stated otherwise in the foregoing provisions. SECTION 10.12 Limitation on Restricted Payments. (1) The Company may --------------------------------- not, and may not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment if, after giving effect to such Restricted Payment on a pro forma basis: (A) a Default or an Event of Default shall have occurred and be continuing, (B) the Company is not permitted to incur at least $1.00 (or its foreign currency equivalent) of additional Indebtedness pursuant to the Debt Incurrence Ratio in Section 10.11, or (C) the aggregate amount of all Restricted Payments made by the Company and its Subsidiaries, including after giving effect to such proposed 113 Restricted Payment, on and after July 30, 1999, would exceed, without duplication (and except to the extent otherwise credited pursuant to clause (g) of the definition of "Permitted Investment"), the sum of: (a) (i) the amount of the cumulative Consolidated EBITDA of the Company, if positive, less 150% of the cumulative Consolidated Fixed Charges of the Company, for the period (taken as one accounting period), commencing on the first day of the first full fiscal quarter commencing after July 30, 1999, to and including the last day of the fiscal quarter ended immediately prior to the date of each such calculation for which Consolidated financial statements of the Company are available, provided that such sum shall not be deemed to result in an amount less than zero for purposes of any calculation pursuant to this clause (C)(a)(i); or (ii) if such cumulative Consolidated EBITDA of the Company is zero or less, then the amount of such cumulative Consolidated EBITDA for such period; plus (b) the aggregate Net Cash Proceeds received by the Company from the sale of its Qualified Capital Stock (other than (i) to a Subsidiary of the Company and (ii) to the extent applied in connection with a Qualified Exchange), after July 30, 1999; plus (c) to the extent that any Investment (other than a Permitted Investment) that was made after July 30, 1999 is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the amount of cash or Cash Equivalents received by the Company, but only to the extent of the lesser of (i) the cash or Cash Equivalents transferred as a return of capital with respect to such Investment and (ii) the initial amount of such Investment (in either case, less the cost of disposition, if any); plus (d) in the event an Unrestricted Subsidiary is designated as a Subsidiary, an amount equal to fair market value, at such time, of the Investment of the Company and its Subsidiaries made after July 30, 1999; provided, however, that such amount shall not exceed the amount of Investments previously made in such Subsidiary that were counted as Restricted Payments pursuant to this covenant. (2) (a) The foregoing clauses (B) and (C) of Section 10.12(1), however, will not prohibit: (i) any dividend, distribution or payment of dividends on Disqualified Capital Stock permitted by Section 10.11; and (ii) any repurchase by the Company of any shares of any class or options to acquire such shares from any current, future or former directors, officers or employees of the Company or any of its Subsidiaries or Affiliates, provided that the aggregate amount of all the 114 repurchases made under this clause shall not exceed $10,000,000 in any twelve- month period (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $14,000,000 in any calendar year); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (1) the cash proceeds from the sale of Capital Stock of the Company to its Supervisory Board members, management board members or officers of the Company and its Subsidiaries that occurs after July 30, 1999, plus (2) the cash proceeds of key man life insurance policies received by the Company and its Subsidiaries after July 30, 1999; and (b) the foregoing clauses (A), (B) and (C) of Section 10.12(1) will not prohibit: (i) any dividend, distribution or other payments by any Subsidiary of the Company on its Equity Interests that is paid pro rata to all holders of such Equity Interests; (ii) a Qualified Exchange; (iii) the payment of any dividend on Qualified Capital Stock within 60 days after the date of its declaration if such dividend could have been made on the date of such declaration in compliance with the foregoing provisions; or (iv) the payment of dividends by the Company in cash or Qualified Capital Stock pursuant to the terms of any Parent Stock Instrument that is incurred or issued (as applicable) in compliance with this Indenture. The full amount of any Restricted Payment made pursuant to paragraphs 2(a)(i), (ii) and 2(b)(i), (iii) and (iv), but not pursuant to paragraph 2(b)(ii), however, will be counted as Restricted Payments made for purposes of the calculation of the aggregate amount of Restricted Payments available to be made referred to in Section 10.12(1)(C). For purposes of this section, the amount of any Restricted Payment made or returned, if other than in cash, shall be the fair market value thereof, as determined in the good faith reasonable judgment of the Company's Supervisory Board, unless stated otherwise, at the time made or returned, as applicable. Additionally, on the date of each Restricted Payment, the Company shall deliver an Officers' Certificate to the respective Trustee describing in reasonable detail the nature of such Restricted Payment, stating the amount of such Restricted Payment, 115 stating in reasonable detail the provisions of this Indenture pursuant to which such Restricted Payment was made and certifying that such Restricted Payment was made in compliance with the terms of this Indenture. SECTION 10.13 Limitation on Dividend and Other Payment Restrictions ----------------------------------------------------- Affecting Subsidiaries. (1) The Company may not, and may not permit any - ---------------------- Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual restriction on the ability of any Subsidiary: (i) to pay dividends, in cash or otherwise, or make any other distributions to or on behalf of or pay any obligation to or on behalf of the Company or any Subsidiary of the Company; (ii) to make or pay loans or advances to or on behalf of the Company or any Subsidiary of the Company; or (iii) to transfer property or assets to or on behalf of the Company or any Subsidiary of the Company, except: (a) restrictions imposed by the Securities or the Other Senior Notes or the Indenture or the Other Senior Notes Indenture or by other Indebtedness of the Company ranking pari passu with the Securities and the Other Senior Notes, provided that such restrictions are no more restrictive than those imposed by the Indenture and the Securities; (b) restrictions imposed by applicable law; (c) restrictions under Indebtedness outstanding on July 30, 1999, including pursuant to the Credit Agreement; (d) restrictions under any Acquired Indebtedness not incurred in violation of the Indenture or any agreement (including any Equity Interest) relating to any property, asset, or business acquired by the Company or any of its Subsidiaries, which restrictions in each case existed at the time of acquisition, were not put in place in connection with or in anticipation of such acquisition, and are not applicable to any Person, other than the Person acquired, or to any property, asset or business, other than the property, assets and business so acquired; 116 (e) any such restriction or requirement imposed by Indebtedness incurred under the Credit Agreement pursuant to Section 10.11, provided that such restriction or requirement is no more restrictive than that imposed by the Credit Agreement as of July 30, 1999; (f) with respect solely to a Subsidiary of the Company imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all or substantially all of the Equity Interests or assets of such Subsidiary, provided that such restrictions apply solely to the Equity Interests or assets of such Subsidiary which are being sold; (g) restrictions under Purchase Money Indebtedness not incurred in violation of the Indenture, provided that such restrictions relate only to the property financed with such Indebtedness; (h) with respect to any Subsidiary, restrictions contained in the terms of any Indebtedness incurred in compliance with the Indenture, or any agreement pursuant to which such Indebtedness was issued, if (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the Company shall have reasonably determined that the encumbrance or restriction is not materially more disadvantageous to the Holders of the Securities than is customary in comparable financings, and (C) the Company shall have reasonably determined that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Securities; and (i) in connection with and pursuant to permitted Refinancings, replacements of restrictions imposed pursuant to clauses (a), (c), (d), or (g), or this clause (i), of this paragraph that are not more restrictive than those being replaced and do not apply to any other Person or assets than those that would have been covered by the restrictions in the Indebtedness so refinanced. (2) Notwithstanding the provisions of Section 10.13(1), (a) customary provisions restricting subletting, assignment or transfer of any lease, license, conveyance, or similar document or instrument entered into in the ordinary course of business, consistent with industry practice and (b) any asset or property subject to a Lien which is not prohibited to exist with respect to such asset pursuant to the terms of this Indenture may be subject to customary restrictions on the transfer or disposition thereof pursuant to such Lien. 117 SECTION 10.14 Limitation on Liens Securing Indebtedness. The Company ----------------------------------------- may not, and may not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, upon any of their respective assets now owned or acquired on or after the date of this Indenture or upon any income or profits therefrom securing any Indebtedness of the Company, unless the Company provides, and causes its Subsidiaries to provide, concurrently therewith, that the Securities are equally and ratably so secured; provided that if such Indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness shall be subordinate and junior to the Lien securing the Securities with the same relative priority as such Subordinated Indebtedness shall have with respect to the Securities. SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries. ----------------------------------------------------- (1) Notwithstanding the other provisions of this Indenture, the Company may not permit any Subsidiary to, directly or indirectly, Guarantee any Indebtedness of the Company (other than Indebtedness incurred pursuant to the Credit Agreement in accordance with the terms of this Indenture) ("Guaranteed Indebtedness"), then such Subsidiary must become a Guarantor (a "Subsidiary Guarantor") of the Securities on a basis such that the Subsidiary's Guarantee of the Securities shall stand in substantially the same relative ranking in right of payment to the guarantee of such other Indebtedness as the Securities stand in relative ranking to such other Indebtedness; provided that this paragraph shall not be applicable to any guarantee by any Subsidiary that (a) existed at the time such Person became a Subsidiary of the Company and (b) was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company. (2) Subsidiary Guarantees shall be automatically released upon (i) the sale or other disposition of all or substantially all of the Company's and its Subsidiaries' beneficial interest in the Equity Interests or assets of such Subsidiary Guarantor, provided that thereafter such Subsidiary Guarantor shall cease to be a Subsidiary of the Company, (ii) the consolidation or merger of any such Subsidiary Guarantor with any Person other than the Company or a Subsidiary of the Company if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a Subsidiary of the Company (and shall not be a Subsidiary of the successor to the Company), (iii) a Legal Defeasance, or (iv) the unconditional and complete release of such Subsidiary Guarantor from its Guarantee of all Guaranteed Indebtedness. 118 SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock. ------------------------------------------------- (1) The Company may not, and may not permit any Subsidiary to, in one or a series of related transactions, convey, sell, transfer, assign or otherwise dispose of, directly or indirectly, any of the Company's or such Subsidiary's property, business or assets (including by merger or consolidation in the case of a Subsidiary of the Company), and including any sale or other transfer or issuance of any Equity Interests of any Subsidiary of the Company, whether by the Company or a Subsidiary or through the issuance, sale or transfer of Equity Interests by a Subsidiary of the Company, and including any sale and leaseback transaction (any of the foregoing, an "Asset Sale"), unless: (A) (1) the amount equal to the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") is applied (i) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the optional redemption of the Securities in accordance with the terms of the Indenture and other Indebtedness of the Company ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to redeem such Indebtedness with the proceeds from such Asset Sale, pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding, or (ii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the repurchase of the Securities and such other Indebtedness ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from such Asset Sale pursuant to a cash offer (subject only to conditions required by applicable law, if any) pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding (the "Asset Sale Offer") at a purchase price of 100% of 119 principal amount (or accreted value in the case of Indebtedness issued with original issue discount) (the "Asset Sale Offer Price") together with accrued and unpaid interest and Liquidated Damages, if any, to the date of payment, made within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) of such Asset Sale, or (iii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale), to the repayment of Indebtedness then Outstanding pursuant to the Credit Agreement or, if required by the terms of such Indebtedness, of Indebtedness issued by a Subsidiary of the Company (in respect of which Indebtedness the Company is not a direct or contingent obligor except by virtue of the Company's pledge of Equity Interests of, and other interests of or claim on, such Subsidiary or the Company's guarantee of such Subsidiary's Indebtedness to the extent, in either case, the recourse against the Company is limited to such Equity Interests or claim), or (2) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) following such Asset Sale, the Asset Sale Offer Amount is invested in assets and property which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business of the Company or such Subsidiary (if it continues to be a Subsidiary) immediately following such transaction or is used to make Permitted Investments in the Company or a Subsidiary of the Company (other than Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture), provided that (i) 50% of the Net Cash Proceeds from Special Character Asset Sales and 100% of the net proceeds from any Asset Sale of an Investment made in reliance on clause (g) of the definition of "Permitted Investments" may be reinvested in any Permitted Investment (other than, in either case, Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture) which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business and (ii) 100% of the net proceeds from an Asset Sale constituting the sale of an Investment in any Person (excluding a Person that would be Consolidated with the Company under GAAP and excluding Related Assets of the 120 Company or any of its Subsidiaries) in which the Company or any of its Subsidiaries has an Equity Interest may be reinvested in Investments permitted by clause (e) or (f) of the definition of "Permitted Investments," (B) at least 75% of the total consideration for such Asset Sale or series of related Asset Sales consists of cash, Cash Equivalents, Replacement Assets or the assumption of Indebtedness of a Subsidiary. For purposes of this subparagraph (B), total consideration received means the total consideration received for such Asset Sales, minus the amount of (a) Purchase Money Indebtedness secured solely by the assets sold and assumed by a transferee, provided that the Company and the Subsidiaries are released from any obligation in connection therewith; and (b) property that within 30 days of such Asset Sale is converted into cash or Cash Equivalents, provided that such cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to the original Asset Sale for which such property was received. (C) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect to, on a pro forma basis, such Asset Sale, and (D) in the case of a transaction or series of related transactions exceeding $15,000,000 (or the foreign currency equivalent on the date of the transaction) of consideration to any party thereto, the Supervisory Board of the Company determines in its good faith reasonable judgment that the Company or such Subsidiary, as applicable, receives fair market value for such Asset Sale. (2) An acquisition of Securities pursuant to an Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth in 1(a)(i), (iii), or 1(b) above (the "Excess Proceeds") exceeds $50,000,000 (or the foreign currency equivalent thereof), provided that, in the case of an Asset Sale by a Subsidiary of the Company that is not a Wholly Owned Subsidiary, only the Company's and its Subsidiaries' pro rata portion of such Net Cash Proceeds shall constitute Net Cash Proceeds subject to the provisions of this Section 10.16. Each Asset Sale Offer shall remain open for 20 Business Days following its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company shall apply the Asset Sale Offer Amount, plus an amount equal to accrued and unpaid interest and Liquidated Damages, if any, to the purchase of all Indebtedness properly tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued interest and Liquidated Damages, if 121 any). To the extent that the aggregate amount of Securities and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the Company may apply any remaining Net Cash Proceeds to any purpose consistent with this Indenture, and following the consummation of each Asset Sale Offer the Excess Proceeds amount shall be reset to zero. Notwithstanding, and without complying with, the foregoing provisions of this Section 10.16: (u) the Company and its Subsidiaries may, in the ordinary course of business, (a) convey, sell, transfer, assign or otherwise dispose of inventory and other assets acquired and held for resale in the ordinary course of business and (b) liquidate and otherwise dispose of Cash Equivalents; (v) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets pursuant to and in accordance with Article Eight. (w) the Company and its Subsidiaries may sell or dispose of damaged, worn out or other obsolete personal property in the ordinary course of business so long as such property is no longer necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and the Company and its Subsidiaries may replace personal property in the ordinary course of business so long as the replacement property is necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and sell or dispose of such replaced property in the ordinary course; (x) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets to the Company or any of its Subsidiaries; (y) the Company and each of its Subsidiaries may surrender or waive contract rights or settle, release or surrender contract, tort or other claims of any kind in the ordinary course of business or grant Liens not otherwise prohibited by the Indenture; (z) the Company and its Subsidiaries may exchange assets for property, businesses, or assets held by any Person 122 (including by merger or consolidation in the case of a Subsidiary of the Company); provided that (a) property, businesses and assets, which in one or a series of related transactions exceeds $15,000,000 in value, received by the Company or such Subsidiaries in any such exchange in the good faith reasonable judgment of the Supervisory Board of the Company will immediately constitute, be a part of, or be used in, a Related Business of the Company or such Subsidiaries, (b) the Supervisory Board of the Company has determined that the terms of any exchange, which in one or a series of related transactions exceeds $15,000,000 in fair market value, are fair and reasonable, and (c) any cash or Cash Equivalents received by the Company or any Subsidiary in such exchange shall be treated as having been received as a result of an Asset Sale. All Net Cash Proceeds from an Event of Loss shall be used all within the period and as otherwise provided above in clause (1) of the first paragraph of this Section 10.16. (3) Any Asset Sale Offer shall be made in compliance with all applicable laws, rules, and regulations, including, if applicable, Regulation 14E of the Exchange Act and the rules and regulations thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any applicable securities laws, rules, or regulations conflict with the provisions of this section, compliance by the Company or any of its subsidiaries with such laws, rules or regulations shall not in and of itself cause a breach of its obligations under this section. (4) If the payment date in connection with an Asset Sale Offer hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any, due on such Interest Payment Date) will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (or Liquidated Damages, if applicable) will not be payable to Holders who tender Securities pursuant to such Asset Sale Offer. SECTION 10.17 Limitation on Transactions with Affiliates. The Company ------------------------------------------ may not, and may not permit any Subsidiary on or after the Issue Date to, enter into any contract, agreement, arrangement or transaction with any Affiliate of the Company (an "Affiliate Transaction"), or any series of related Affiliate Transactions, other than Exempted Affiliate Transactions, 123 (1) unless it is determined by the Supervisory Board as evidenced by a Board Resolution that the terms of such Affiliate Transaction are fair and reasonable to the Company and no less favorable to the Company than could have been obtained in an arm's length transaction with a non-Affiliate, and (2) if involving consideration to either party in excess of $15,000,000 (or its foreign currency equivalent), unless such Affiliate Transaction(s) is evidenced by an Officers' Certificate addressed and delivered to the Trustee certifying that such Affiliate Transaction (or Affiliate Transactions) has been approved by a majority of the members of the Supervisory Board of the Company that are disinterested in such transaction, if there are any directors who are so disinterested, and (3) if involving consideration to either party in excess of $15,000,000 or $30,000,000 if there are disinterested directors (or in each case its foreign currency equivalent), unless in addition the Company, prior to the consummation thereof, obtains a written favorable opinion as to the fairness of such transaction to the Company from a financial point of view from an independent investment banking firm of national reputation in the United States or, if pertaining to a matter for which such investment banking firms do not customarily render such opinions, an appraisal or valuation firm of national reputation in the United States. SECTION 10.18 Additional Amounts. All payments made by the Company ------------------ under or with respect to the Securities will be made free and clear of and without withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of any Taxing Authority within The Netherlands, or within any other jurisdiction in which the Company is organized or engaged in business, or any other jurisdiction if payments on the Securities are made from within such jurisdiction (each of the above, a "Relevant Taxing Jurisdiction"), unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is required to withhold or deduct any amount for or on account of Taxes (other than any estate, inheritance, gift, sales, excise, transfer, wealth or personal property tax, or any similar non-income tax, assessment or governmental charge) imposed by a Taxing Authority within a Relevant Taxing Jurisdiction, from any payment made under or with respect to the Securities, the Company will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Securities (including Additional Amounts) after such withholding or deduction (including any withholding 124 or deduction in respect of such Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided that no such Additional Amounts shall be payable with respect to a payment made to a Holder with respect to any Tax or portion thereof that would not have been imposed, payable or due: (1) but for the existence of any present or former connection between the Holder (or the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities) and The Netherlands or other jurisdiction in which the Company is organized or engaged in business other than the holding of the Securities; (2) but for the failure of the Holder to use its reasonable best efforts to comply upon written notice by the Company delivered 60 days prior to any payment date with a request by the Company to satisfy any certification, identification or other reporting requirements which shall include any applicable forms or instructions whether imposed by statute, treaty, regulation or administrative practice concerning the nationality or residence of the Holder or the connection of the Holder with The Netherlands or other jurisdiction in which the Company is organized or engaged in business: (i) provided that Holder's failure to comply with the 60 day requirement described above shall not relieve the Company of the Company's obligation to pay Additional Amounts if the Holder's application for any requested certification, identification or other reporting requirement remains Outstanding or is otherwise pending and the Holder continues to use its reasonable best efforts to obtain such information; (ii) provided, further, that the Company shall pay any Additional Amounts not paid on any payment date as a result of the operation of this clause (2) upon the satisfaction of the relevant certification, identification or other reporting requirements within 30 days after such payment date, provided that the Company shall not, as a result of such satisfaction occurring after the payment date, have already irrevocably paid to the relevant taxing authority the withheld or deducted amount in respect of which such Additional Amounts would have been payable; 125 (3) but for the failure of the Holder (or the beneficial individual owner of, or individual ultimately entitled to obtain an interest in, such Securities) who is an individual citizen or resident of a member state of the European Union to comply with a written notice by the Company delivered 60 days prior to any payment date with a request by the Company to provide any certification, identification or other reporting requirement, whether imposed by statute, treaty, regulation or administrative practice, if such action would otherwise eliminate the requirement for the withholding or deduction of Taxes; or (4) if the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities had been the Holder of the Securities and would not be entitled to the payment of Additional Amounts (excluding the impact of book entry procedures by the Depositary or Common Depositary). In addition, Additional Amounts will not be payable with respect to any Tax which is payable and so paid otherwise than by withholding or deduction from payments of, or in respect of principal of, or any interest or Liquidated Damages on, the Securities. The Company will remit the full amount of any withholdings or deductions for or on account of Taxes to the relevant Taxing Authority in accordance with applicable law. The Company will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company will furnish to the Holders, within 60 days after the date the payment of any Taxes so deducted or withheld are due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by the Company or, if such receipts are not obtainable, other evidence of such payments by the Company. At least 30 days prior to each date on which any payment under or with respect to the Securities 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 respective Trustee an Officers' Certificate stating (i) the fact that such Additional Amounts will be payable, (ii) the amounts so payable and (iii) such other information necessary to enable the Trustee to pay such Additional Amounts to the Holders of Securities on the Interest Payment Date. Wherever in this Indenture there is mentioned, in any context, the payment of amounts based upon the principal amount of the Securities, or of principal, premium, if any, interest or Liquidated Damages, if any, or of any other amount payable under or with respect to any of the Securities, such mention shall be deemed to include 126 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 10.19 Waiver of Stay, Extension or Usury Laws. The Company --------------------------------------- covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, 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, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest, if any, on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which 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 shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.20 Limitation on Lines of Business. Neither the Company -------------------------------- nor any of its Subsidiaries shall directly or indirectly engage to any substantial extent in any line or lines of business activity other than that which, in the reasonable good faith judgment of the Supervisory Board, is a Related Business. SECTION 10.21 Limitation on Status as an Investment Company. The ---------------------------------------------- Company and its Subsidiaries shall not take any action or conduct their business and operations in such a way as would cause them to be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or would otherwise cause them to become subject to regulation under the Investment Company Act. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1 Right of Redemption. ------------------- (1) Optional Redemption of the Securities Except as set forth in clauses (2) and (3) of this Section 11.1, the Securities are not redeemable at the option of the Company, in whole or in part. 127 (2) Redemption Upon Equity Offering Prior to February 1, 2003, upon an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of each of the Dollar Denominated Securities and the Euro Denominated Securities (determined separately) may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days, but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a redemption price equal to 111.250% of the principal amount, in the case of the Dollar Denominated Securities and 111.250% of the principal amount in the case of the Euro Denominated Securities, in each case together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Dollar Denominated Securities and the Euro Denominated Securities (determined separately) originally issued remain Outstanding; and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Offering. (3) Redemption For Changes In Withholding Taxes The Company may, at its option, redeem all, but not less than all, of the Securities then Outstanding, in each case at 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, if a Tax Event has occurred and is continuing. Notice of any such redemption must be given within not less than 30 days nor more than 60 days prior to the redemption date. No redemption pursuant to this paragraph (3) may be made unless, prior to the publication of any notice of redemption as a result of a Tax Event, the Company delivers to the Trustee (i) an Officer's Certificate stating that a Tax Event has occurred (irrespective of whether the amendment or change is then effective), describing the facts leading thereto and stating that the Company cannot avoid the requirement to pay Additional Amounts by taking reasonable measures available to it and (ii) an opinion of counsel reasonably acceptable to the Trustee to the effect that the Company is or will become obligated to pay Additional Amounts as a result of such change or amendment. (4) Mandatory Redemption 128 The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the Securities. SECTION 11.2 Applicability of Article. Redemption of Securities at ------------------------ the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 11.3 Election to Redeem; Notice to Trustee. The election of ------------------------------------- the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 11.4. SECTION 11.4 Selection by Trustee of Securities to Be Redeemed. If ------------------------------------------------- less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption pro rata, by lot or by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Securities; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $1,000 or (Euro)1,000, as the case may be. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 11.5 Notice of Redemption. Notice of redemption shall be -------------------- given in the manner provided for in Section 1.6 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. 129 Each notice of redemption shall state: (1) the Redemption Date, (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 11.7, if any, (3) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of a partial redemption, the principal amount) of the particular Securities to be redeemed, (4) in case any Security is to be redeemed in part only, that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 11.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date, and (6) the place or places where such Securities are to be presented and surrendered for payment of the Redemption Price and accrued interest, if any. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.6 Deposit of Redemption Price. Prior to any Redemption --------------------------- Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of U.S. Dollars (in the case of the Dollar Denominated Securities) or European Legal Tender (in the case of the Euro Denominated Securities) sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.7 Securities Payable on Redemption Date. Notice of ------------------------------------- redemption having been given as aforesaid, the Securities so to be redeemed shall, on 130 the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest and Liquidated Damages, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the interest rate borne by the Securities. SECTION 11.8 Securities Redeemed in Part. Any Security which is to --------------------------- be redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.1 Company's Option to Effect Defeasance or Covenant ------------------------------------------------- Defeasance. The Company may, at its option by Board Resolution, at any time - ---------- prior to the Stated Maturity of the Securities, with respect to the Securities, elect to have either Section 12.2 or Section 12.3 be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article Twelve. 131 SECTION 12.2 Defeasance and Discharge. Upon the Company's exercise ------------------------ under Section 12.1 of the option applicable to this Section 12.2, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 12.4 are satisfied (hereinafter, "Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 12.5 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 12.4 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest (and Liquidated Damages, if any) on such Securities when such payments are due and any rights of the Holders with respect to such amounts, (B) the Company's obligations with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3; (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 12.2 notwithstanding the prior exercise of its option under Section 12.3 with respect to the Securities. SECTION 12.3 Covenant Defeasance. Upon the Company's exercise under ------------------- Section 12.1 of the option applicable to this Section 12.3, the Company shall be released from its obligations under any covenant contained in Section 8.1 and in Sections 10.8 through 10.18 with respect to the Outstanding Securities ("Covenant Defeasance") on and after the date the conditions set forth below are satisfied, and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of 132 Default under Section 5.1(3), 5.1(4) and 5.1(5), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.4 Conditions to Defeasance or Covenant Defeasance. The ----------------------------------------------- following shall be the conditions to application of either Section 12.2 or Section 12.3 to the Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another Trustee satisfying the requirements of Section 6.8 who shall agree to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities: (A) U.S. legal tender (with respect to the Dollar Denominated Securities), legal tender in the countries constituting the European Monetary Union (with respect to the Euro Denominated Securities), or (B) U.S. Government Obligations (with respect to the Dollar Denominated Securities), EEA Government Obligations (with respect to Euro Denominated Securities), or (C) a combination thereof, sufficient, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying Trustee) to pay and discharge, the principal of (and premium, if any) and interest on the Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest; provided that the Holders of Securities must have a valid, perfected, exclusive security interest in such trust. (2) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (6) and (7) of Section 5.1 are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound. (4) In the case of an election under Section 12.2, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the 133 Trustee stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Defeasance had not occurred. (5) In the case of an election under Section 12.3, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect that (i) the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (6) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such Outstanding Securities over any other of the Company's creditors or with the intent of defeating, hindering, delaying or defrauding any other of the Company's creditors or others; and (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for relating to either the Defeasance under Section 12.2 or the Covenant Defeasance under Section 12.3 (as the case may be) have been complied with; and, in the case of the opinion of counsel, that paragraphs (1) (with respect to the validity and perfection of the security interest), (2), (3) and (5) of this Section 12.4 have been complied with, and the Company shall have delivered to the Trustee an Officers' Certificate, subject to such qualifications and exceptions as the Trustee deems appropriate, to the effect that, assuming no Holder of the Securities is an insider of the Company, the trust funds will not be subject to the effect of any applicable Federal bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. SECTION 12.5 Deposited Money and U.S. Government Securities to Be ---------------------------------------------------- Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of - --------------------------------------------- the last paragraph of Section 10.3, all money and U.S. Government Obligations and EEA Government Obligations (including the proceeds thereof) deposited with the 134 Trustee (or other qualifying Trustee, collectively for purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee and (if applicable) its officers, directors, employees and agents against any tax, fee or other charge imposed on or assessed against the U.S. Government Securities deposited pursuant to Section 12.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations or EEA Government Obligations held by it as provided in Section 12.4 which, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Defeasance or Covenant Defeasance, as applicable, in accordance with this Article Twelve. SECTION 12.6 Reinstatement. If the Trustee or any Paying Agent is ------------- unable to apply any money in accordance with Section 12.5 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.2 or 12.3, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.5; provided, however, that if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. 135 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. UNITED PAN-EUROPE COMMUNICATIONS N.V. By: ___________________________ Name: Title: Citibank, N.A. (London Branch), Trustee By: ___________________________ Name: Title: 136 EXHIBIT A [FORM OF DOLLAR DENOMINATED SECURITIES] [If a Global Security, then insert:] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC"), EUROCLEAR OR CEDELBANK (EACH, A "DEPOSITARY") OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN A DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY A DEPOSITARY TO A NOMINEE OF A DEPOSITARY OR BY A NOMINEE OF A DEPOSITARY TO A DEPOSITARY OR ANOTHER NOMINEE OF A DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. [If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF SUCH DEPOSITARY OR A NOMINEE OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY (AND ANY PAYMENT IS MADE TO ITS NOMINEE OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, A NOMINEE OF A DEPOSITARY, HAS AN INTEREST HEREIN. [If a Restricted Global Security, then insert:] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR A-1 OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY ITS ACCEPTANCE HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) (A "QIB"), OR IS OTHERWISE ACQUIRING THIS SECURITY PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QIB AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO PERSONS THAT ARE NOT U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT ("REGULATION S") OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS SECURITY UNDER CLAUSES (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT A-2 PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S. [If a Regulation S Security, then insert: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT TO THE SECURITIES) NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. BY ITS ACCEPTANCE HEREOF, THE HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS SECURITY MAY NOT BE OFFERED, TRANSFERRED OR SOLD AS PART OF ITS INITIAL DISTRIBUTION, OTHER THAN TO INDIVIDUALS OR LEGAL ENTITIES, SITUATED IN OR OUTSIDE THE NETHERLANDS, WHO OR WHICH TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF THEIR PROFESSION OR BUSINESS (WHICH INCLUDES BANKS, BROKERS, DEALERS, INSURANCE COMPANIES, PENSION FUNDS, OTHER INSTITUTIONAL INVESTORS AND OTHER PARTIES (INCLUDING TREASURY DEPARTMENTS OF COMMERCIAL ENTERPRISE AND FINANCE COMPANIES OR GROUPS), WHICH REGULARLY TRADE OR INVEST IN SECURITIES). A-3 A-4 United Pan-Europe Communications N.V. $600,000,000 11 1/4% Senior Notes Due 2010 [CUSIP] [ISIN] [Common Code]: [ ] No. [ ] $[ ] United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company," which term includes any successor corporation), for value received, hereby promises to pay to the registered holder, Cede & Co., as nominee of The Depository Trust Company or registered assigns, the principal sum of [ ] DOLLARS or such amount as may be increased or decreased in accordance with the terms of the Indenture and as set forth on the Schedule of Interest but not to exceed $600,000,000 on February 1, 2010. Interest Payment Dates: February 1 and August 1. Record Dates: January 15 and July 15. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-5 IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officer. Dated: January 20, 2000 UNITED PAN-EUROPE COMMUNICATIONS N.V. By:__________________ Authorized Signatory A-6 TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: January 20, 2000 This is one of the Securities referred to in the within-mentioned Indenture. CITIBANK, N.A. Not in its individual capacity, but solely as Trustee By: ___________________________ Authorized Signatory A-7 [REVERSE OF NOTE] UNITED PAN-EUROPE COMMUNICATIONS N.V. $600,000,000 11 1/4% SENIOR NOTE DUE 2010 1. Interest. United Pan-Europe Communications N.V., a public -------- limited liability company organized and existing under the laws of The Netherlands (the "Company"), promises to pay, until the principal hereof is paid or made available for payment, interest on the principal amount set forth on the face hereof at a rate of 11 1/4% per annum. Interest hereon will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including January 20, 2000 to but excluding the date on which interest is paid. Interest shall be payable in arrears semi- annually on each February 1 and August 1, commencing on August 1, 2000. 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 on overdue interest (to the full extent permitted by law) at the rate borne by the Securities. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Other Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the interest rate otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that, on and after the date of such Interest Rate Adjustment Event, interest on the Dollar Denominated Securities will accrue at a rate of 11 1/2% per annum. Any amounts owing as a result of such increase shall be paid to the Holders of record as of the Regular Record Date next following any such Interest Rate Adjustment Event, on the immediately following Interest Payment Date, and thereafter will be payable semiannually in arrears on February 1 and August 1 of each year to the Holders of record on the immediately preceding Regular Record Date. A-8 Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6 of the Indenture. Such notice shall include the amount to be paid to the Holders of record as of such Regular Record Date on the next following Interest Payment Date. 2. Method of Payment. The Company will pay interest hereon (except ----------------- defaulted interest) to the Persons who are registered Holders at the close of business on January 15 or July 15 next preceding the Interest Payment Date (whether or not a Business Day). Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private Indebtedness. Interest may be paid by check mailed to the Holder entitled thereto at the address indicated on the register maintained by the Registrar for the Securities. 3. Paying Agent and Registrar. Initially, Citibank, N.A. (London -------------------------- Branch) (the "Trustee") and Citibank, N.A. (New York Branch) will act as Paying Agent and Registrar and Banque Internationale a Luxembourg will act as Paying Agent in Luxembourg. The Company may change any Paying Agent or Registrar without notice. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued $600,000,000 11 1/4% Senior Notes --------- due 2010 and (Euro)200,000,000 11 1/4% Senior Notes due 2010 under an Indenture dated as of January 20, 2000 (the "Indenture") between the Company and the Trustee. This is one of an issue of Securities of the Company issued, or to be issued, under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of them. Capitalized and certain other terms used herein and not otherwise defined have the meanings set forth in the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. A-9 5. Additional Amounts. The Company will pay to the Holders of ------------------ Securities such Additional Amounts as may become payable under Section 10.18 of the Indenture. 6. Optional Redemption of the Securities. The Company will not have ------------------------------------- the right to redeem any of the Securities prior to their maturity on February 1, 2010 (other than as described in the next two following paragraphs). 7. Redemption Upon Equity Offering. Prior to February 1, 2003, upon ------------------------------- an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of each of the Dollar Denominated Securities and Euro Denominated Securities (determined separately) may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days', but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a Redemption Price equal to 111.250% of the principal amount of the Securities redeemed, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Dollar Denominated Securities and the Euro Denominated Securities (determined separately) originally issued remain Outstanding; and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Securities. 8. Redemption for Changes in Withholding Taxes. The Company may, at ------------------------------------------- its option, redeem all, but not less than all, of the Securities then Outstanding, in each case at 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date, if a Tax Event has occurred and is continuing. 9. Mandatory Redemption. The Company is not required to make -------------------- mandatory redemption payments or sinking fund payments with respect to the Securities. 10. Notice of Redemption. Notice of redemption will be mailed within -------------------- not less than 30 days nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed at his registered address. On and after the Redemption Date, unless the Company defaults in making the redemption payment, interest ceases to accrue on Securities or portions thereof called for redemption. A-10 11. Purchase of Securities upon Change of Control. The Indenture --------------------------------------------- provides that upon the occurrence of a Change of Control and subject to further limitations contained therein, the Company shall make an offer to purchase Outstanding Securities in accordance with the procedures set forth in the Indenture. 12. Registration Rights. Pursuant to a Registration Rights ------------------- Agreement, dated January 20, 2000, among the Company and the Initial Purchasers named therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holder of this Security shall have the right to exchange this Security for notes of a separate series issued under the Indenture which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Securities. The Holders shall be entitled to receive certain payments in the event such Exchange Offer is not consummated ("Liquidated Damages") and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 13. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. Under certain circumstances set forth in the Indenture, the Registrar need not register the transfer of or exchange any Securities. 14. Persons Deemed Owners. The registered Holder of this Security --------------------- may be treated as the owner of this Security for all purposes. 15. Unclaimed Money. If money for the payment of principal 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, all liability of the Trustee and any such Paying Agent with respect to such money shall cease. 16. Amendment, Supplement, Waiver, Etc. The Company and the Trustee ----------------------------------- may, without the consent of the Holders of any Outstanding Securities, amend, waive or supplement the Indenture or the Securities for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies. Other amendments and modifications of the Indenture or the Securities may be made by the Company and the Trustee with the consent of the A-11 Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities and with other holders of notes of other series issued under the Indenture, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. 17. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments, make certain Investments, create or incur Liens, enter into transactions with Affiliates, enter into agreements restricting the ability of Subsidiaries to pay dividends and make distributions and on the ability of the Company to merge or consolidate with any other person or transfer all or substantially all of the Company's assets. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 18. Defaults and Remedies. Events of Default are set forth in the --------------------- Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than certain events of bankruptcy, insolvency or reorganization affecting the Company) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities under the Indenture may, by written notice to the Trustee and the Company, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall, declare all principal of and accrued interest on all Securities to be immediately due and payable and such amounts shall become immediately due and payable. 19. Trustee Dealings with Company. The Trustee, 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 Trustee. 20. No Recourse Against Others. No board member, director, officer, -------------------------- employee, agent, authorized representative, incorporator or shareholder of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture for a claim based on, in respect of, or by reason of, such obligations or their creation by reason of his, her or its status as such. Each Holder of Securities by accepting a Security waivers and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. A-12 21. Discharge. The Company's obligations pursuant to the Indenture --------- will be discharged, except for obligations pursuant to certain provisions thereof, subject to the terms of the Indenture, upon the payment of all the Securities or upon the irrevocable deposit with the Trustee of U.S. Dollars or U.S. Government Securities denominated in U.S. Dollars sufficient to pay when due principal of and interest on the Securities to maturity or redemption. 22. Authentication. This Security shall not be valid until the -------------- Trustee signs the certificate of authentication on the other side of this Security. 23. Governing Law. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING WITHOUT LIMITATION SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B), AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BOUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to the Indenture or the Securities. 24. 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 A-13 as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 25. Currency of Account. U.S. Dollars are the sole currency of ------------------- account and payment for all sums payable by the Company under the Securities. 26. CUSIP, ISIN and Common Code Numbers. The Company has caused ----------------------------------- CUSIP, ISIN or Common Code numbers, as applicable, to be printed on the Securities and the Trustee may use CUSIP, ISIN or Common Code numbers, as applicable, in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed hereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attn: Treasurer A-14 FORM OF ASSIGNMENT If you, the holder, want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to: ________________________________________________________________________________ (Insert assignee's social security or tax ID number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ of______________________________________________________________________________ Agent to transfer this Security on the books of the Company. The Agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the United States Securities and Exchange Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as may be permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any Predecessor Security) or the last date on which the Company or any Affiliate of the Company was the owner of this Security (or any Predecessor Security), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [_] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or A-15 [_] (b) this Security is being transferred other than in accordance with (a) above and documents, including a transferee certificate substantially in the form attached hereto, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If neither of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer or registration set forth herein and in Section 3.13 and Section 3.14 of the Indenture shall have been satisfied. Dated: ________________ Your signature: ____________________________________ (Sign exactly as your name appears on the other side of this Security) By:_________________________________________________ NOTICE: To be executed by an executive officer Signature Guaranteed: ________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) A-16 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED: The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: _________________________ ____________________________________ NOTICE: To be executed by an executive officer A-17 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY Principal Amount of Amount of Amount decrease in increase in at maturity Principal Principal of this Amount Amount Global at maturity at maturity Security Signature of of this of this following authorized Date of Global Global such decrease officer of Exchange Security Security (or increase) Trustee - ---------- -------------- ------------- ----------------- ------------- Initial $ balance as of 20/1/00 A-18 EXHIBIT B [FORM OF EURO DENOMINATED SECURITIES] [If a Global Security, then insert:] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC"), EUROCLEAR OR CEDELBANK (EACH, A "DEPOSITARY") OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN A DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY A DEPOSITARY TO A NOMINEE OF A DEPOSITARY OR BY A NOMINEE OF A DEPOSITARY TO A DEPOSITARY OR ANOTHER NOMINEE OF A DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. [If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF SUCH DEPOSITARY OR A NOMINEE OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY (AND ANY PAYMENT IS MADE TO ITS NOMINEE OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, A NOMINEE OF A DEPOSITARY, HAS AN INTEREST HEREIN. [If a Restricted Global Security, then insert:] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR B-1 OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY ITS ACCEPTANCE HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) (A "QIB"), OR IS OTHERWISE ACQUIRING THIS SECURITY PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QIB AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO PERSONS THAT ARE NOT U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT ("REGULATION S") OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS SECURITY UNDER CLAUSES (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT B-2 PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S. [If a Regulation S Security, then insert: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT TO THE SECURITIES) NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. BY ITS ACCEPTANCE HEREOF, THE HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS SECURITY MAY NOT BE OFFERED, TRANSFERRED OR SOLD AS PART OF ITS INITIAL DISTRIBUTION, OTHER THAN TO INDIVIDUALS OR LEGAL ENTITIES, SITUATED IN OR OUTSIDE THE NETHERLANDS, WHO OR WHICH TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF THEIR PROFESSION OR BUSINESS (WHICH INCLUDES BANKS, BROKERS, DEALERS, INSURANCE COMPANIES, PENSION FUNDS, OTHER INSTITUTIONAL INVESTORS AND OTHER PARTIES (INCLUDING TREASURY DEPARTMENTS OF COMMERCIAL ENTERPRISE AND FINANCE COMPANIES OR GROUPS), WHICH REGULARLY TRADE OR INVEST IN SECURITIES). B-3 United Pan-Europe Communications N.V. (Euro)200,000,000 11 1/4% Senior Notes Due 2010 [CUSIP] [ISIN] [Common Code]: [ ] No. [ ] (Euro)[ ] United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company," which term includes any successor corporation), for value received, hereby promises to pay to the registered holder, Citivic Nominees Limited, as Common Depositary for Morgan Guaranty Trust Company of New York, as operator of Euroclear, and for Cedelbank or registered assigns, the principal sum of [ ] EUROS or such amount as may be increased or decreased in accordance with the terms of the Indenture and as set forth on the Schedule of Interest but not to exceed (Euro)[ ] on February 1, 2010. Interest Payment Dates: February 1 and August 1. Record Dates: January 15 and July 15. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. B-4 IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officer. Dated: January 20, 2000 UNITED PAN-EUROPE COMMUNICATIONS N.V. By:__________________ Authorized Signatory B-5 TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: January 20, 2000 This is one of the Securities referred to in the within-mentioned Indenture. CITIBANK, N.A. Not in its individual capacity, but solely as Trustee By:__________________________ Authorized Signatory B-6 REVERSE OF NOTE UNITED PAN-EUROPE COMMUNICATIONS N.V. (Euro)200,000,000 11 1/4% SENIOR NOTE DUE 2010 1. Interest. United Pan-Europe Communications N.V., a public limited -------- liability company organized and existing under the laws of The Netherlands (the "Company"), promises to pay, until the principal hereof is paid or made available for payment, interest on the principal amount set forth on the face hereof at a rate of 11 1/4% per annum. Interest hereon will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including January 20, 2000 to but excluding the date on which interest is paid. Interest shall be payable in arrears semi- annually on each February 1 and August 1, commencing on August 1, 2000. 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 on overdue interest (to the full extent permitted by law) at the rate borne by the Securities. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Other Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the interest rate otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that, on and after the date of such Interest Rate Adjustment Event, interest on the Dollar Denominated Securities will accrue at a rate of 11 1/2% per annum. Any amounts owing as a result of such increase shall be paid to the Holders of record as of the Regular Record Date next following any such Interest Rate Adjustment Event, on the immediately following Interest Payment Date, and thereafter will be payable semi-annually in arrears on February 1 and August 1 of each year to the Holders of record on the immediately preceding Regular Record Date. B-7 Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6 of the Indenture. Such notice shall include the amount to be paid to the Holders of record as of such Regular Record Date on the next following Interest Payment Date. 2. Method of Payment. The Company will pay interest hereon (except ----------------- defaulted interest) to the Persons who are registered Holders at the close of business on January 15 or July 15 next preceding the Interest Payment Date (whether or not a Business Day). Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in Euros. Interest may be paid by check mailed to the Holder entitled thereto at the address indicated on the register maintained by the Registrar for the Securities. 3. Paying Agent and Registrar. Initially, Citibank, N.A. (London -------------------------- Branch) (the "Trustee") and Citibank, N.A. (New York Branch) will act as Paying Agent and Registrar and Banque Internationale a Luxembourg will act as Paying Agent in Luxembourg. The Company may change any Paying Agent or Registrar without notice. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued $600,000,000 11 1/4% Senior Notes --------- due 2010 and (Euro)200,000,000 11 1/4% Senior Notes due 2010 under an Indenture dated as of January 20, 2000 (the "Indenture") between the Company and the Trustee. This is one of an issue of Securities of the Company issued, or to be issued, under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of them. Capitalized and certain other terms used herein and not otherwise defined have the meanings set forth in the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. 5. Additional Amounts. The Company will pay to the Holders of ------------------ Securities such Additional Amounts as may become payable under Section 10.18 of the Indenture. B-8 6. Optional Redemption of the Securities. The Company will not have ------------------------------------- the right to redeem any Securities prior to their maturity on February 1, 2020 (other than as described in the next two following paragraphs). 7. Redemption Upon Equity Offering. Prior to February 1, 2003, upon ------------------------------- an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of each of the Dollar Denominated Securities and Euro Denominated Securities (determined separately) may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days', but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a Redemption Price equal to 111.250% of the principal amount of the Securities redeemed, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Dollar Denominated Securities and Euro Denominated Securities (determined separately) originally issued remain Outstanding; and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Securities. 8. Redemption for Changes in Withholding Taxes. The Company may, at ------------------------------------------- its option, redeem all, but not less than all, of the Securities then Outstanding, in each case at 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date, if a Tax Event has occurred and is continuing. 9. Mandatory Redemption. The Company is not required to make -------------------- mandatory redemption payments or sinking fund payments with respect to the Securities. 10. Notice of Redemption. Notice of redemption will be mailed within -------------------- not less than 30 days nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed at his registered address. On and after the Redemption Date, unless the Company defaults in making the redemption payment, interest ceases to accrue on Securities or portions thereof called for redemption. 11. Purchase of Securities upon Change of Control. The Indenture --------------------------------------------- provides that upon the occurrence of a Change of Control and subject to further B-9 limitations contained therein, the Company shall make an offer to purchase Outstanding Securities in accordance with the procedures set forth in the Indenture. 12. Registration Rights. Pursuant to a Registration Rights Agreement, ------------------- dated January 20, 2000, among the Company and the Initial Purchasers named therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holder of this Security shall have the right to exchange this Security for notes of a separate series issued under the Indenture which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Securities. The Holders shall be entitled to receive certain payments in the event such Exchange Offer is not consummated ("Liquidated Damages") and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 13. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form, without coupons, in denominations of (Euro)1,000 and integral multiples of (Euro)1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. Under certain circumstances set forth in the Indenture, the Registrar need not register the transfer of or exchange any Securities. 14. Persons Deemed Owners. The registered Holder of this Security may --------------------- be treated as the owner of this Security for all purposes. 15. Unclaimed Money. If money for the payment of principal 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, all liability of the Trustee and any such Paying Agent with respect to such money shall cease. 16. Amendment, Supplement, Waiver, Etc. The Company and the Trustee ----------------------------------- may, without the consent of the Holders of any Outstanding Securities, amend, waive or supplement the Indenture or the Securities for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies. Other amendments and modifications of the Indenture or the Securities may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities and with other holders of notes of other series issued under B-10 the Indenture, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. 17. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments, make certain Investments, create or incur Liens, enter into transactions with Affiliates, enter into agreements restricting the ability of Subsidiaries to pay dividends and make distributions and on the ability of the Company to merge or consolidate with any other person or transfer all or substantially all of the Company's assets. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 18. Defaults and Remedies. Events of Default are set forth in the --------------------- Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than certain events of bankruptcy, insolvency or reorganization affecting the Company) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities under the Indenture may, by written notice to the Trustee and the Company, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall, declare all principal of and accrued interest on all Securities to be immediately due and payable and such amounts shall become immediately due and payable. 19. Trustee Dealings with Company. The Trustee, 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 Trustee. 20. No Recourse Against Others. No board member, director, officer, -------------------------- employee, agent, authorized representative, incorporator or shareholder of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture for a claim based on, in respect of, or by reason of, such obligations or their creation by reason of his, her or its status as such. Each Holder of Securities by accepting a Security waivers and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 21. Discharge. The Company's obligations pursuant to the Indenture --------- will be discharged, except for obligations pursuant to certain provisions thereof, B-11 subject to the terms of the Indenture, upon the payment of all the Securities or upon the irrevocable deposit with the Trustee of legal tender in the countries constituting the European Monetary Union or EEA Government Securities denominated in legal tender in the countries constituting the European Monetary Union sufficient to pay when due principal of and interest on the Securities to maturity or redemption. 22. Authentication. This Security shall not be valid until the -------------- Trustee signs the certificate of authentication on the other side of this Security. 23. Governing Law. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING WITHOUT LIMITATION SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B), AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BOUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to the Indenture or the Securities. 24. 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 B-12 as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 25. Currency of Account. Subject to the Indenture, Euros are the sole ------------------- currency of account and payment for all sums payable by the Company under the Securities. 26. ISIN and Common Code Numbers. The Company has caused ISIN or ---------------------------- Common Code numbers, as applicable, to be printed on the Securities and the Trustee may use ISIN or Common Code numbers, as applicable, in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed hereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attn: Treasurer B-13 FORM OF ASSIGNMENT If you, the holder, want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to: ________________________________________________________________________________ (Insert assignee's social security or tax ID number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ of _____________________________________________________________________________ Agent to transfer this Security on the books of the Company. The Agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the United States Securities and Exchange Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as may be permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any Predecessor Security) or the last date on which the Company or any Affiliate of the Company was the owner of this Security (or any Predecessor Security), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [_] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or B-14 [_] (b) this Security is being transferred other than in accordance with (a) above and documents, including a transferee certificate substantially in the form attached hereto, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If neither of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer or registration set forth herein and in Section 3.13 and Section 3.14 of the Indenture shall have been satisfied. Dated: _______________ Your signature:______________________________________ (Sign exactly as your name appears on the other side of this Security) By:__________________________________________________ NOTICE: To be executed by an executive officer Signature Guaranteed:___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) B-15 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED: The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:____________________ ________________________________________ NOTICE: To be executed by an executive officer B-16 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY
Principal Amount of Amount of Amount decrease in increase in at maturity Principal Principal of this Amount Amount Global at maturity at maturity Security Signature of of this of this following authorized Date of Global Global such decrease officer of Exchange Security Security (or increase) Trustee - -------- ------------- ------------- --------------- -------------- Initial (Euro) balance as of 20/1/00
B-17 EXHIBIT C FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY (Transfers pursuant to Sections 3.13(b)(ii) and 3.13(c)(ii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/4% Senior Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$][(Euro)]______ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). ________________________________ CERTIFICATE No(s). _________________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. C-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: 1. the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; 2. the offer of the Specified Securities was not made to a person in the United States; 3 either: (a) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (b) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions have been prearranged with a buyer in the United States; 4. no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; 5. if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; 6. the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and C-2 7. upon completion of the transaction, the beneficial interest being transferred will be held through an Agent Member acting for and on behalf of Euroclear or Cedelbank. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: ____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) C-3 EXHIBIT D FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (Transfers Pursuant to Sections 3.13(b)(iii) and 3.13(c)(iii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/4% Senior Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$][(Euro)]_____ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. D-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (A) the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (i) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted D-2 Period, then the requirements of Rule 904(c)(1) have been satisfied; and (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after [date one year after the latest date of issuance of any of the Specified Securities] and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (B) the transfer is occurring after [date two years after the latest date of issuance of any of the Specified Securities] and the Owner is not, and during the preceding three months has not been, an Affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:_____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) D-3 EXHIBIT E FORM OF TRANSFER CERTIFICATE -- REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY (Transfers to QIBs Pursuant to Sections 3.13(b)(iv) and 3.13(c)(iv) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/4% Senior Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$][(Euro)]______ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. E-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Restricted Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 144A under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (2) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: ____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) E-2 EXHIBIT F UNITED PAN-EUROPE COMMUNICATIONS N.V. OFFICERS' CERTIFICATE [Name], [title(s)] of United Pan-Europe Communications N.V., a public limited liability company organized and existing under the laws of The Netherlands (the "Company"), and [name], [title(s)] of the Company, hereby certify pursuant to Sections ____ and ____ of the Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A., as trustee (the "Trustee"), that: (i) he or she has read and understands the provisions of the Indenture and the definitions relating thereto, (ii) the statements made in this Officers' Certificate are based upon an examination of the provisions of the Indenture and upon the relevant books and records of the Company, (iii) in his or her opinion, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not the covenants and conditions of the Indenture relating to the [authentication of the Securities] [execution of the Indenture] [OTHER] have been complied with and (iv) in his or her opinion, such covenants and conditions have been complied with. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate on this ____ day of ____________, ____. By:___________________________________ Name: Titles: By:___________________________________ Name: Titles: F-1 EXHIBIT G [Date] Citibank, N.A. 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Ladies and Gentlemen: We have acted as special counsel to United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company"), in connection with the [initial issuance and sale by the Company of $600,000,000 aggregate principal amount of the Company's 11 1/4% Senior Notes due 2010 and its (Euro)200,000,000 aggregate principal amount of the Company's 11 1/4% Senior Notes due 2010 (collectively, the "Securities"), which will be issued under an Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A. as trustee (the "Trustee")]. This opinion is being furnished to your pursuant to Sections ____ and ____ of the Indenture. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such letter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. As to any facts material to the opinions expressed herein which we did not independently establish or verify, we have relied upon oral or written statements or representations of officers and other representatives of the Company and others. G-1 Pursuant to Sections ____ and ____ of the Indenture, we advise you that in our opinion: 1. We have reviewed Article __ of the Indenture setting forth certain provisions of general application, and in particular, the pertinent provisions of Section ___ of the Indenture setting forth the definitions of certain terms, and Sections ___ and ___ of the Indenture providing that the Trustee is entitled to receive an Officers' Certificate and an Opinion of Counsel in connection with any request by the Company to take any action and setting forth certain requirements with respect to the forms of such documents. We have also reviewed Article ___ of the Indenture, pertaining to ____. 2. In our opinion, we have made such examination or investigation (including an examination of the Officers' Certificate of the Company, dated as of the date hereof, as to the matters addressed in Sections ___ and ___ of the Indenture) as we deem necessary to enable us to express an informed opinion as to whether or not the conditions precedent to [the authentication of the Securities] [the execution of the Indenture] [OTHER] under Section ___ of the Indenture have been complied with. 3. In our opinion, the conditions precedent to be satisfied with respect to the [authentication of the Securities] [execution of the Indenture] [OTHER] under Section __ of the Indenture have been complied with. Members of our firm are admitted to the bar in the States of ______ and New York, and we do not express any opinion as to the laws of any jurisdiction other than the laws of such States and the General Corporation Law of the State of Delaware and the laws of the United States of America. This opinion is furnished to you solely for your benefit in connection with the [authentication of the Securities] [execution of the Indenture] [OTHER] and is not to be relied upon by any other person without our express written permission. Very truly yours, G-2 EXHIBIT H FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS (Transfers Pursuant to Section 3.14(a) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 11 1/4% Senior Notes due 2010 (the "Securities") Ladies and Gentlemen: Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee (the "Indenture"). Terms used but not defined herein have the meanings given to them in the Indenture. This certificate relates to [U.S. $] [(Euro)]____ principal amount of Securities, which are evidenced by the following certificate(s) (the "Securities"): 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold except as permitted in the following sentence. We understand and agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, (x) that such Securities are being offered only in a transaction not involving any public offering within two years after the date of the original issuance of the Securities or if within three months after we cease to be an affiliate (within the meaning of Rule 144 under the Securities Act) of the Company, such Securities may be resold, pledged or transferred only (i) to the Company, (ii) so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person whom we reasonably believe is a "qualified institution buyer" (as defined in Rule 144A) ("QIB") that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is H-1 being made in reliance on Rule 144A (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities), (iii) in an offshore transaction in accordance with Regulation S under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the Note if the Note is not in book-entry form), and, if such transfer is being effected by certain transferors prior to the expiration of the "40-day distribution compliance period" (within the meaning of Rule 903(b)(2) of Regulation S under the Securities Act), a certificate that may be obtained from the Trustee is delivered by the transferee, (iv) to an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities) which has certified to the Company and the Trustee for the Securities that it is such an accredited investor and is acquiring the Securities for investment purposes and not for distribution (provided that no Securities purchased from a foreign purchaser or from any person other than a QIB or an institutional accredited investor pursuant to this clause (iii) shall be permitted to transfer any Securities so purchased to an institutional accredited investor pursuant to this clause (iv) prior to the expiration of the "applicable restricted period" (within the meaning of Regulation S under the Securities Act), (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, or (vi) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States, and we will notify any purchaser of the Securities from us of the above resale restriction, if then applicable. We further understand that in connection with any transfer of the Securities by us that the Company and the Trustee for the Securities may request, and if so requested we will furnish, such certificates, legal opinions and other information as they may reasonably require to confirm that any such transfer complies with the foregoing restrictions. 2. We are able to fend for ourselves in the transactions contemplated by this Offering Circular, we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment and can afford the complete loss of such investment. 3. We understand that the Company, Donaldson, Lufkin & Jenrette International and the other Initial Purchasers named as such in the Offering Circular as the initial purchasers of the Securities ("Initial Purchasers"), and others will rely upon the truth and accuracy of the foregoing acknowledgments, H-2 representations and agreements and we agree that if any of the acknowledgments, representations and warranties deemed to have been made by us by our purchase of Securities, for our own account or of one or more accounts as to each of which we exercise sole investment discretion, are no longer accurate, we shall promptly notify the Company and the Initial Purchasers. 4. We are acquiring the Securities purchased by us for investment purposes and not for distribution of our own account or for one or more accounts as to each of which we exercise sole investment discretion and we are or such account is an institutional "accredited investor" (as defined in rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act). 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, _______________________________________ (Name of Purchaser) By:____________________________________ Date:__________________________________ H-3 EXHIBIT I OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 10.10 of the Indenture, check the box: [_] Section 10.10 If you wish to have a portion of this Security purchased by the Company pursuant to Section 10.10 of the Indenture, state the amount: [$__________________(multiple of $1000)] [(Euro)_____________(multiple of (Euro)1000)] Dated:_____________________ Your Signature:_________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranteed:___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) I-1 EX-4.8 4 13 3/4% SENIOR NOTES UNITED PAN-EUROPE COMMUNICATIONS N.V. Issuer CITIBANK, N.A. (London Branch) Trustee -------------------- Indenture SENIOR DISCOUNT NOTES DUE 2010 Dated as of January 20, 2000 --------------------- $1,000,000,000 13 3/4% Senior Discount Notes Due 2010 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..... 1 SECTION 1.1 Definitions.......................................... 1 SECTION 1.2 Compliance Certificates and Opinions................. 40 SECTION 1.3 Form of Documents Delivered to Trustee............... 40 SECTION 1.4 Acts of Holders...................................... 41 SECTION 1.5 Notices.............................................. 43 SECTION 1.6 Notice to Holders; Waiver............................ 44 SECTION 1.7 Effect of Headings and Table of Contents............. 45 SECTION 1.8 Successors and Assigns............................... 45 SECTION 1.9 Separability Clause.................................. 45 SECTION 1.10 Benefits of Indenture................................ 46 SECTION 1.11 Governing Law........................................ 46 SECTION 1.12 Conflict with Trust Indenture Act.................... 46 SECTION 1.13 Legal Holidays....................................... 47 SECTION 1.14 No Personal Liability of Board Members, Officers, Employees and Shareholders........................... 47 SECTION 1.15 Independence of Covenants............................ 47 SECTION 1.16 Exhibits............................................. 47 SECTION 1.17 Counterparts......................................... 48 SECTION 1.18 Duplicate Originals.................................. 48 SECTION 1.19 Agent for Service; Submission to Jurisdiction; Waiver of Immunities................................. 48 SECTION 1.20 Judgment Currency.................................... 49 ARTICLE II SECURITY FORMS.............................................. 49 SECTION 2.1 Forms Generally...................................... 49 ARTICLE III THE SECURITIES.............................................. 50 SECTION 3.1 Title and Terms...................................... 50 SECTION 3.2 Denominations........................................ 52 SECTION 3.3 Execution, Authentication, Delivery and Dating....... 52
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Page SECTION 3.4 Temporary Securities................................. 55 SECTION 3.5 Registration, Registration of Transfer and Exchange.. 56 SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities..... 57 SECTION 3.7 Payment of Interest; Interest Rights Preserved....... 58 SECTION 3.8 Persons Deemed Owners................................ 59 SECTION 3.9 Cancellation......................................... 60 SECTION 3.10 Computation of Interest.............................. 60 SECTION 3.11 "CUSIP" and/or "ISIN" Numbers........................ 60 SECTION 3.12 Book-Entry Provisions for Global Securities, Certificated Securities.............................. 61 SECTION 3.13 Transfer and Exchange of Securities.................. 62 SECTION 3.14 Special Transfer Provisions.......................... 69 ARTICLE IV SATISFACTION AND DISCHARGE.................................. 70 SECTION 4.1 Satisfaction and Discharge of Indenture.............. 70 SECTION 4.2 Application of Trust Money........................... 71 ARTICLE V REMEDIES.................................................... 71 SECTION 5.1 Events of Default.................................... 71 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment... 73 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee........................................... 74 SECTION 5.4 Trustee May File Proofs of Claim..................... 75 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities........................................... 76 SECTION 5.6 Application of Money Collected....................... 76 SECTION 5.7 Limitation on Suits.................................. 77 SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest................................. 78 SECTION 5.9 Restoration of Rights and Remedies................... 78 SECTION 5.10 Rights and Remedies Cumulative....................... 78 SECTION 5.11 Delay or Omission Not Waiver......................... 78
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Page SECTION 5.12 Control by Holders................................... 79 SECTION 5.13 Waiver of Past Defaults.............................. 79 SECTION 5.14 Waiver of Stay or Extension Laws..................... 80 ARTICLE VI THE TRUSTEE................................................. 80 SECTION 6.1 Certain Duties and Responsibilities.................. 80 SECTION 6.2 Notice of Default.................................... 81 SECTION 6.3 Certain Rights of Trustee............................ 81 SECTION 6.4 Trustee Not Responsible for Issuance of Securities... 83 SECTION 6.5 May Hold Securities.................................. 83 SECTION 6.6 Money Held in Trust.................................. 83 SECTION 6.7 Compensation and Reimbursement....................... 84 SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting Interests............................................ 85 SECTION 6.9 Resignation and Removal; Appointment of Successor.... 85 SECTION 6.10 Acceptance of Appointment by Successor............... 87 SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business............................................. 87 SECTION 6.12 Trustee Acting in Other Capacities................... 88 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY .......... 88 SECTION 7.1 Disclosure of Names and Addresses of Holders......... 88 SECTION 7.2 Reports by Trustee................................... 89 SECTION 7.3 Reports by Company................................... 89 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........ 89 SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms.. 89 SECTION 8.2 Successor Substituted................................. 90
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Page ARTICLE IX SUPPLEMENTAL INDENTURES...................................... 91 SECTION 9.1 Indentures Without Consent of Holders................. 91 SECTION 9.2 Indentures with Consent of Holders.................... 92 SECTION 9.3 Execution of Indenture................................ 93 SECTION 9.4 Effect of Indentures.................................. 93 SECTION 9.5 Conformity with Trust Indenture Act................... 93 SECTION 9.6 Reference in Securities to Indentures................. 93 SECTION 9.7 Notice of Indentures.................................. 93 ARTICLE X COVENANTS.................................................... 94 SECTION 10.1 Payment of Principal, Premium, if Any, and Interest... 94 SECTION 10.2 Maintenance of Office or Agency....................... 95 SECTION 10.3 Money for Security Payments to Be Held in Trust....... 95 SECTION 10.4 Corporate Existence................................... 97 SECTION 10.5 Payment of Taxes and Other Claims..................... 98 SECTION 10.6 Maintenance of Properties............................. 98 SECTION 10.7 Insurance............................................. 98 SECTION 10.8 Provision of Financial Statements..................... 98 SECTION 10.9 Statement by Officers as to Default................... 99 SECTION 10.10 Purchase of Securities upon Change of Control......... 100 SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock........................ 103 SECTION 10.12 Limitation on Restricted Payments..................... 106 SECTION 10.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries................................ 109 SECTION 10.14 Limitation on Liens Securing Indebtedness............. 111 SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries. 111 SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock..... 112 SECTION 10.17 Limitation on Transactions with Affiliates............ 116 SECTION 10.18 Additional Amounts.................................... 117 SECTION 10.19 Waiver of Stay, Extension or Usury Laws............... 120 SECTION 10.20 Limitation on Lines of Business....................... 120
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Page SECTION 10.21 Limitation on Status as an Investment Company......... 120 ARTICLE XI REDEMPTION OF SECURITIES..................................... 121 SECTION 11.1 Right of Redemption................................... 121 SECTION 11.2 Applicability of Article.............................. 122 SECTION 11.3 Election to Redeem; Notice to Trustee................. 122 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed..... 123 SECTION 11.5 Notice of Redemption.................................. 123 SECTION 11.6 Deposit of Redemption Price........................... 124 SECTION 11.7 Securities Payable on Redemption Date................. 124 SECTION 11.8 Securities Redeemed in Part........................... 125 ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE........................... 125 SECTION 12.1 Company's Option to Effect Defeasance or Covenant Defeasance............................................ 125 SECTION 12.2 Defeasance and Discharge.............................. 125 SECTION 12.3 Covenant Defeasance................................... 126 SECTION 12.4 Conditions to Defeasance or Covenant Defeasance....... 126 SECTION 12.5 Deposited Money and U.S. Government Securities to Be Held in Trust; Other Miscellaneous Provisions......... 128 SECTION 12.6 Reinstatement......................................... 129
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Page EXHIBIT A................................................................. A-1 EXHIBIT B................................................................. B-1 EXHIBIT C................................................................. C-1 EXHIBIT D................................................................. D-1 EXHIBIT E................................................................. E-1 EXHIBIT F................................................................. F-1 EXHIBIT G................................................................. G-1 EXHIBIT H................................................................. H-1
vi INDENTURE, dated as of January 20, 2000 by and between United Pan- Europe Communications N.V., a public limited liability company organized and existing under the laws of The Netherlands (herein called the "Company"), having its principal office at Fred. Roeskestraat 123, 1076 EE Amsterdam, The Netherlands, and Citibank, N.A. (London Branch), as Trustee (herein called the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as defined below) of the Company's 13 3/4% Senior Discount Notes due 2010: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. For all purposes of this Indenture, except ----------- as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper," as used in TIA Section 311, shall have the meanings assigned to them in the rules of the SEC adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with "GAAP" as defined in this section 1.1; (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, paragraph or other subdivision; and (e) unless otherwise indicated, references to Articles, Sections, paragraphs or other subdivisions are references to such Articles, Sections, paragraphs or other subdivisions of this Indenture. 1 "Acceleration Notice" has the meaning set forth in Section 5.2. "Accreted Value" means, as of any date of determination, (i) prior to February 1, 2005, the sum (rounded to the nearest whole dollar) of (a) the initial offering price ($512.24 per $1,000 in principal amount at maturity of the Senior Discount Notes) and (b) the portion of the excess of the principal amount of Senior Discount Notes over such initial offering price which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis at the rate of (x) subject to clause (y), 13 3/4% compounded semi- annually on each February 1 and August 1 from the date of issuance of the Senior Discount Notes through the date of determination, and (y) on and after the date of the occurrence, if any, of an Interest Rate Adjustment Event, 14% compounded semi-annually on each February 1 and August 1 from and including the date of the Interest Rate Adjustment Event through the date of determination, and (ii) on and after February 1, 2005, the principal amount at maturity of Senior Discount Notes of the applicable series. "Acquired Indebtedness" means Indebtedness (including Disqualified Capital Stock) of any Person existing at the time such Person becomes a Subsidiary of the Company, including by designation, or is merged or consolidated into or with the Company or one of its Subsidiaries. "Acquisition" means the purchase or other acquisition of any Person or all or substantially all the assets of any Person by any other Person, whether by purchase, merger, consolidation, or other transfer, and whether or not for consideration. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Additional Amounts" has the meaning specified in Section 10.18. "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For purposes of this definition, the term "control" means the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise; provided that with respect to ownership interest in the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power normally entitled to 2 vote in the election of directors, managers or trustees, as applicable, shall for such purposes be deemed to constitute control. "Agent Member" means, with respect to any Depositary, any member of, or participant in, such Depositary. "Applicable Procedures" has the meaning set forth in Section 3.13(b)(ii). "Annualized Consolidated EBITDA" means Consolidated EBITDA for the Reference Period multiplied by four. "Asset Acquisition" means (i) an Investment or capital contribution (by means of transfers of cash or other property to others or payments for property or services of the account or use of others, or otherwise) by the Company or any Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of another Person by the Company or any Subsidiary, or (ii) an acquisition by the Company or any Subsidiary of the property and assets (other than Capital Stock) of any Person other than the Company or any Subsidiary which constitute substantially all of a division, operating unit or line of business of such Person or which is otherwise outside the ordinary course of business. "Asset Sale" has the meaning set forth in Section 10.16. "Average Life" means, as of the date of determination, with respect to any security or instrument, the quotient obtained by dividing (1) the sum of the products (a) of the number of years from the date of determination to the date or dates of each successive scheduled principal (or redemption) payment of such security or instrument and (b) the amount of each such respective principal (or redemption) payment by (2) the sum of all such principal (or redemption) payments. "Beneficial Owner" or "beneficial owner" for purposes of the definition of "Change of Control" and "Affiliate" has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not applicable, except that a "person" shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. 3 "Board Resolution" means a copy of a resolution certified by a managing director or other authorized officer, assistant officer or representative of the Company to have been duly adopted by the Supervisory Board of the Company and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York and Amsterdam, The Netherlands are authorized or obligated by law or executive order to close. "Capital Contribution" means any contribution to the equity of the Company from a direct or indirect parent of the Company for which no consideration other than the issuance of Qualified Capital Stock is paid. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means, with respect to any Corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebtedness that is not itself otherwise capital stock), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that Corporation. "Cash Equivalent" means: (1) securities issued or directly and fully guaranteed or insured by (i) the United States of America or any agency or instrumentality thereof or (ii) any member of the European Economic Area or Switzerland, or any, agency or instrumentality thereof provided that such country, agency or instrumentality has a credit rating at least equal to that of the United States of America (provided that, in each case, the full faith and credit of such respective nation is pledged in support thereof), or (2) time deposits and certificates of deposit and commercial paper issued by the parent Corporation of any domestic (United States) commercial bank 4 of recognized standing having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof), or (3) commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in the case of each of (1), (2), and (3) maturing within one year after the date of acquisition, or (4) Euro or Dollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months, and overnight bank deposits, in each case with any domestic (United States) commercial bank (including the Trustee) having capital and surplus in excess of $500,000,000 (or the foreign currency equivalent thereof) and a Keefe Bank Watch Rating of "B" or better; provided, in the case of (1) through (4), that with respect to any non- domestic Person, Cash Equivalents shall also mean those investments that are comparable to clauses (ii) and (iv) above in such Person's country of organization or country where it conducts business operations. "Cedelbank" means Cedelbank. "Certificated Security" means any certificated Security in fully registered definitive form. "Change of Control" means any merger or consolidation of the Company with or into any Person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the Company's assets, on a Consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction(s), either (A) any "person" or "group" (other than the Parent or any of the Principals) is or becomes the "beneficial owner," directly or indirectly, of more than 35% of the total voting power of all classes of the Company's securities in the aggregate normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee(s) or surviving entity or entities and such "person" or "group" beneficially owns (after giving effect to such transaction) a greater percent age of the total voting power than is at that time beneficially owned by Parent 5 and the Principals (in the aggregate) and none of the Parent nor any of the Principals has the right or ability by voting power, contract or otherwise to elect or nominate for elections a majority of the Company's Supervisory Board, or (B) the Continuing Directors cease for any reason to constitute a majority of the Supervisory Board of the Company then in office, or (C) the Company adopts a plan of liquidation (other than a plan of liquidation as a consequence of which (1) the Parent and the Principals (in the aggregate) beneficially own at least the same percentage of voting power after the consummation of such plan as before or otherwise retain the right or ability, by voting power, to control the Person that acquires the proceeds of such liquidation and (2) the Person that acquires the substantial majority of the proceeds of such liquidation shall have assumed by supplemental indenture the Company's obligations pursuant to this Indenture). "Common Stock" of any Person means Capital Stock of the Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Person, to shares of Capital Stock of any other class of the Person. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Order" or "Company Request" means a written request or order signed in the name of the Company by a member of the Company's management board or its supervisory board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee. "Consolidated Coverage Ratio" of any Person on any date of determination (the "Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate amount of Consolidated EBITDA of such Person attributable to continuing operations and businesses (exclusive of amounts attributable to operations and business permanently discontinued or disposed of) for the Reference Period to 6 (b) the aggregate Consolidated Fixed Charges of such Person (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to such Person's Consolidated Fixed Charges subsequent to the Transaction Date) during the Reference Period; provided that for purposes of such calculation, (i) Acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (ii) transactions giving rise to the need to calculate the Consolidated Coverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (iii) the incurrence of any Indebtedness during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of such Reference Period, and (iv) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Consolidated Invested Equity Capital" means, with respect to any Person as of any date, the sum of the Invested Equity Capital of such Person as of such date and, without duplication, the Invested Equity Capital of each of its Subsidiaries as of such date. For purposes of calculating the Consolidated Invested Equity Capital of any Person as of any date, in order to avoid duplication, the Invested Equity Capital of a Subsidiary of such Person shall not include any amounts that would be included in the Consolidated Invested Equity Capital of any equity owner of such Subsidiary, to the extent that such amounts were utilized by such equity owner prior to such date to permit the incurrence of Indebtedness pursuant to clauses 2(iii) and (c)(3) of Section 10.11. For example, if a direct Subsidiary of the Company has Consolidated Invested Equity Capital of $100 and incurs $225 of such Indebtedness, then a direct or indirect Subsidiary of such Subsidiary will not be deemed to have any Invested Equity Capital based on contributions or loans to it by such first Subsidiary. In addition, the Invested Equity Capital of a Subsidiary of a Person will never be considered to be greater than the Invested Equity Capital of 7 such Person, except as a result of contributions of Invested Equity Capital to such Subsidiary by third parties. "Consolidation" means, with respect to any Person, the consolidation of the accounts of the Subsidiaries with those of such Person, all in accordance with GAAP; provided that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary with the accounts of such Person. The term "Consolidated" has a correlative meaning to the foregoing. "Consolidated EBITDA" means, with respect to any Person, for any period, the Consolidated Net Income of such Person for such period adjusted to add thereto (to the extent deducted from net revenues in determining Consolidated Net Income), without duplication, the sum of (1) Consolidated income tax expense, (2) Consolidated depreciation and amortization expense, (3) Consolidated Fixed Charges, and (4) non-cash stock-based compensation, less the amount of all cash payments made by such Person or any of its Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period; provided that Consolidated income tax expense, depreciation and amortization of a Subsidiary that is not a Wholly Owned Subsidiary shall only be added to the extent of the equity interest of such Person in such Subsidiary. "Consolidated Fixed Charges" of any Person means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of: (a) interest expensed or capitalized, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations) of such Person and its Consolidated Subsidiaries during such period, including (1) original issue discount and non-cash interest payments or accruals on any Indebtedness, (2) the interest portion of all deferred 8 payment obligations, and (3) all commissions, discounts and other fees and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations, in each case to the extent attributable to such period, (b) the amount of dividends accrued or payable (or guaranteed) by such Person or any of its Consolidated Subsidiaries in respect of Preferred Stock (other than by Subsidiaries of such Person to such Person or such Person's Wholly Owned Subsidiaries). For purposes of this definition, (x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty by such Person or a Subsidiary of such Person of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Consolidated Net Income" means, with respect to any Person for any period, the net income (or loss) of such Person and its Consolidated Subsidiaries (determined on a Consolidated basis in accordance with GAAP) for such period, adjusted to exclude (only to the extent included in computing such net income (or loss) and without duplication): (a) all gains (but not losses) which are either extraordinary (as determined in accordance with GAAP) or are nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any capital stock), (b) the net income, if positive, of any Person, other than a Consolidated Subsidiary, in which such Person or any of its Consolidated Subsidiaries has an interest, except to the extent of the amount of any dividends or distributions actually paid in cash to such Person or a Consolidated Subsidiary of such Person during such period, but in any case not in excess of such Person's pro rata equity interest share of such Person's net income for such period, 9 (c) the net income or loss of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, and (d) the net income, if positive, of any such Person's Consolidated Subsidiaries to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Consolidated Subsidiary other than this Indenture. "Consolidated Subsidiary" means, for any Person, each Subsidiary (excluding all Unrestricted Subsidiaries) of such Person (whether now existing or hereafter created or acquired) the financial statements of which are Consolidated for financial statement reporting purposes with the financial statements of such Person in accordance with GAAP. "Consolidated Tangible Assets" of any Person means the total amount of assets less applicable reserves and other properly deductible items which under GAAP would be calculated on a Consolidated balance sheet of the Person and its Subsidiaries after deducting all goodwill, trademarks, patents, unamortized debt discount and expense and other like intangibles, which, in each case under GAAP, would be included on such Consolidated balance sheet. "Continuing Director" means during any period of 12 consecutive months after the Issue Date, individuals who at the beginning of any such 12-month period constituted the Supervisory Board of the Company (together with any new supervisory directors whose election by the shareholders was from a list of candidates drawn up by the holder or holders of the Company's priority shares and new supervisory directors designated in or provided for in an agreement regarding the merger, consolidation or sale, transfer or other conveyance, of all or substantially all of the assets of the Company or the Parent, if such agreement was approved by a vote of such majority of supervisory directors). "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at 11 Old Jewry, London EC2R 8DU, except that, with respect to presentation of Securities for payment or for registration of transfer or exchange, such term shall 10 mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Corporation" includes Corporations, associations, companies and business trusts. "Credit Agreement" means the loan and note issuance agreement dated July 27, 1999 between certain Subsidiaries of the Company and Bank of American International Limited, CIBC World Markets plc, Citibank, N.A., MeesPierson N.V., Paribas, The Royal Bank of Scotland plc, Toronto Dominion Bank Europe Limited and The Toronto Dominion Bank, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or Holders, and, subject to the proviso to the next succeeding sentence, irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Credit Agreement" shall include agreements in respect of Interest Swap and Hedging Obligations with lenders party to the Credit Agreement and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Credit Agreement and all refundings, refinancings and replacements of any Credit Agreement, including any agreement: (1) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding or deleting borrowers or guarantors thereunder, so long as borrowers and guarantors may include one or more of the Company and its Subsidiaries and their respective successors and assigns, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder; provided that on the date such Indebtedness is incurred it would not be prohibited by Section 10.11; or (4) otherwise altering the terms and conditions thereof in a manner not prohibited by the other terms of this Indenture. "CT Corporation System" has the meaning specified in Section 1.19. 11 "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" has the meaning specified in Section 3.12. "Disqualified Capital Stock" means (a) except as set forth in clause (b), with respect to any Person, Equity Interests of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to 91 days following the Stated Maturity of the Securities and (b) with respect to any Subsidiary of the Company, any Equity Interests of such Subsidiary other than (i) any common equity with no economic preference, privileges, or redemption or repayment provisions or (ii) preferred stock convertible into such common equity of such Subsidiary with no payment of dividends or liquidation preference due or payable thereon on or prior to 91 days following the Stated Maturity of the Securities. "Dollars" or "$" or "U.S. Dollars" means the lawful currency of the United States of America and, in relation to any amount to be advanced or paid under this Indenture or the Securities, funds having immediate value. "DTC" means the Depository Trust Company, its nominees and successors. "Equity Interest" of any Person means any shares, interests, participations or other equivalents (however designated) in such Person's equity, and shall in any event include any Capital Stock issued by, or partnership, participation or membership interests in, such Person. "Equity Offering" means (i) an underwritten public offering or floatation of ordinary shares of the Company which has been registered under the Securities Act, or admitted to listing on the Amsterdam Stock Exchange or its equivalent in any other European Union jurisdiction, in any case resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent), or (ii) a sale of Qualified Capital Stock of the Company to any Person which is (or a controlled Affiliate of a Person which is), engaged principally in a 12 Related Business, resulting in Net Cash Proceeds to the Company of at least $100,000,000 (or its foreign currency equivalent); provided, however, that a sale of Qualified Capital Stock of the Company to any subsidiary of the Company or any Person that is a controlled Affiliate of the Company shall not be an Equity Offering. "Euro" or "(Euro)" means the currency adopted by those countries participating in the third stage of European monetary union. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "European Economic Area" means the member nations of the European Economic Area pursuant to the Oporto Agreement on the European Economic Area dated May 2, 1992 as amended. "European Union" means the member nations to the third stage of economic and monetary union pursuant to the treaty of Rome establishing the European Community, as amended by the Treaty on European Union, signed at Maastricht on February 7, 1992. "Event of Default" has the meaning set forth under Section 5.1. "Event of Loss" means, with respect to any property or asset, any (1) loss, destruction or damage of such property or asset or (2) any condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto). "Exchange Offer" means the exchange registered with the SEC to exchange Initial Securities for Exchange Securities pursuant to the terms of the Registration Rights Agreement. "Exchange Registration Statement" means an Exchange Registration Statement as defined in the Registration Rights Agreement. 13 "Exchange Securities" means the Securities to be issued pursuant to this Indenture in connection with the offer to exchange Securities for Initial Securities that may be made by the Company pursuant to the Registration Rights Agreement. "Exempted Affiliate Transaction" means (i) Restricted Payments comprised of pro rata dividends paid in cash on any class of Equity Interests and made in compliance with this Indenture, (ii) transactions, at arms-length and as so set forth in a Board Resolution, between or among holders of any Equity Interest of any Subsidiary of the Company and such Subsidiary, so long as such holder is not otherwise an Affiliate of the Company, (iii) transactions between or among the Company, and its Subsidiaries, (iv) the Company or any of its Subsidiaries entering into or performing any employment agreement, stock option agreement or other agreement relating to the terms of employment, compensation or termination of employment in the ordinary course of business of the Company or such Subsidiary, (v) any contract, agreement, arrangement or transaction with any Affiliate in effect as of the Issue Date and any amendment, waiver, variation or other modification in respect of any such contract, agreement, arrangement or transaction so long as such amendment, waiver, variation or other modification is not disadvantageous to the Company and its Subsidiaries in any material respect, (vi) Restricted Payments and Investments permitted under Section 10.12, (vii) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture which are fair to the Company and its Subsidiaries, in the reasonable determination of the Company or Subsidiary, as the case may be, or are on terms no less favorable to the Company or the Subsidiary than those that could be obtained in a comparable arm's length transaction with an entity that is not an Affiliate or Principal and is in the best interests of the Company or the Subsidiary, and (viii) transactions with respect to network capacity or dark or lit communications fiber capacity or telecommunications conduit between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate and joint sales and marketing pursuant to an agreement or agreements between the Company or any Subsidiary and any Unrestricted Subsidiary or other Affiliate, provided that in the case of this clause (viii), such agreements are on terms that are no less favorable to the Company or the Subsidiary than those that could be obtained in an arm's-length transaction with an entity that is not an Affiliate or Principal and are in the best interests of the Company and the Subsidiary entered into in the ordinary course of business. 14 "Existing Agreements" means (i) any and all instruments, as in effect on the Issue Date, between the Company or any of its Subsidiaries and a commercial lending institution or institutions, which makes borrowing of funds available to the Company or any such Subsidiary from such institution or institutions and (ii) any replacements of the instruments in clause (i) entered into by the respective Subsidiary that was party to the instrument so replaced or their respective successors and a commercial lending institution or institutions for an amount up to the maximum amount of the instrument so replaced. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the Issue Date, reduced to the extent such amounts are repaid. "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United States Code, as amended from time to time. "GAAP" means United States generally accepted accounting principles 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 approved by a significant segment of the accounting profession in the United States as in effect on the Issue Date. "Global Security" means a Regulation S Global Security (or Unrestricted Global Security) or a Restricted Global Security. "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 15 course of business. The term "Guarantee" used as verb has a corresponding meaning. "Guarantor" is defined to mean any Person obligated under a Guarantee. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, to the extent such liabilities and obligations would appear as a liability upon the Consolidated balance sheet of such Person in accordance with GAAP, (1) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (2) evidenced by bonds, notes, debentures or similar instruments, (3) representing the balance deferred and unpaid of the purchase price of any property or services, except (other than accounts payable or other obligations to trade creditors which have remained unpaid for greater than 90 days past their original due date) those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors; (b) all liabilities and obligations, contingent or otherwise, of such Person (1) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (2) relating to any Capitalized Lease Obligation, or (3) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a)(1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon); (c) all net obligations of such Person under Interest Swap and Hedging Obligations; (d) all liabilities and obligations of others of the kinds described in the preceding clauses (a), (b) or (c) that such Person has guaranteed 16 or provided credit support or that is otherwise its legal liability or which are secured by any assets or property of such Person; (e) any and all deferrals, renewals, extensions, refinancing and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not between or among the same parties; and (f) all Disqualified Capital Stock of such Person (measured at the greater of its voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined in good faith by the Supervisory Board of the Company. The amount of any Indebtedness outstanding as of any date shall be (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, but the accretion of original issue discount in accordance with the original terms of Indebtedness issued with an original issue discount will not be deemed to be an incurrence and (2) the principal amount thereof, excluding any interest thereon, in the case of any other Indebtedness. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Initial Purchasers" means, with respect to the Initial Securities issued pursuant to this Indenture on the Issue Date, each of Donaldson, Lufkin & Jenrette International and the other Initial Purchasers named as such in the Offering Circular. 17 "Initial Securities" means the $1,000,000,000 13 3/4% Senior Discount Notes due 2010 issued under this Indenture on the Issue Date. "Institutional Accredited Investor" means an institutional "Accredited Investor," as defined in Regulation D of the Securities Act. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Adjustment Event" has the meaning set forth in Section 3.1. "Interest Swap and Hedging Obligation" means any obligation of any Person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or floating rate of interest on the same notional amount. "Invested Equity Capital" means, with respect to any Person as of any date, without duplication, the sum of (i) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation in the form of common equity, plus, (ii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of creation by the holders of its common equity (and their Affiliates) in consideration of the issuance of preferred equity or Indebted ness, on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary relative to their respective contributions being ignored for this purpose), plus, (iii) the total dollar amount contributed in cash plus the value of all property contributed (valued at fair market value at the time of contribution, determined in good faith by the Supervisory Board) to such Person since the date of its creation by the Company or a Wholly Owned Subsidiary of the Company in 18 consideration of the issuance of preferred equity or Indebtedness, and less (iv) the value of all interest, returns in respect of Indebtedness, dividends and other distributions (in whatever form and however designated, valued at fair market value as determined in good faith by the Supervisory Board) made by such Person since the date of its creation to the holders of its common equity (and their Affiliates); provided that in no event shall the aggregate amount of interest, dividends and other distributions made to any holder of common equity of a Person (or its Affiliates) operate to reduce the Invested Equity Capital of such Person by more than the total contributions to such Person (per clauses (i) through (iii) above) by such equity holder (and its Affiliates). "Investment" by any Person in any other Person means (without duplication): (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable, endorsements for collection or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of the Company or to the extent permitted by Section 10.11, the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; (d) the making of any capital contribution by such Person to such other Person; and 19 (e) the designation by the Supervisory Board of the Company of any Person to be an Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an amount equal to the fair market value of the net assets of any Subsidiary (or, if neither the Company nor any of its Subsidiaries has theretofore made an Investment in such subsidiary, in an amount equal to the Investments being made), at the time that such Subsidiary is designated an Unrestricted Subsidiary, and any property transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of the Company shall be deemed an Investment valued at its fair market value at the time of such transfer. Investments shall be measured by the fair market value attributed to the Investment at the time made or returned, as applicable. "Issue Date" means the date of first issuance of the Initial Securities hereunder. "Leverage Ratio" on any date of determination (the "Transaction Date") for any Person means the ratio, on a pro forma basis, of (a) the aggregate amount of Indebtedness of such Person and its Subsidiaries on a Consolidated basis to (b) the aggregate amount of Annualized Consolidated EBITDA of such Person attributable to continuing operations and business (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of); provided that for purposes of calculating Annualized Consolidated EBITDA for this definition, (1) acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (2) transactions giving rise to the need to calculate the Leverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (3) the incurrence of any Indebtedness or issuance of any Disqualified Capital Stock during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (and the application of the proceeds 20 therefrom to the extent used to refinance or retire other Indebtedness) shall be assumed to have occurred on the first day of the Reference Period, and (4) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such Person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. For purposes of this definition, the sale, lease, conveyance, or other transfer by the Company or any Subsidiary of the Company, in the ordinary course of its business and not constituting a security interest in assets serving as collateral for any of their respective obligations, including the granting of indefeasible rights of use or equivalent arrangements with respect to, network capacity, communications fiber capacity or conduit, shall not be a Lien. "Liquidated Damages" means all liquidated damages then owing pursuant to the Registration Rights Agreement. "Maturity," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents received by the Company in the case of a sale, or Capital Contribution in respect, of Qualified Capital Stock and by the Company and its Subsidiaries in respect of an Asset Sale, plus, in the case of an issuance of Qualified Capital Stock 21 upon any exercise, exchange or conversion of securities (including options, warrants, rights and convertible or exchangeable debt) of the Company that were issued for cash on or after July 30, 1999, the amount of cash originally received by the Company upon the issuance of such securities (including options, warrants, rights and convertible or exchangeable debt) less, in each case, the sum of all payments, fees, commissions and (in the case of Asset Sales, reasonable and customary) expenses (including, without limitation, the fees and expenses of legal counsel and investment banking fees and expenses) incurred in connection with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only, less the amount (estimated reasonably and in good faith by the Company) of income, franchise, sales and other applicable taxes required to be paid by the Company or any of its respective Subsidiaries in connection with such Asset Sale in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits and tax credit carryforwards, and similar tax attributes. "New Acquisitions" means the acquisition by the Company or its subsidiaries of @Entertainment, Inc., A2000 Holding N.V., Time Warner Cable France S.A., Reseaux Cables de France S.A., Videopole S.A., Kabel Plus, a.s., SBS Broadcasting S.A., GelreVision N.V., SKT spol. s.r.o. and NBS Broadband Services AB, all substantially as described in the Offering Circular (and each such Person's respective subsidiaries). "Non-Recourse Indebtedness" means Indebtedness of a Person to the extent that under the terms thereof and pursuant to applicable law, no personal recourse could be had against the Company or its Subsidiaries (giving effect to the designations of such Person as an Unrestricted Subsidiary) for the Payment of the principal of or interest or premium or other amounts with respect to such Indebtedness or for any claim based on such Indebtedness and that enforcement of obligations on such Indebtedness is limited solely to recourse against interests in specified assets. "Obligation" means any principal, premium or interest payment, or monetary penalty, or damages, due by the Company under the terms of the Securities or this Indenture, including any Liquidated Damages due pursuant to the terms of the Registration Rights Agreement. "Offering" means the offering of the Securities by the Company. 22 "Offering Circular" means the offering memorandum, dated January 14, 2000, pursuant to which the Securities were offered and sold. "Officers' Certificate" means a certificate signed by a member of the Company's Management Board or its Supervisory Board, the Chief Executive Officer or a Vice President, and by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary, an Assistant Secretary or other authorized representative of the Company and delivered to the Trustee in the form substantially similar to Exhibit E attached hereto, which shall comply with the Indenture, except in the case of an authentication order pursuant to Section 3.3, which must only be signed by one of the above noted persons. "Opinion of Counsel" means an opinion of counsel in the form substantially similar to Exhibit F attached hereto, who may be counsel to the Company, including an employee of the Company. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption U.S. Dollars in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; (iii) Securities, except to the extent provided in Sections 12.2 and 12.3, with respect to which the Company has effected Defeasance and/or Covenant Defeasance as provided in Article Twelve; and (iv) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities 23 have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount at maturity of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which any Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Parent" means UnitedGlobalCom, Inc. and its successor(s). "Parent Stock Instrument" means either (a) Indebtedness (including Disqualified Capital Stock) and Qualified Capital Stock of the Company that is convertible or exchangeable into, at the option of the Company or any holder thereof, or secured by, or whose value to the holder thereof is dependent upon any shares of Parent's Capital Stock that were owned by the Company or any of its Subsidiaries as of July 30, 1999; provided that such Indebtedness and Capital Stock of the Company shall have been issued in consideration of cash, the net proceeds of which shall have been received by the Company or (b) the Class A Common Stock of Parent owned by the Company or any of its Subsidiaries as of July 30, 1999 or any like number of shares of Class B Common Stock of Parent issued in exchange for the shares of the Class A Common Stock of Parent held as of July 30, 1999. "Participants" means institutions that have accounts with DTC or its nominee and with respect to the Regulation S Global Securities, institutions that have accounts with Euroclear or Cedelbank or their respective nominees. 24 "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Date" means any date on which a payment of principal, premium, if any, interest (or Liquidated Damages, if any) is due to be paid on any of the Securities. "Permitted Indebtedness" means that: (a) the Company may incur Indebtedness evidenced by the Securities and issued pursuant to this Indenture and Indebtedness evidenced by the Senior Notes and issued pursuant to the Senior Notes Indenture up to the amounts being issued on the original Issue Date; (b) the Company may incur Refinancing Indebtedness with respect to any Indebtedness (including Disqualified Capital Stock), described in clause (a) or this clause (b) of this definition or incurred pursuant to clause (1)(ii) of Section 10.11, and any Subsidiary may incur Refinancing Indebtedness (including Disqualified Capital Stock), described in this clause (b) or clause (2)(c) of Section 10.11 and the Company and its Subsidiaries may incur Refinancing Indebtedness with respect to Indebtedness which is outstanding on the Issue Date (after giving effect to the New Acquisitions) (less the amount of any such Existing Indebtedness repaid on or after the Issue Date or which was refinanced pursuant to this clause (b)); (c) the Company and its Subsidiaries may incur Indebtedness solely in respect of bankers acceptances, letters of credit and performance and surety bonds and completion guarantees (to the extent that such incurrence does not result in the incurrence of any obligation to repay any obligation relating to borrowed money of others), all in the ordinary course of business in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; (d) the Company may incur Indebtedness to any Subsidiary, and any Subsidiary may incur Indebtedness to any other Subsidiary or to 25 the Company; provided that in the case of Indebtedness of the Company, such obligations shall be unsecured and subordinated in all respects to the Company's obligations pursuant to the Securities and the Senior Notes and any event that causes such Subsidiary no longer to be a Subsidiary (including by designation to be an Unrestricted Subsidiary) shall be deemed to be a new incurrence of such Indebtedness, if then outstanding, subject to Section 10.11; (e) the Company and its Subsidiaries may incur Interest Swap and Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by this Indenture to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; provided that the notional amount of any such Interest Swap and Hedging Obligation does not exceed the principal amount of Indebtedness to which such Interest Swap and Hedging Obligation relates; (f) the Company and its Subsidiaries may guarantee Indebtedness of any of the Company's Subsidiaries, provided that the incurrence of such Indebtedness by such Subsidiary is permitted under this Indenture; and (g) Subsidiaries of the Company may issue preferred stock or Indebtedness to the holders (or their Affiliates) of the common equity of such Subsidiary on a basis that is substantially proportionate to their common equity interests (with any disproportionately large equity interests received by the Company or a Subsidiary of the Company relative to their respective contributions being ignored for this purpose). "Permitted Investment" means: (a) Cash Equivalents; (b) intercompany Indebtedness to the extent permitted under clause (d) of the definition of "Permitted Indebtedness"; 26 (c) an Investment by the Company or a Subsidiary of the Company in a Person engaged primarily in a Related Business if as a result of such Investment such Person becomes a Subsidiary of the Company or is merged with or into the Company or a Subsidiary of the Company, so long as the surviving entity is the Company or a Subsidiary of the Company; (d) an Investment in any Subsidiary of the Company; (e) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Company maintains the power to influence or participate in the management of such Person by virtue of representation on such Person's board or directors or through a contractual relationship with such Person or its holders of Capital Stock; (f) other Investments in any Person or Persons engaged primarily in a Related Business with respect to which the Supervisory Board of the Company or of the relevant Subsidiary determines in its good faith reasonable judgement that the Company or any of its Subsidiaries will receive as a result of such Investment commensurate network services benefits (including by becoming a customer, client, supplier, purchaser or seller of goods or services of or to such Person or Persons) from the arrangements entered into as a result of such Investment; (g) other Investments in any Person or Persons engaged primarily in a Related Business; provided that, after giving pro forma effect to each such Investment, the amount of all such Investments made solely in reliance upon this clause (g) on and after July 30, 1999 that are Outstanding at any time does not exceed in the aggregate $100,000,000 (or the foreign currency equivalent thereof measured on the date of the making of such Investment), plus, unless such amounts shall have been credited under clause (3) of Section 10.12 and utilized to make a Restricted Payment, (w) the amount of the Net Cash Proceeds to the Company from the sale of Qualified Capital Stock (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in a Qualified Exchange), (x) an amount equal to 50% of the Net Cash Proceeds from Special Character Asset Sales, (y) an amount 27 equal to the Net Cash Proceeds to the Company or any of its Subsidiaries of any sale of securities constituting a Parent Stock Instrument (other than (i) to a Subsidiary of the Company, and (ii) to the extent applied in connection with a Qualified Exchange) and (z) the amount of Investments made pursuant to this clause (g) after July 30, 1999 that are returned to the Company or any Subsidiary on or prior to the date of any such calculation, which amount shall be the lesser of (i) the amount of the cash invested plus the value of all noncash investments (valued at the fair market value at the time of the Investment, determined in the good faith reasonable judgment of the Company or the relevant Subsidiary) and (ii) the amount of the Net Cash Proceeds received plus the value of noncash proceeds received (valued at the fair market value at the time of the return of such Investment, deter mined in the good faith reasonable judgment of the Company or the relevant Subsidiary); (h) Investments made in the ordinary course of business as partial or full payment for constructing a network relating principally to a Related Business of the Company or any Subsidiary; (i) Investments solely in the form and consisting of Capital Stock of the Company (other than Disqualified Capital Stock); (j) any Investment acquired by the Company or any of its restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (k) an Investment in prepaid expenses and lease, utility and workers' compensation, performance and other similar deposits in the ordinary course of business; (l) loans, advances, or extensions of credit to employees, officers, directors made in the ordinary course of business; 28 (m) the net obligations of any counterparty under Interest Swap and Hedging Obligations obtained in conformity with industry practices; (n) Investments made on or after July 30, 1999 in SBS Broadcasting S.A. not to exceed the amounts required to be made by the Company pursuant to the Investment Agreement by and between, SBS Broadcasting S.A., the Company and United International Holdings Inc., dated June 29, 1999, relating to the acquisition by the Company of Equity Interests in SBS Broadcasting S.A.; and (o) Investments made on or after July 30, 1999 directly or indirectly in ARA Cable Services Inc. or ARA Programming & Distribution Ltd. of Saudi Arabia, not to exceed $75,000,000. "Permitted Lien" means: (a) Liens existing on the Issue Date; (b) Liens securing the Securities and the Senior Notes; (c) Liens securing Indebtedness, or any agreement (including any Equity Interest) relating to any property, asset, or business acquired, of a Person existing at the time such Person becomes a Subsidiary (including by designation) or is merged with or into the Company or a Subsidiary or Liens securing Indebtedness incurred in connection with an Acquisition, provided that such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets than those of the Person (or its businesses) being acquired (or so designated); (d) leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the relative assets of the Company or any Subsidiary; (e) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by 29 the Company or any of its Subsidiaries in the ordinary course of business; (f) Liens securing Refinancing Indebtedness incurred to refinance any Indebtedness that was previously so secured in a manner no more adverse to the Holders of the Securities than the terms of the Liens securing such refinanced Indebtedness, provided that the Indebtedness secured is not increased and the Lien is not extended to any additional assets or property that would not have been security for the Indebtedness refinanced; (g) Liens securing Indebtedness incurred under the Credit Agreement and other Indebtedness solely of Subsidiaries of the Company incurred in accordance with the terms of this Indenture; (h) Liens in favor of the Company or Liens on assets of Subsidiaries of the Company in favor of other such Subsidiaries; (i) Liens securing Refinancing Indebtedness that complies with the definition of "Refinancing Indebtedness"; (j) Liens securing Acquired Indebtedness and Indebtedness assumed in acquiring Related Assets, provided that such Liens were not put in place in contemplation of the incurrence by the Company or its Subsidiaries of such Indebtedness, such Liens do not extend to any property or assets of the Company or any of its Subsidiaries other than those acquired in connection therewith, and the Investment that is the subject of such acquisition is a Permitted Investment; (k) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business, provided that (1) the underlying obligations are not overdue for a period of more than 30 days, or (2) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; and 30 (l) Liens not otherwise permitted by this Indenture in an amount not to exceed 5% of the Company's Consolidated Tangible Assets. "Person" means any Corporation, individual, limited liability company, joint stock company, joint venture, partnership, limited liability partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipally or other entity. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same Indebtedness as the mutilated, lost, destroyed or stolen Security. "Preferred Stock" means any Equity Interest of any class or classes of a Person (however designated) which is preferred as to payments of dividends, or as to distributions upon any liquidation or dissolution, over Equity Interests of any other class of such Person. "Principals" means Albert M. Carollo, Lawrence F. DeGeorge, Lawrence J. DeGeorge, Curtis Rochelle, Marian Rochelle, Rochelle Investments, Ltd. (so long as it is controlled by Curtis or Marian Rochelle), Gene W. Schneider, G. Schneider Holdings, Co. and The Gene W. Schneider Family Trust (so long as each is controlled by Gene W. Schneider or trustees appointed by him), Janet S. Schneider and Mark L. Schneider, and with respect to any such Person means: (A) any controlling stockholder or 80% (or more) owned Subsidiary of such Person, or with respect to each individual Person, (i) family partnerships, Corporations or other entities holding Equity Interests in the Company, the transferee(s) or the surviving entities or entities solely for the benefit of such Person or any of the Persons listed in (ii), (iii), (iv) or (v) below, (ii) such Person's spouse, (iii) such Person's children, grandchildren, stepchildren, step grandchildren and their spouses, (iv) heirs, legatees and devisees, and (v) trusts solely for the benefit of any of the foregoing; or (B) any trust Corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Person and/or such other Persons referred to in the immediately preceding clause (A). 31 "Pro Forma" or "pro forma" shall have the meaning set forth in Regulation S-X of the Securities Act, unless otherwise specifically stated herein. "Purchase Money Indebtedness" of any Person means any Indebtedness of such Person to any seller or other Person incurred solely to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease), construction, installation or improvement of any after acquired real or personal tangible property which, in the reasonable good faith judgment of the Supervisory Board of the Company, is directly related to a Related Business. "Qualified Capital Stock" means any Capital Stock of the Company that is not Disqualified Capital Stock. "Qualified Exchange" means: (a) any legal defeasance, redemption, retirement, repurchase or other acquisition of Capital Stock, or Indebtedness of the Company issued on or after July 30, 1999 with the Net Cash Proceeds received by the Company from the substantially concurrent sale of its Qualified Capital Stock or, to the extent used to retire Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999, Subordinated Indebtedness of the Company, (b) any exchange of Qualified Capital Stock of the Company for any Capital Stock or Indebtedness of the Company issued on or after July 30, 1999, or (c) any issuance of Subordinated Indebtedness of the Company in exchange for Indebtedness (other than Disqualified Capital Stock) of the Company issued on or after July 30, 1999. "Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule 144A. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. 32 "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Period" with regard to any Person means the full fiscal quarter ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Securities or this Indenture, for which Consolidated financial statements of the Company are available. "Refinancing Indebtedness" means Indebtedness (including Disqualified Capital Stock) (a) issued in exchange for, or the proceeds from the issuance and sale of which are used substantially concurrently to repay, redeem, defease, refund, refinance, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to, or a deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) in a principal amount (or, if issued with an original issue discount, an original accreted value, determined in accordance with GAAP) or, in the case of Disqualified Capital Stock, liquidation preference, not to exceed (after deduction of reasonable and customary fees and expenses incurred in connection with the Refinancing and the amount of any premium paid in connection with such Refinancing in accordance with the terms of the documents governing the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) refinanced without giving effect to any modification thereof made in connection with or in contemplation of such refinancing) the lesser of (1) the principal amount or, in the case of Disqualified Capital Stock, liquidation preference, of the Indebtedness (including Disqualified Capital Stock and Refinancing Indebtedness) so Refinanced and (2) if such Indebtedness being Refinanced was issued with an original issue discount, the accreted value thereof (as determined in accordance with GAAP) at the time of such Refinancing; provided that (A) such Refinancing Indebtedness shall only be used to refinance Outstanding Indebtedness (including Disqualified Capital Stock) of such Person issuing such Refinancing Indebtedness (except that the Company may refinance Outstanding Indebtedness of a Subsidiary), (B) such Refinancing Indebtedness shall (x) not have an Average Life shorter than the Indebtedness (including Disqualified Capital Stock) to be so refinanced at the time of such Refinancing and (y) in all respects, be no less contractually subordinated or junior, if applicable, to the rights of Holders of the Securities than was the Indebtedness (including Disqualified Capital Stock) to be refinanced, (C) such Refinancing Indebtedness shall have a final stated maturity or redemption date, as applicable, no earlier than the final stated maturity or redemption date, as applicable, of the Indebtedness (including Disqualified Capital Stock) to be 33 so refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured) in a manner no more adverse to the Holders of the Securities than the terms of the Liens (if any) securing such refinanced Indebtedness, including, without limitation, the amount of Indebtedness secured shall not be increased. "Registrar" means an office or agency of the Company in London, where Securities may be presented for registration of transfer or exchange. "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof, between the Initial Purchasers and the Company. "Registration Statement" means the Registration Statement as defined in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" has the meaning specified in Section 3.3. "Related Assets" means all assets, rights, contractual or otherwise, and properties, whether tangible or intangible, used or intended for use in connection with a Related Business; provided that Related Assets shall not include any Equity Interests or indebtedness of, or interests in, any Person. "Related Business" means the business of constructing, creating, developing, marketing or operating one or more cable, telephone or communications systems, including, without limitation, any system for transmitting, or providing service or product for the transmission of, voice, video or data through transmission facilities, Internet service providers or any business reasonably related to any of the foregoing and any business conducted by the Company or any Subsidiary of the Company on the Issue Date; provided that the determination of what constitutes a Related Business shall be made in good faith by the Supervisory Board of the Company. 34 "Related Business Acquisition" means an Asset Acquisition of (i) properties or assets to be used in a Related Business, (ii) of the Capital Stock of any Person that becomes a restricted Subsidiary as a result of such Asset Acquisition or (iii) of the Capital Stock of any Person that becomes an Unrestricted Subsidiary as a result of such Asset Acquisition, but only if such Asset Acquisition would be permitted pursuant to Section 10.12 or as a Permitted Investment; provided that, in the case of clauses (ii) and (iii), such Person's assets and properties consist principally of properties or assets that will be used in a Related Business. "Replacement Assets" means property or assets that will be used in a Related Business of the Company or any Subsidiary and Equity Interests of a Person that becomes a Subsidiary of the Company. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice-president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Global Security" has the meaning specified in Section 3.3. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than other Permitted Investments. "Restricted Payment" means, with respect to any Person: (a) the declaration or payment of any dividend or other distribution in respect of Equity Interests of such Person or any parent or Subsidiary of such Person, (b) any payment on account of the purchase, redemption or other acquisition or retirement for value of Equity Interests of such Person or any Subsidiary or parent of such Person, (c) other than with the proceeds from the substantially concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase, 35 redemption, or other acquisition or retirement for value of, any payment in respect of any amendment of the terms of or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by such Person or a parent or Subsidiary of such Person prior to the scheduled maturity, any scheduled repayment of principal, or scheduled sinking fund payment, as the case may be, of such Indebtedness and (d) any Restricted Investment by such Person; provided, however, that the term "Restricted Payment" does not include (1) any dividend, distribution or other payment on or with respect to Equity Interests of a Person or the parent of such Person to the extent payable solely in shares of Qualified Capital Stock of such Person, or (2) any dividend, distribution or other payment to the Company or any of its Subsidiaries by the Company or any of its Subsidiaries, or (3) any payment on account of the exchange of shares of Common Stock of Parent for a like number of substantially identical (except with regard to voting rights) shares of Common Stock of Parent, or (4) payments to or for the account of the Stichting Administratiekantor UPC (the "Foundation") or its successors of amounts related to taxes payable upon the grant of options to certain employees in shares of the Company held by the Foundation, provided that, for purposes of this clause (4), neither the Company nor any of its Subsidiaries shall be liable to any Person in respect of such amounts, other than for the payment of such amounts actually received or to be received by it, to the Foundation. "Restricted Period" means the period through and including the 40/th/ day after the later of the commencement of the Offering and the Issue Date of the Initial Securities. "Restricted Securities" means Restricted Global Securities and Regulation S Global Securities. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the United States Securities and Exchange Commission. "Securities" means, collectively, the "Securities" issued under this Indenture, including the Initial Securities and the Exchange Securities. 36 "Securities Act" means the United States Securities Act of 1933, as amended. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Senior Discount Notes" means the Company's $1,000,000,000 13 3/4% Senior Discount Notes due 2010 issued pursuant to the Indenture. "Senior Notes" means the Company's $300,000,000 11 1/2% Senior Notes due 2010, its $600,000,000 11 1/4% Senior Notes due 2010, its [Euro] 200,000,000 11 1/4% Senior Notes due 2010, to be issued pursuant to the Senior Notes Indenture. "Senior Notes Indenture" means one or more Indentures, dated as of January 20, 2000, between the Company and Citibank, N.A., as trustee, relating to and governing the terms of the Senior Notes. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" shall have the meaning provided under Regulation S-X of the Securities Act, as in effect on the Issue Date. "Special Character Asset Sale" means any Asset Sale solely consisting of assets and property or interests therein comprising its interests in chello broadband, UPCtv or Priority Telecom determined by the Company in its good faith reasonable judgment. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity," when used with respect to any Security, means the date specified in any Security as the fixed date on which the final payment of principal and interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company that is subordinated in right of payment by its terms or the terms of any document or instrument relating thereto to the Securities, in any respect or when used in the 37 definitions of Restricted Payment or Qualified Exchange has a final stated maturity on (except for the Securities) or after the Stated Maturity. "Subsidiary," with respect to any Person, means (1) a Corporation a majority of whose Equity Interests with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person, (2) any other Person (other than a Corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has majority ownership interest, or (3) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner and in which such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the Company. Unless the context requires otherwise, Subsidiary means each direct and indirect Subsidiary of the Company. "Supervisory Board" means, with respect to any Person, the supervisory board of directors of such Person or any committee of the supervisory board of directors of such Person authorized, with respect to any particular matter, to exercise the power of the supervisory board of directors of such Person. "Tax" or "Taxes" means any and all present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, and all liabilities with respect thereto, together with any penalties, interest, or additions thereto. "Tax Event" means that as a result of any change in or amendment to the laws, treaties or regulations of any Taxing Authority (or any official or administrative pronouncement or action or judicial decision) interpreting or applying such laws, treaties or regulations where such change or amendment is proposed and becomes effective on or after the Issue Date, in making any payment due or to become due under the Securities, the Company is or would be required on the next succeeding payment date to pay Additional Amounts and the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Company. "Taxing Authority" means any nation or government or any political subdivision thereof or any agency or instrumentality therein and any entity exercising 38 executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 9.5. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Global Security" has the meaning set forth in Section 3.3(d). "Unrestricted Securities" means an Unrestricted Global Security and all other Securities that are not Restricted Securities, including Exchange Securities. "Unrestricted Subsidiary" means any subsidiary of the Company that does not own any Equity Interest of, or own or hold any Lien on any property of, the Company or any other Subsidiary of the Company and that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Supervisory Board of the Company); provided that such Subsidiary at the time of such designation (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Subsidiary of the Company, unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries. The Supervisory Board of the Company may designate any Unrestricted Subsidiary to be a Subsidiary, provided that (1) no Default or Event of Default is existing or will occur as a consequence thereof and (2) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 (or its foreign currency equivalent) of Indebtedness pursuant to the Debt Incurrence Ratio of Section 10.11. 39 Each such designation shall be evidenced by filing with the Trustee a certified copy of the resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" means direct non-callable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of which (other than directors' qualifying shares) are owned by the Company or one or more Wholly Owned Subsidiaries of the Company. SECTION 1.2 Compliance Certificates and Opinions. Upon any ------------------------------------ application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 10.9(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 40 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be Consolidated (with proper identification of each matter covered therein) and form one instrument. 41 SECTION 1.4 Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount at maturity and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. (d) If the Company shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation 42 is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.5 Notices. Any notice or communication shall be ------- sufficiently given if in writing and delivered in person, by facsimile and confirmed by overnight courier, or mailed by first-class mail addressed as follows: if to the Company: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attention: General Counsel and Treasurer Facsimile: 31 20 778 9841 Telephone: 31 20 778 9840 43 with a copy to: Holme, Roberts & Owen LLP Heathcoat House 20 Savile Row London W1X 1AE England Attention: Paul G. Thompson Facsimile: 44 171 287 9344 Telephone: 44 171 494 5600 if to the Trustee or Paying Agent: Citibank, N.A. 5 Carmelite Street London EC4Y 0PA copies of notices to the Trustee should also go to: Citibank, N.A. 11 Old Jewry London EC2R 8DU Attention: Global Agency and Trust Services Facsimile: 44 171 508 3879 Telephone: 44 171 508 3815 if to the Luxembourg Paying and Transfer Agent: Banque International a Luxembourg 69 route d'Esch Luxembourg L-2953 c/o the Trustee 44 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed, first-class, postage prepaid, to a Holder including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed to him at his address as set forth on the Security Register and shall be sufficiently given to him if so mailed within the time prescribed. To the extent required by the TIA, any notice or communication shall also be mailed to any Person described in TIA Section 313(c). Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. Except for a notice to the Trustee, which is deemed given only when received, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 1.6 Notice to Holders; Waiver. Where this Indenture ------------------------- provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. As long as the Securities are listed on the Luxembourg Stock Exchange and notice is required by the rules of the Luxembourg Stock Exchange, such notice shall be sufficiently given by publication of such notice to Holders of the Securities in English will be in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if such publication is not practicable, in one other leading English language daily newspaper with general circulation in Europe, such newspaper being published on each business day in morning editions, whether or not it shall be published in Saturday, Sunday or holiday editions. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of 45 notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 1.7 Effect of Headings and Table of Contents. The ---------------------------------------- Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants and agreements ---------------------- in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.9 Separability Clause. In case any provision in this ------------------- Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or --------------------- in the Securities, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Security Registrar and their successors hereunder and the Holders any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11 Governing Law. This Indenture and the Securities ------------- shall be governed by and construed in accordance with the law of the State of New York including without limitation Section 5-1401 and 5-1402 of the New York General Obligation Law and New York Civil Practice Laws and Rules 327(b), as applied to contracts made and performed within the State of New York, without regard to conflicts of law. The Company hereby irrevocably submits to the jurisdiction of any New York State court sitting in the borough of Manhattan in the city of New York or any federal court sitting in the borough of Manhattan in the city of New York in respect of any suit, action or proceeding arising out of or relating to this Indenture and the Securities, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The 46 Company irrevocably waives, to the fullest extent they may effectively do so under applicable law, trial by jury and any objection which they may now or hereafter have to the laying of the venue of any such suit, action or proceeding bought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. SECTION 1.12 Conflict with Trust Indenture Act. Prior to the --------------------------------- issuance of the Exchange Securities or the effectiveness of the Shelf Registration Statement, the Trust Indenture Act shall apply as a matter of contract to this Indenture for purposes of interpretation, construction and defining the rights and obligations hereunder. Upon the issuance of the Exchange Securities or the effectiveness of the Shelf Registration Statement, this Indenture shall be subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. SECTION 1.13 Legal Holidays. In any case where any Interest -------------- Payment Date, Redemption Date, or Stated Maturity or Maturity of any Security shall not be a Business Day at a place of payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity or Maturity; provided that no interest shall accrue solely by virtue of such delay for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be. 47 SECTION 1.14 No Personal Liability of Board Members, Officers, ------------------------------------------------ Employees and Shareholders. No board member, director, officer, employee, agent, - -------------------------- authorized representative, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a board member, director, officer, employee, agent, authorized representative, incorporator or shareholder of the Company. By accepting a Security, the Trustee on behalf of each Holder waives and releases all such liability (but only such liability). The waiver and release are part of the consideration for issuance of the Securities. SECTION 1.15 Independence of Covenants. All covenants and ------------------------- agreements in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists. SECTION 1.16 Exhibits. All exhibits attached hereto are by this -------- reference made a part hereof with the same effect as if herein set forth in full. SECTION 1.17 Counterparts. This Indenture may be executed in any ------------ number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 1.18 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 1.19 Agent for Service; Submission to Jurisdiction; --------------------------------------------- Waiver of Immunities. By the execution and delivery of this Indenture, the - -------------------- Company (i) acknowledges that it has, by separate written instruments, designated and appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT Corporation System") (and any successor entity), as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture that may be instituted in any federal or state court in the Borough of Manhattan, City of New York, State of New York or brought under federal or state securities laws, and represent and warrant that CT Corporation System has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or 48 proceeding and (iii) agrees that service of process upon CT Corporation System and written notice of said service to the Company, in accordance with Section 1.5 shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect for as long as any of the Securities remain Outstanding (subject to the limitation set forth in clause (i)); provided, however, that the Company may, and to the extent CT Corporation System ceases to be able to be served on the basis contemplated herein shall, by written notice to the Trustee, designate such additional or alternative agent for service of process under this Section 1.19 that (i) maintains an office located in the Borough of Manhattan City of New York, State of New York, and (ii) is either (x) United States counsel for the Company or (y) a corporate service company which acts as agent for service of process for other persons in the ordinary course of its business. Such written notice shall identify the name of such agent for service of process and the address of the office of such agent for service of process in the Borough of Manhattan, City of New York, State of New York. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court of (i) any jurisdiction in which the Company owns or leases property or assets, (ii) the United States or the State of New York or (iii) the Netherlands or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property and assets or this Agreement or any of the Notes or actions to enforce judgments in respect of any thereof, the Company hereby irrevocably waives such immunity in respect of its obligations under the above-referenced documents, to the extent permitted by law. SECTION 1.20 Judgment Currency. The Company hereby agrees to indemnify ----------------- the Trustee, its directors, its officers and each person, if any, who controls the Trustee within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any loss incurred by such person as a result of any judgment or order being given or made against the Company for any U.S. Dollar amount due under this Agreement and such judgment or order being expressed and paid in a currency (the "Judgment Currency") other than U.S. Dollars and as a result of any variation as between (i) the rate of exchange at which the U.S. Dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which such party on the 49 date of payment of such judgment or order is able to purchase U.S. Dollars with the amount of the Judgment Currency actually received by such party. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, U.S. Dollars. ARTICLE II SECURITY FORMS SECTION 2.1 Forms Generally. The Securities and the Trustee's --------------- certificate of authentication with respect thereto shall be in substantially the form set forth in Exhibit A hereto with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or system on which the Securities may be listed or eligible for trading or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The Certificated Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner permitted by the rules of any securities exchange or system on which the Securities may be listed or eligible for trading, all as determined by the managing directors, officers and authorized representatives of the Company executing such Securities, as evidenced by their execution of such Securities. ARTICLE III THE SECURITIES SECTION 3.1 Title and Terms. The aggregate principal amount at --------------- maturity of Securities which may be authenticated and delivered under this Indenture is initially limited to $1,000,000,000, except for Securities authenticated and 50 delivered upon registration of, transfer of, in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6, 10.10, 10.16 or 11.8, and except that such amount may be greater as required by the occurrence of an Interest Rate Adjustment Event in accordance with the terms of this Indenture. The Initial Securities shall be known and designated as the "$1,000,000,000 13 3/4% Senior Discount Notes Due 2010" and the Exchange Securities shall be known as the "$1,000,000,000 13 3/4% Series B Senior Discount Notes." The final Stated Maturity of the Securities shall be February 1, 2010. Except as set forth in the next paragraph of this Section 3.1, the Accreted Value of the Securities will accrete at a rate of 13 3/4% per annum, until they reach their principal amount at maturity on February 1, 2005. Except as set forth in the next paragraph of this Section 3.1, interest on the Securities will accrue at a rate of 13 3/4% per annum from February 1, 2005 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2005 to the Holders of record on the immediately preceding Regular Record Date. Interest on the Securities will be computed on the basis of a 360-day year comprised of twelve 30-day months. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the rate of accretion of Accreted Value otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that on and after the date of such Interest Rate Adjustment Event, the Accreted Value of the Securities will accrete at a rate of 14% per annum from the date of such Interest Rate Adjustment Event until the Securities reach their principal amount at maturity on February 1, 2005. If an Interest Rate Adjustment Event has occurred, interest payable in cash on the Securities will accrue at a rate of 14% per annum from February 1, 2005 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2005 to the Holders of record on the immediately preceding Regular Record Date. 51 Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6. Such notice shall include (a) the adjusted principal amount at maturity on February 1, 2005, setting forth the calculation thereof in reasonable detail and (b) the amount to be paid to the Holders of record as of each Regular Record Date immediately prior to each Interest Payment Date beginning August 1, 2005. Principal of, premium, if any, and interest on the Securities will be payable, and the Securities may be exchanged or transferred, at the office or agency of the Company in The City of New York and in London, which, unless otherwise provided by the Company, will be the offices of the Trustee. At the option of the Company, interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable as provided in Article Eleven. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Twelve. The Securities will be general, senior, unsecured obligations of the Company, ranking pari passu in right of payment with each other. SECTION 3.2 Denominations. The Securities (including any Global ------------- Security) shall be issuable only in registered form without coupons and only in denominations of US$1,000 principal amount at maturity (or such greater amount required as a result of the occurrence of an Interest Rate Adjustment Event) or any integral multiple of US$1,000 principal amount at maturity above such amount (or such greater amount required as a result of the occurrence of an Interest Rate Adjustment Event). The Securities shall not be issuable in bearer form. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. SECTION 3.3 Execution, Authentication, Delivery and Dating. ---------------------------------------------- (a) The Securities shall be executed on behalf of the Company by its Chief Executive Officer, its President, a Vice President or a managing director 52 (being an executive officer of the Company with due authority granted by the management board of the Company to execute Securities) of the Company. The signature of any of these officers or directors on the Securities may be manual or facsimile signatures of the present or any future such authorized officer or director and may be imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers or directors of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. In addition, any Security may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Security, shall be the proper officers or directors of the Company, although at the date of such Security or of the execution of this Indenture any such Person was not such officer or director. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. On the Issue Date the Trustee shall authenticate Initial Securities for original issue in the aggregate principal amount at maturity not to exceed (except in the case of an Interest Rate Adjustment Event) $1,000,000,000 upon a written order of the Company in the form of an Officer's Certificate. Such order shall specify the amount of the Initial Securities to be authenticated and the date on which the original issue of Initial Securities is to be authenticated. In addition, the Trustee shall authenticate Exchange Securities for original issue in the aggregate principal amount at maturity of up to $1,000,000,000 (or such greater amount that may be required by the occurrence of an Interest Rate Adjustment Event in compliance with the terms of 53 this Indenture) upon a written order of the Company in the form of an Officer's Certificate, provided that such Exchange Securities shall be issuable only upon the valid surrender for cancellation of Initial Securities of a like aggregate principal amount at maturity in accordance with the Registration Rights Agreement. The Officer's Certificate shall specify the amount of Exchange Securities to be authenticated and the date on which the Exchange Securities are to be authenticated. Upon the written order of the Company in the form of an Officer's Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. (b) The terms and provisions contained in the form of Securities shall constitute, and are hereby expressly made, a part of this Indenture and, 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. (c) Restricted Global Securities. (i) The Initial Securities ---------------------------- offered and sold in reliance on Rule 144A shall be issued in the form of one or more global securities (the "Restricted Global Security") in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. (ii) Each Restricted Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as herein after provided. The aggregate principal amount at maturity of a Restricted Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding decrease or increase in the aggregate principal amount at maturity of a Security that is a Regulation S Global Security (as defined below) or a Security that is an Unrestricted Global Security (as defined below), as hereinafter provided. (d) Regulation S Global Securities. (i) Initial Securities ------------------------------ offered and sold in reliance on Regulation S shall be initially issued in the form of one or more Global Securities in definitive, fully registered form without interest coupons, with such applicable legends as are provided for in Exhibit A hereto, except as otherwise permitted herein. Until such time as the Restricted Period shall have 54 terminated, such Global Securities shall be referred to herein as the "Regulation S Global Security." After such time as the Restricted Period shall have terminated, such Regulation S Global Securities shall be referred to herein, as the "Unrestricted Global Securities." (ii) Each Regulation S Global Security and Unrestricted Global Security shall be registered in the name of DTC or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit to the respective accounts at DTC of the depositaries for Euroclear or Cedelbank. The aggregate principal amount at maturity of each Regulation S Global Security (or Unrestricted Global Security) may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, in connection with a corresponding decrease or increase in the aggregate principal amount at maturity of a Restricted Global Security, as hereinafter provided. (e) The Exchange Securities which are issued in exchange for Initial Securities shall be issued initially in the form of one or more permanent Global Securities in definitive, fully registered form without interest coupons, substantially in the form set forth in Exhibit A, deposited with the Trustee, as custodian for DTC and shall bear the applicable legends relating to Global Securities set forth in Exhibit A that are required to appear on such Securities. Exchange Securities shall constitute Unrestricted Securities. (f) In case the Company, pursuant to Article Eight, shall be Consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount at 55 maturity; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. SECTION 3.4 Temporary Securities. Pending the preparation of -------------------- definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount at maturity of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.5 Registration, Registration of Transfer and Exchange. --------------------------------------------------- The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchange of Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the 56 "Security Registrar") for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 10.2, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, if the requirements, of such transfer are met, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations of a like aggregate principal amount at maturity. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination and of a like currency and aggregate principal amount at maturity (including an exchange of Initial Securities for Exchange Securities), upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and deliver, and the Security Registrar shall register, the Securities which the Holder making the exchange is entitled to receive, provided that no exchange of Initial Securities for Exchange Securities shall occur until an Exchange Registration Statement shall have been declared effective by the SEC (confirmed in an Officer's Certificate) and that the Initial Securities to be exchanged for the Exchange Securities shall be cancelled by the Trustee. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6, 10.10, 10.16 or 11.8 not involving any transfer. 57 The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the selection of Securities to be redeemed under Section 11.4 and ending at the close of business on the day of such mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities. If ------------------------------------------------ (i) any mutilated Security is surrendered to the Trustee or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount at maturity, bearing a number not contemporaneously Outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. 58 SECTION 3.7 Payment of Interest; Interest Rights Preserved. ---------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.2; provided, however, that each installment of interest may at the Company's option be paid (i) by mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.8, to the address of such Person as it appears in the Security Register, or (ii) by wire transfer of such interest in immediately available funds to an account located in the United States maintained by the DTC. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") must be paid by the Company, at its election in each case, as provided in paragraph (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of U.S. Dollars equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such U.S. Dollars when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 1.6, not less than 10 days prior to such Special Record Date. 59 Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following paragraph(2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or system on which the Securities may be listed or eligible for trading, and upon such notice as may be required by such exchange or system, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8 Persons Deemed Owners. Prior to the due presentment --------------------- of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal or Accreted Value of (and premium, if any) and (subject to Sections 3.5 and 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9 Cancellation. All Securities surrendered for payment, ------------ redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities 60 shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. SECTION 3.10 Computation of Interest. Interest on the Securities ----------------------- shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 3.11 "CUSIP" and/or "ISIN" Numbers. The Company in issuing ----------------------------- the Securities may use a "CUSIP" and/or "ISIN" number (if then generally in use), and if so, the Trustee shall use "CUSIP" and/or "ISIN" numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of such numbers either as printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee in writing of any change in the "CUSIP" or "ISIN" numbers of the Securities. SECTION 3.12 Book-Entry Provisions for Global Securities, Certificated --------------------------------------------------------- Securities. - ----------- Except as indicated below in this Section 3.12, the Securities shall be represented only by Global Securities. The Global Securities shall be deposited with a Depositary for such Securities (and shall be registered in the name of such Depositary or its nominee). The Depositary for the Securities shall be DTC unless the Company appoints a successor Depositary by delivery of a Company Order to the Trustee specifying such successor Depositary. All payments on a Global Security will be made to DTC or its nominee, as the case may be, as the registered owner and Holder of such Global Security. The Company will be fully discharged by payment to or to the order of such Depositary from any responsibility or liability in respect of each amount so paid. Upon receipt of any such payment in respect of a Global Security, DTC will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount at maturity of such Global Security as shown on the records of DTC. 61 Unless and until it is exchanged in whole or in part for Certificated Securities, a Global Security may not be transferred except as a whole by the relevant Depositary or nominee thereof to another nominee of the Depositary or to a successor of the Depositary or a nominee of such successor. Owners of beneficial interests in Global Securities shall be entitled or required, as the case may be, but only under the circumstances described in this Section 3.12, to receive physical delivery of Certificated Securities. Interests in a Global Security shall be exchangeable or transferable, as the case may be, for Certificated Securities if (i) DTC notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days or (ii) an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Upon the occurrence of any of the events described in the preceding sentence, the Company shall cause the appropriate Certificated Securities to be delivered to the owners of beneficial interests in the Global Securities or the Participants in DTC, Euroclear or Cedelbank through which such owners hold their beneficial interest. Certificated Securities shall be exchange able or transferable for interests in other Certificated Securities as described herein. SECTION 3.13 Transfer and Exchange of Securities. ----------------------------------- (a) Obligations with Respect to Transfers and Exchanges of ------------------------------------------------------ Securities. Upon surrender for registration of transfer of any Security of a - ---------- series to the appropriate Registrar, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations and of a like aggregate principal amount at maturity. At the option of the Holder, and subject to the other provisions of this Section 3.13, Securities of any series may be exchanged for other Securities of such series of any authorized denominations and of a like aggregate principal amount at maturity, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.13, the Company shall execute, and the Trustee shall 62 authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and subject to the other provisions of this Section 3.13, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the appropriate Registrar and be duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or governmental charge payable in connection with any registration of transfer or exchange of Securities. (b) Transfer and Exchange of Global Securities. Notwithstanding ------------------------------------------ any provisions of this Indenture or the Securities, transfers of a Global Security, in whole or in part, transfers and exchanges of interests therein of the kinds described in clauses (ii), (iii) and (iv) below and exchange of interests in Global Securities or of other Securities as described in clause (v) below, shall be made only in accordance with this Section 3.13(b). Transfers and exchanges subject to this Section 3.13 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 3.13. (i) General. A Global Security may not be ------- transferred, in whole or in part, to any Person other than DTC or a nominee thereof or a successor to DTC or its nominee, and no such transfer to any such other Person may be registered; provided that this clause (i) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security of any series to any Person shall be effective under this Indenture or the Securities of such series unless and until such Security has been registered in the name of such Person. Nothing in this Section 3.13(b)(i) shall prohibit or render ineffective 63 any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 3.13(b). (ii) Restricted Global Security to ----------------------------- Regulation S Global Security. If the Holder of a ---------------------------- beneficial interest in a Restricted Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security of such series, such transfer may be effected, subject to the rules and procedures of DTC, Euroclear and Cedelbank, in each case to the extent applicable (the "Applicable Procedures"), only in accordance with the provisions of this Section 3.13(b)(ii). Upon receipt by the Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar, to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Regulation S Global Security in a principal amount at maturity equal to that of the beneficial interest in a Restricted Global Security to be so transferred; (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest; and (C) a certificate in substantially the form set forth in Exhibit C given by the Holder of such beneficial interest, the principal amount at maturity of a Restricted Global Security shall be reduced, and the principal amount at maturity of a Regulation S Global Security shall be in creased, by the principal amount of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar, and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in a Regulation S Global Security having a principal amount at maturity equal to the amount so transferred. (iii) Restricted Global Security to ----------------------------- Unrestricted Global Security. If the Holder of a ---------------------------- beneficial interest in a Restricted Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of 64 a beneficial interest in an Unrestricted Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iii). Upon receipt by the Registrar, of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar to credit or cause to be credited to a specified Agent Member's ac count a beneficial interest in an Unrestricted Global Security in a principal amount at maturity equal to that of the beneficial interest in a Restricted Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest, and (C) a certificate in substantially the form set forth in Exhibit C given by the Holder of such beneficial interest, the principal amount at maturity of the Restricted Global Security shall be reduced, and the principal amount at maturity of an Unrestricted Global Security shall be increased, by the principal amount at maturity of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in an Unrestricted Global Security having a principal amount equal to the amount at maturity so transferred. (iv) Regulation S Global Security or ------------------------------- Unrestricted Global Security to Restricted Global ------------------------------------------------- Security. If the Holder of a beneficial interest in -------- a Regulation S Global Security of any series or an Unrestricted Global Security of any series wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Restricted Global Security of such series, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.13(b)(iv). Upon receipt by the Registrar of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Registrar to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Restricted Global Security in a principal amount at maturity equal to that of the 65 beneficial interest in a Regulation S Global Security or an Unrestricted Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member to be debited for, such beneficial interest, and (C) with respect to a transfer of a beneficial interest in a Regulation S Global Security (but not an Unrestricted Global Security) to a Person whom the transferor reasonably believes is a QIB, a certificate in substantially the form set forth in Exhibit D given by the Holder of such beneficial interest, the principal amount at maturity of a Restricted Global Security shall be increased, and the principal amount at maturity of a Regulation S Global Security or an Unrestricted Global Security shall be reduced, by the principal amount at maturity of the beneficial interest in a Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Registrar and the Registrar shall instruct DTC or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Re stricted Global Security having a principal amount at maturity equal to the amount so transferred. (v) Exchanges of Global Security for -------------------------------- Non-Global Security. In the event that a Global ------------------- Security or any portion thereof is exchanged for Securities other than Global Securities, such other Securities may in turn be exchanged (on transfer or otherwise) for Securities that are not Global Securities or for beneficial interests in a Global Security (if any is then Outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of clauses (i) through (iv) above and (vi) below (including the certification requirements intended to insure that transfers and exchanges of beneficial interests in a Global Security comply with Rule 144A, Rule 144 or Regulation S, as the case may be) and any Applicable Procedures, as may be from time to time adopted by the Company and the Trustee. (vi) Interest in Regulation S Global ------------------------------- Security to be Held Through Euroclear or Cedelbank. -------------------------------------------------- Until the termination of the Restricted Period with respect thereto, interests in a Regulation S 66 Global Security may be held only through Agent Members acting for and on behalf of Euroclear and Cedelbank, provided that this clause (vi) shall not prohibit any transfer in accordance with Section 3.13(b)(iv) hereof. (c) Legends. Each Restricted Security and Global Security issued ------- hereunder shall, upon issuance, bear the legends set forth in Exhibit A hereto that are required to be applied to such a Security and such required legends shall not be removed from such Security except as provided in the next sentence or Section 3.13(e). The legend required for a Restricted Security may be removed from a Security if there is delivered to the Company and the appropriate Registrar such satisfactory evidence, which may include an opinion of independent counsel licensed to practice law in the State of New York, as may be reasonably required by the Company that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the direction of the Company, shall authenticate and deliver in exchange for such Security another security or securities having an equal aggregate principal amount at maturity that does not bear such legend. If such a legend required for a Restricted Security has been removed from a Security as provided above, it shall not be a Restricted Security and no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other security is a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a legend to appear thereon. (d) Global Securities. The provisions of clauses (i), (ii), ----------------- (iii), and (iv) below shall apply only to Global Securities; (i) General. Each Global Security authenticated ------- under this Indenture shall be registered in the name of the appropriate Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor. (ii) Transfer to Persons other than Depositary. ----------------------------------------- Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any person other than the appropriate Depositary or a nominee thereof unless (A) DTC notifies 67 the Company that it is unwilling or unable to continue as Depositary for such Global Security, or DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, and a successor depositary is not appointed by the Company within one hundred and twenty (120) days or (B) an Event of Default has occurred and is continuing with respect thereto and the owner of a beneficial interest therein requests such exchange or transfer. Any Global Security exchanged pursuant to clause (A) above shall be so exchanged in whole and not in part and any Global Security ex changed pursuant to clause (B) above may be exchanged in whole or from time to time in part as directed by DTC. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security, provided that any such Security so issued that is registered in the name of a Person other than the appropriate Depositary or a nominee thereof shall not be a Global Security. (iii) Global Security to Certificated Security. ---------------------------------------- Securities issued in exchange for a Global Security or any portion thereof pursuant to clause (ii) above shall be issued in definitive, fully registered form without interest coupons, shall have an aggregate principal amount at maturity equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the appropriate Deposi tary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the appropriate Depositary to the Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or if the Trustee is acting as custodian for DTC or its nominee with respect to such Global Security, the principal amount at maturity thereof shall be reduced, by an amount equal to the portion thereof to be so ex changed, by means of an appropriate adjustment made on the records of the Trustee, as Authenticating Agent. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. (iv) In the event of the occurrence of any of the events specified in clause (ii) above, the Company will promptly 68 make available to the Trustee a supply of Certificated Securities in definitive, fully registered form, without interest coupons, sufficient to meet the Trustee's requirements hereunder. (v) No Rights of Agent Members in Global ------------------------------------ Security. No Agent Member of any Depositary nor any other -------- Persons on whose behalf Agent Members may act shall have any rights under the Indenture with respect to any Global Security, or under any Global Security, and each Depositary or its nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the applicable Depositary or such nominee, as the case may be, or impair, as between DTC, Euroclear and Cedelbank, their respective Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a Holder of any Security. SECTION 3.14 Special Transfer Provisions. --------------------------- (a) Transfers to Institutional Accredited Investors. If ----------------------------------------------- Securities are being transferred to an Institutional Accredited Investor, the Securities shall be accompanied by delivery of a transferee certificate for Institutional Accredited Investors substantially in the form of Exhibit G hereto and an opinion of counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act. (b) Other Transfers. If a Holder proposes to transfer a Security --------------- pursuant to any exemption from the registration requirements of the Securities Act other than as provided for above, the Security Registrar shall only register such transfer or exchange if such transferor delivers to the Security Registrar and the Trustee an Opinion of Counsel satisfactory to the Company and the Security Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture; provided that the Company may, based upon the opinion of its counsel, instruct the Security Registrar by a Company Order not to register such 69 transfer in any case where the proposed transferee is not a QIB, an Institutional Accredited Investor or a non-U.S. Person. (c) General. By its acceptance of any Security bearing Legends, each ------- Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Legends and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.12 or this Section 3.14 for a period of two years, after which time such letters, notices and other written communications shall at the written request of the Company be delivered to the Company. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Security Registrar. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture --------------------------------------- shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (1) either (a) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment U.S. Dollars has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.3) have been delivered to the Trustee for cancellation; or 70 (b) (i) all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable, or (ii) the Company has given irrevocable and unconditional notice of redemption for all of the Outstanding Securities within 60 days of such notice pursuant to the redemption provisions of this Indenture, and the Company, in the case of (i) or (ii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and accrued interest (and Liquidated Damages, if any,) to the date of such deposit; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; (3) the Company has delivered irrevocable instructions to the Trustee to apply the deposited U.S. Dollars toward the payment of the Securities at Maturity or the Redemption Date, as the case may be, which must be within 60 days thereof; (4) the Holders of the Securities have a valid, perfected, exclusive security interest in such trust; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if U.S. Dollars shall have been deposited with the Trustee pursuant to clause(1)(b) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2 Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and 71 applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default," wherever used ----------------- herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest (or Liquidated Damages if any) on any Security when it becomes due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of the principal of, Accreted Value of or premium, if any, on any Security as and when the same becomes payable at its Maturity, or upon redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Purchase Price or the Asset Sale Offer Price, or otherwise on Securities validly tendered and not properly withdrawn pursuant to a Change of Control Offer or Asset Sale Offer, as applicable; or (3) failure to perform any other covenant or agreement of the Company under this Indenture or Securities and, except for the provisions under Section 10.10, 10.16, Article Eight and Section 10.12, continued for 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount at maturity of the Outstanding Securities; (4) a default in Indebtedness of the Company or any of its Subsidiaries with an aggregate amount Outstanding in excess of $50,000,000 (or its foreign currency equivalent) (a) resulting from the failure to pay principal at maturity 72 or otherwise at the end of any applicable grace period for such payment pursuant to the original terms of such Indebtedness or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity; or (5) the rendering of a final judgment or final judgments not covered by insurance in an amount in excess of $50,000,000 (or its foreign currency equivalent) at any one time against the Company or any of its Subsidiaries by a court or courts of competent jurisdiction, which judgment or judgments remain unbonded, undischarged or unstayed for a period of 60 days after the date on which the right to appeal all such judgments has expired; or (6) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary or any other applicable federal, state or foreign law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the institution by the Company or any Significant Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the U.S. Federal Bankruptcy Code or any other applicable federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its Indebtedness generally as they become due. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an -------------------------------------------------- Event of Default (other than an Event of Default specified in Section 5.1(6) or 5.1 (7) relating to the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount at maturity of the Outstanding Securities may declare the Accreted Value and accrued interest (and Liquidated Damages, if any) of all the Securities to be due and payable 73 immediately by a notice in writing to the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), and upon any such declaration such Accreted Value, accrued interest (and Liquidated Damages, if any) shall become immediately due and payable. If an Event of Default specified in Section 5.1(6) or 5.1(7) relating to the Company occurs and is continuing, then the Accreted Value and accrued interest (and Liquidated Damages, if any) of all the Securities 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 a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article Five, the Holders of a majority in principal amount at maturity of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Outstanding Securities, (B) all unpaid Accreted Value of (and premium, if any, on) any Outstanding Securities which has become due otherwise than by such declaration of acceleration, and interest on such unpaid Accreted Value at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest on overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all existing Events of Default, other than the non-payment of amounts of Accreted Value, (or premium, if any,) and interest on the Securities which have become due solely by such declaration of acceleration, and except a Default with respect to any provision requiring a supermajority approval to amend, which Default may only be waived by such a supermajority, have been cured or waived as provided in Section 5.13. 74 No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. The Company covenants that if - ------- (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the Accreted Value of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for Accreted Value (and premium, if any) and interest, and interest on any overdue Accreted Value (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4 Trustee May File Proofs of Claim. In case of the pendency -------------------------------- of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the 75 Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue Accreted Value, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of Accreted Value (and premium, if any) and interest (and Liquidated Damages, if any) owing and unpaid in respect of the Securities and to file such 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 and its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator or 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 the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.5 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. All rights of action and claims under this Indenture or the - ---------- Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such 76 proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6 Application of Money Collected. Any money collected by ------------------------------ the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of Accreted Value (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for Accreted Value of (and premium, if any) and interest (and Liquidated Damages, if any) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for Accreted Value (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.7 Limitation on Suits. No Holder of any Securities shall ------------------- have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) the Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount at maturity of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; 77 (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in aggregate principal amount at maturity of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.8 Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium and Interest. Notwithstanding any other provision in this Indenture, - -------------------- the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment as provided herein (including, if applicable, Article Twelve) and in such Security of the Accreted Value of (and premium, if any) and (subject to Section 3.7) interest (and Liquidated Damages, if any) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or ---------------------------------- any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise ------------------------------ provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, 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 78 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 5.11 Delay or Omission Not Waiver. No delay or omission of ---------------------------- the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12 Control by Holders. The Holders of not less than a ------------------ majority in aggregate principal amount at maturity of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting unless it has received indemnity reasonably satisfactory to it. SECTION 5.13 Waiver of Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount at maturity of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default (1) in respect of the payment of the principal of, Accreted Value of (or premium, if any), or interest (and Liquidated Damages, if any) on any Security, or 79 (2) in respect of a covenant or provision hereof which cannot be modified or amended without the approval of a supermajority, which Default may only be waived by such a supermajority; or (3) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security 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 thereon. SECTION 5.14 Waiver of Stay or Extension Laws. The Company -------------------------------- covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1 Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) 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 (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and 80 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 reasonably conform to the requirements of this Indenture. (b) 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 their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 6.1; (2) 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 grossly negligent in ascertaining the pertinent facts; (3) 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 the requisite amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee; and (4) 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 indemnity reasonably satisfactory to it against such risk or liability is not assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. 81 SECTION 6.2 Notice of Default. Within 60 days after being notified ----------------- or becoming aware of the occurrence of any Default hereunder, the Trustee shall transmit, in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to any Responsible Officer of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the Accreted Value of (or premium, if any) or interest on any Security, 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 determines that the withholding of such notice is in the interest of the Holders. SECTION 6.3 Certain Rights of Trustee. Subject to Section 6.1 and ------------------------- to the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Supervisory Board of the Company may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, receive and conclusively rely upon an Officers' Certificate and/or an Opinion of Counsel; (4) the Trustee may consult with counsel and other professional advisers and the written advice of such counsel or advisers 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; 82 (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless the Trustee is indemnified and/or secured (whether by payment in advance or otherwise) to its reasonable satisfaction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians, delegates or attorneys and the Trustee shall not be responsible for supervising the actions of such agent, nominee, custodian, delegate or attorney, nor for any misconduct or negligence on the part of any agent, nominee, custodian, delegate or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (9) the Trustee shall be entitled to assume that there has been no Event of Default and that the Company has complied with all of its obligations hereunder, unless a Responsible Officer of the Trustee has knowledge to the contrary thereof. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. 83 SECTION 6.4 Trustee Not Responsible for Issuance of Securities. -------------------------------------------------- The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5 May Hold Securities. The Trustee, any Paying Agent, ------------------- any Security Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.6 Money Held in Trust. Money held by the Trustee in ------------------- trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 6.7 Compensation and Reimbursement. The Company agrees: ------------------------------ (1) to pay to the Trustee from time to time compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as agreed in writing between the Company and the Trustee; (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's gross negligence or bad faith; and (3) to indemnify the Trustee and its directors, officers, employees and agents for, and to hold them harmless against, any loss, liability or expense (including counsel's fees and expenses) without gross negligence or bad faith on the part of any of them, arising out of or in connection with the acceptance or 84 administration of this trust, including the costs and expenses of defending itself or themselves against any claim or liability in connection with the exercise or performance of any of its or their powers or duties hereunder. Upon the occurrence of an Event of Default or a potential Event of Default or upon the Trustee being required, or considering it necessary, to undertake duties outside the usual scope of a Trustee, the Trustee will be entitled to charge additional fees as agreed upon in writing with the Company. The obligations of the Company under this Section 6.7 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional Indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(6) or (7), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 6.7 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. SECTION 6.8 Corporate Trustee Required; Eligibility; Conflicting ---------------------------------------------------- Interests. - --------- (a) There shall be at all times a Trustee hereunder which shall be subject to and comply with the provisions of Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital and surplus of at least $50,000,000. If such Corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then, for the purposes of this Section 6.8, the combined capital and surplus of such Corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 85 6.8, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. (b) The Trustee shall be subject to and comply with Section 310(b) of the Trust Indenture Act. SECTION 6.9 Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (b) The Trustee may resign at any time by giving 60 days' written notice thereof to the Company and without assigning any reason thereto or being responsible for any costs or expenses occasioned thereby. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may on behalf of the Company, appoint in its place a reputable financial institution and the Company shall not unreasonably object to such appointment or may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount at maturity of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (2) the Trustee shall cease to be eligible under Section 6.8(a) and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months (in the case of 86 Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i)the Company, by a Board Resolution, may remove the Trustee or (ii)subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount at maturity of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months, (in the case of Global Securities, as evidenced in writing to the Trustee by the relevant Depositary or Euroclear or Cedelbank), may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided for in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. (g) The retiring Trustee shall not be liable for any of the acts or omissions of any successor Trustee appointed hereunder. 87 SECTION 6.10 Acceptance of Appointment by Successor. Every -------------------------------------- successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its fees, costs, expenses, charges and any other amounts owed to it hereunder, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.11 Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. Any Corporation into which the Trustee may be merged or converted or - -------- with which it may be Consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such Corporation shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides that the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor 88 Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.12 Trustee Acting in Other Capacities. To the extent that ----------------------------------- the Trustee, Banque Internationale a Luxembourg or any other Person appointed hereunder as Trustee or Paying Agent is acting as Securities Registrar, Depositary or Paying Agent hereunder, the rights, privileges, immunities and indemnities set forth in this Article Six shall apply to the Trustee in the additional capacities listed above. ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1 Disclosure of Names and Addresses of Holders. Every -------------------------------------------- Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 3.12, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 7.2 Reports by Trustee. Within 60 days after May 30 of ------------------ each year commencing with the first May 30 after the first issuance of Securities, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 30 if required by TIA Section 313(a). SECTION 7.3 Reports by Company. The Company shall file with the ------------------ Trustee and deliver to the Holders of Securities the reports and other information required to be provided by it pursuant to Section 10.8. 89 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or Persons or (ii) directly or indirectly, sell, lease, convey or transfer all or substantially all of its assets (computed on a Consolidated basis) to any other Person or group of affiliated Persons, unless: (1) either (a) the Company is the continuing entity or (b) the resulting, surviving or transferee entity is a Corporation organized under the laws of The Netherlands or of the United States of America or any state or the District of Columbia, any member of the European Economic Area or Switzerland and expressly assumes by supplemental indenture all of the obligations of the Company in connection with the Securities and this Indenture; (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) unless such transaction is solely the merger of the Company and one of its previously existing Wholly Owned Subsidiaries and which transaction is not in connection with any other transaction, immediately after giving effect to such transaction, on a pro forma basis, the Consolidated resulting, surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in Section 10.11 or, if not, the Leverage Ratio would immediately thereafter be no greater than the Leverage Ratio immediately prior thereto; (4) each Subsidiary Guarantor, unless such Subsidiary Guarantor is the Person with which the Company has entered into a transaction under this section, shall have by amendment to its Guarantee of the Securities confirmed that its Guarantee of the Securities shall apply to the obligations of the Company or the surviving entity in accordance with the Securities and this Indenture; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each in form attached hereto as Exhibits F and G respectively, stating that such consolidation, merger, conveyance, transfer, 90 lease or acquisition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officers' Certificate. For purposes of this Section 8.1, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Company's interest in which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 8.2 Successor Substituted. Upon any consolidation of the --------------------- Company with or merger of the Company with or into any other Corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person or Persons in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and (except in the case of a lease) 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, and, in the event of any such conveyance or transfer (except in the case of a lease), the Company shall be discharged of all obligations under this Indenture and the Securities except with respect to any obligations that arise from, or are related to, such transaction. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Indentures Without Consent of Holders. Without the ------------------------------------- consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form and substance satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or 91 (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to provide for uncertificated Securities in addition to or in place of certificated Securities; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 6.10; or (6) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (7) to provide for collateral securing the Company's obligations under this Indenture and the Securities; or (8) to provide for Guarantees by any other Person of the Company's obligations pursuant to this Indenture and the Securities; provided such actions shall not adversely affect the interests of Holders in any material respect. SECTION 9.2 Indentures with Consent of Holders. With the consent ---------------------------------- of the Holders of not less than a majority in aggregate principal amount at maturity of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that: (i) no such modification may, without the consent of Holders of at least 66 2/3% in aggregate principal amount at maturity of Outstanding Securities, modify the provisions of Section 10.10 92 (including the defined terms used therein) in a manner adverse to the Holders; and (ii) no such modification shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of any Security, or reduce the principal amount or Accreted Value at maturity thereof or the rate of accretion or interest (or extend the time for payment of interest, if any) thereon or any premium payable upon the redemption thereof at the option of the Company, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption at the option of the Company, on or after the Redemption Date), or reduce the Change of Control Purchase Price or the Asset Sale Offer Price after the corresponding Change of Control or Asset Sale has occurred or alter the provisions (including the defined terms used therein) regarding the right of the Company to redeem the Securities in a manner adverse to the Holders, or (2) reduce the percentage in principal amount at maturity of the Outstanding Securities, the consent of whose Holders is required for any such amendment, supplemental indenture or waiver provided for in this Indenture, or (3) modify any of the waiver provisions, except to increase any required 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 Security affected thereby, or (4) cause the Securities to become subordinate in right of payment to any other Indebtedness. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3 Execution of Indentures. In executing, or accepting ----------------------- the additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, and shall be fully protected in relying upon, an Opinion of Counsel 93 stating that the execution of such supplemental indenture is permitted by this Indenture and an Officers' Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Indentures. Upon the execution of any -------------------- supplemental indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5 Conformity with Trust Indenture Act. Every ----------------------------------- supplemental indenture executed pursuant to this Article Nine shall conform as a matter of contract or law to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6 Reference in Securities to Indentures. Securities ------------------------------------- authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may bear a notation in form approved by the Trustee and the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7 Notice of Indentures. Promptly after the execution by -------------------- the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 9.2, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 1.6, setting forth in general terms the substance of such supplemental indenture. ARTICLE X COVENANTS SECTION 10.1 Payment of Principal, Premium, if Any, and Interest. --------------------------------------------------- (1) The Company covenants and agrees for the benefit of the Holders that it shall 94 duly and punctually pay the principal or Accreted Value of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. (2) For the purpose set forth in paragraph (1) above, the Company shall, no later than 10:00 a.m., New York time, on the Business Day first preceding each Payment Date, transfer to an account specified by the Trustee such amount in immediately available and freely transferable U.S. Dollar funds as shall be sufficient for the purposes of the payment of principal of (and premium, if any) and interest (and Liquidated Damages, if any) due to be paid on the Securities on that date. (3) The Company shall ensure that not later than the second Business Day immediately preceding the date on which any payment is to be made to the Trustee pursuant to this Section 10.1, the Company shall procure that a copy of an irrevocable payment instruction to the bank through which the payment is to be made shall be sent to the Trustee. (4) Unless and until the full amount of any payment due on the Securities has been made to the Trustee, or unless and until the Trustee is satisfied that such payment will be made, neither it nor the other Paying Agents shall be bound to make payments in respect of the Securities hereunder. (5) If the Trustee or a Paying Agent pays any amounts to the Holders or to any other Agent at a time when it has not received payment in full from the Company in respect of such Securities, the Company shall, in addition to paying amounts due under Section 10.1(2), pay to the Trustee on demand interest thereon at such a rate as the Trustee shall certify as the aggregate of 1% per annum and the cost of funding any such payment made by it (as determined by the Trustee) until the receipt in full by the Trustee of the funds due to it pursuant to Section 10.1(2). SECTION 10.2 Maintenance of Office or Agency. The Company shall ------------------------------- maintain in The City of New York and London, and for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands (other than service of process) to or upon the Company in respect of the Securities and this Indenture may be served. The Corporate Trust Office of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more 95 of such purposes. The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company hereby initially designates (1) the Trustee at its address set forth in Section 1.5 hereof as its office or agency in London and Citibank N.A. (New York branch), 111 Wall Street, New York, New York as its office or agency in New York, for such purposes, (ii) Banque Internationale a Luxembourg, at its office or agency in Luxembourg for such purposes and (iii) the Paying Agent at its address set forth in Section 1.5 hereof. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York and, for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 10.3 Money for Security Payments to Be Held in Trust. If ----------------------------------------------- the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal or Accreted Value of (or premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or Accreted Value of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it shall, on or before each due date of the principal or Accreted Value of (or premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal or Accreted Value (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to 96 such principal or Accreted Value, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal or Accreted Value of, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal or Accreted Value, premium, if any, or interest, of which it is aware; (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith act under the direction of the Trustee and pay to the Trustee all sums so held in trust by such Paying Agent; and (4) indemnify the Trustee and its officers, directors, employees and agents against any loss, cost or liability caused by, or incurred as a result of, such Paying Agent's acts or omissions. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal or Accreted Value of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal or Accreted Value, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the 97 Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York and in London, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4 Corporate Existence. Subject to Article Eight, the ------------------- Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to the Company, any such right or franchise or, with respect to any Subsidiary (subject to all the other covenants in this Indenture), any such corporate existence, right or franchise, if the Supervisory Board of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.5 Payment of Taxes and Other Claims. The Company shall --------------------------------- pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.6 Maintenance of Properties. The Company shall cause all ------------------------- properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and 98 kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 10.6 shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.7 Insurance. The Company shall at all times keep all of ---------- its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by Corporations similarly situated and owning like properties. SECTION 10.8 Provision of Financial Statements. The Company has --------------------------------- agreed that, for so long as any Securities remain Outstanding, whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will deliver to the Trustee and, to each Holder and to prospective purchasers of Securities identified to the Company, within 15 days after the Company is or would have been (if the Company were subject to such reporting obligations) required to file such with the SEC, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in reports filed with the SEC, if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by the Company's certified independent public accountants as such would be required in such reports to the SEC, and, in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required and, unless the SEC will not accept such reports, file with the SEC the annual, quarterly and other reports which it is or would have been required to file with the SEC. Following the effectiveness of the Registration Statement, the Company will file with the Trustee, at the time it files them with the SEC, copies of the annual and quarterly reports and the information, documents and other reports that the Company is required to file with the SEC under Section 13(a) or 15(d) of the Exchange Act. If the Company ceases to be required to file SEC reports under the Exchange Act, the Company will nevertheless continue to file such reports with the 99 Trustee. The Company will furnish copies of the SEC reports to investors who request them in writing. SECTION 10.9 Statement by Officers as to Default. ----------------------------------- (a) The Company shall deliver to the Trustee, on the date of delivery of each quarterly report to be delivered pursuant to Section 10.8, and within 14 days of a request by the Trustee, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 10.9(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the Trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $50,000,000), the Company shall deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers' Certificate specifying such event, notice or other action within five Business Days of its occurrence. SECTION 10.10 Purchase of Securities upon Change of Control. --------------------------------------------- (1) (a) Upon the occurrence of a Change of Control, the Company will be required to make an offer to each Holder to purchase for cash all or a portion of such Holder's Securities (provided that the principal amount at maturity of such Securities must be $1,000 (or such greater amount made necessary as a result of the occurrence of an Interest Rate Adjustment Event) or an integral multiple thereof) pursuant to the offer described below (the "Change of Control Offer"), at a purchase price in cash equal to 101% of the Accreted Value thereof on the purchase date plus accrued and unpaid interest (and Liquidated Damages, if any) not otherwise included in the Accreted Value to the date of purchase (the "Change of Control Purchase Price"). (b) Within 10 Business Days following a Change of Control, the Company must send a notice to each Holder which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the 100 purchase date, which must be no later than 35 Business Days from the date of the Change of Control, other than as may be required by law (the "Change of Control Purchase Date"). The Change of Control Offer shall remain open for 20 Business Days following its commencement (the "Change of Control Offer Period"). Upon expiration of the Change of Control Offer Period, the Company shall promptly purchase all Notes properly tendered in response to the Change of Control Offer. Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, by delivery of a form entitled "Option of Holder to Elect Purchase," obtainable from the Trustee or any Paying Agent substantially in the form of Exhibit H hereto, completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Purchase Date. The Paying Agent promptly will pay the Holders of Securities so accepted an amount equal to the Change of Control Purchase Price (together with accrued and unpaid interest and Liquidated Damages, if any) and the Trustee promptly will authenticate and deliver to such Holders a new Security equal in principal amount at maturity to any unpurchased portion of the Security surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. The notice referred to above shall be a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder of Securities at its address appearing in the Security Register on the date of the Offer offering to purchase up to the principal amount at maturity of Securities specified in such Offer at the Change of Control Purchase Price. Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Change of Control Offer which shall be, subject to any contrary requirements of applicable law, 20 Business Days after the date of the Offer and a settlement date (the "Change of Control Purchase Date") for purchase of Securities within five Business Days after the Expiration Date. The Company shall notify the Trustee in writing at least 15 Business Days, or a shorter period that is acceptable to the Trustee, prior to the mailing of the Offer of the Company's obligation to make a Change of Control Offer, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable the Holders to make an informed decision with respect to the Change of Control Offer, which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of 101 Operations" contained in the documents required to be filed with the Trustee pursuant to Section 10.8 (which requirements may be satisfied by delivery of the documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of the financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Change of Control Offer), (iii) if applicable, appropriate pro forma financial information concerning the Change of Control Offer and the events requiring the Company to make the Change of Control Offer and (iv) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer. The Offer shall also state: (a) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (b) the Expiration Date and the Change of Control Purchase Date; (c) the aggregate principal amount at maturity of the Outstanding Securities offered to be purchased by the Company in the Change of Control Offer, including, if less than 100%, the manner by which the amount has been determined pursuant to the Section hereof requiring the Change of Control Offer (the "Purchase Amount"); (d) the Change of Control Purchase Price; (e) that the Holder may tender all or any portion of the Securities registered in the name of the Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 (or such greater amount made necessary as a result of the occurrence of an Interest Rate Adjustment Event) principal amount at maturity; (f) the place or places where the Securities are to be surrendered for tender pursuant to the Change of Control Offer; (g) that any of the Securities not tendered or tendered but not purchased by the Company will continue to accrete or accrue interest, as the case may be; 102 (h) that on the Change of Control Purchase Date the Purchase Price will become due and payable upon the Securities being accepted for payment pursuant to the Change of Control Offer and that any interest shall cease to accrue on and after the Change of Control Purchase Date; (i) that each Holder electing to tender the securities in the purchase will be required to surrender the Securities at the place or places specified in the Offer prior to the close of business on the Expiration Date with the Securities being, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly signed by, the Holder or his attorney duly authorized in writing; (j) that Holders will be entitled to withdraw all or any portion of the Securities tendered if the Company or its Paying Agent receives, not later than the close of business on the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount at maturity of the Securities the Holder tendered, the certificate number of the Securities the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (k) that (i) if the Securities in an aggregate principal amount at maturity less than or equal to the Purchase Amount are duly tendered and not withdrawn in the Purchase, the Company shall purchase all the Securities and (ii) if the Securities in an aggregate principal amount at maturity in excess of the Purchase Amount are tendered and not withdrawn in the Change of Control Offer, the Company shall purchase the Securities having an aggregate principal amount at maturity equal to the Purchase Amount on a pro rata basis with adjustments that the Company may deem appropriate so that only Securities in denominations of $1,000 principal amount at maturity or integral multiples thereof shall be purchased; and (l) that in the case of any Holder whose Securities are purchased only in part, the Company shall sign, and the Trustee shall authenticate and deliver to the Holder of the Securities without service charge, the new Security or Securities, of any authorized denomination as requested by the Holder, in an aggregate principal amount at maturity equal to and in exchange for the unpurchased portion of the Securities so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Change of Control Offer. 103 The Company will not be required to make an offer to purchase any series of Securities upon a Change of Control if, before the Change of Control occurs, it has exercised its right to redeem all of the Securities of such series as described under Section 11.1. (2) On or before the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) cash sufficient to pay the purchase price (together with accrued and unpaid interest and Liquidated Damages, if any) of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee all Securities so tendered together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. (3) In the event that the Company makes a Change of Control Offer, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act. (4) If the Change of Control Purchase Date hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on such Interest Payment Date will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (and Liquidated Damages, if applicable) will not be payable to Holders who tender the Securities pursuant to the Change of Control Offer. Notwithstanding anything contained in this Indenture to the contrary, the Company will not, any will not permit any of its Subsidiaries to, incur any Indebtedness that is contractually subordinate to any other Indebtedness of the Company unless such Indebtedness is at least as subordinate to the Securities. SECTION 10.11 Limitation on Incurrence of Additional Indebtedness and ------------------------------------------------------- Disqualified Capital Stock. (1) The Company may not, and may not permit any - -------------------------- Subsidiary to, directly or indirectly, issue, assume, guaranty, incur, become directly or indirectly liable with respect to (including as a result of an Acquisition), or otherwise become responsible for, contingently or otherwise (individually and collectively, to "incur" or, as appropriate, an "incurrence"), any 104 Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing if: (i) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to, such incurrence of Indebtedness; and (ii) on the date of such incurrence (the "Incurrence Date"), either (i) the Leverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would not exceed 7.0 to 1.0 (the "Debt Incurrence Ratio"), (ii) the Consolidated Coverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would not be less than 1.75 to 1.0, or (iii) after giving effect on a pro forma basis to such incurrence of Indebtedness, and, to the extent used to retire other Indebtedness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of the Company would not exceed 225% of the Consolidated Invested Equity Capital of the Company, then the Company may incur such Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness). (2) The foregoing limitations of paragraph (1) of this Section 10.11 will not prohibit: (a) if no Event of Default shall have occurred and be continuing, the incurrence by the Company or its Subsidiaries of Indebtedness in an aggregate amount incurred and Outstanding at any time pursuant to this subparagraph (a) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to $400,000,000 (or the equivalent thereof, at the time of incurrence, in the applicable foreign currencies); (b) the incurrence by the Company and its Subsidiaries of Indebtedness pursuant to the Credit Agreement in an aggregate amount incurred and Outstanding at any time pursuant to this paragraph (b) (plus any refinancing indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to (Euro)1 billion, minus the amount of any such Indebtedness (i) 105 retired with the Net Cash Proceeds from any Asset Sale applied to reduce permanently the Outstanding amounts or the commitments with respect to such Indebtedness pursuant to Section 10.16 or (ii) assumed by a transferee in an Asset Sale; (c) the incurrence by any Subsidiary of Indebtedness, if on the Incurrence Date either (1) the Leverage Ratio of such Subsidiary of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and to the extent set forth in the definition of Leverage Ratio, the use of proceeds thereof, would be no more than 7.0 to 1.0, or (2) the Consolidated Coverage Ratio of such Subsidiary for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio, the use of proceeds thereof, would be no less than 1.75 to 1.00, or (3) after giving effect on a pro forma basis to such incurrence of such Indebtedness, and, to the extent used to retire other Indebtedness, the use of proceeds therefrom, the amount of Indebtedness Outstanding of such Subsidiary would not exceed 225% of the Consolidated Invested Equity Capital of such Subsidiary, provided in the case of each of clauses (c)(1), (2) and (3), the net proceeds therefrom are used in a Related Business of the Company or any affiliated company of the Company, and provided, further, that for the purposes of this clause (c) a Subsidiary may be a co-obligor or guarantor on such Indebtedness of another Subsidiary of the Company (A) if such co-obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the Equity Interests of the Subsidiary of the Company that incurred such Indebtedness, (B) if all or a portion of the Equity Interests of such co-obligor or guarantor Subsidiary is owned (either directly or indirectly through one or more Subsidiaries of the Company) by the Subsidiary that incurred such Indebtedness or (C) if such co- obligor or guarantor Subsidiary owns (either directly or indirectly through one or more Subsidiaries of the Company) all or a portion of the business that will use the proceeds of such Indebtedness; and (d) if no Event of Default shall have occurred and be continuing, the incurrence by Subsidiaries of the Company of Indebtedness pursuant to the Existing Agreements up to, but not in excess of the maximum applicable amounts of Indebtedness available for borrowing pursuant to the terms of each such Existing Agreement as in effect on the date of the Indenture; provided that, in determining 106 the maximum applicable amounts available, it shall be assumed that the Company satisfies any applicable conditions to borrowing. Indebtedness (including Disqualified Capital Stock) of any Person which is Outstanding at the time such Person becomes a Subsidiary of the Company (including upon designation of any subsidiary or other Person as a Subsidiary) or is merged with or into or Consolidated with the Company or a Subsidiary of the Company shall be deemed to have been incurred at the time such Person becomes such a Subsidiary of the Company or is merged with or into or Consolidated with the Company or a Subsidiary of the Company, as applicable. Upon each incurrence, the Company may designate pursuant to which provision of this Section 10.11 such Indebtedness is being incurred and such Indebtedness shall not be deemed to have been incurred or Outstanding under any other provision of this Section 10.11, except as stated otherwise in the foregoing provisions. SECTION 10.12 Limitation on Restricted Payments. (1) The Company may --------------------------------- not, and may not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment if, after giving effect to such Restricted Payment on a pro forma basis: (A) a Default or an Event of Default shall have occurred and be continuing, (B) the Company is not permitted to incur at least $1.00 (or its foreign currency equivalent) of additional Indebtedness pursuant to the Debt Incurrence Ratio in Section 10.11, or (C) the aggregate amount of all Restricted Payments made by the Company and its Subsidiaries, including after giving effect to such proposed Restricted Payment, on and after July 30, 1999, would exceed, without duplication (and except to the extent otherwise credited pursuant to clause (g) of the definition of "Permitted Investment"), the sum of: (a) (i) the amount of the cumulative Consolidated EBITDA of the Company, if positive, less 150% of the cumulative Consolidated Fixed Charges of the Company, for the period (taken as one accounting period), commencing on the first day of the first full fiscal quarter commencing after July 30, 1999, to and 107 including the last day of the fiscal quarter ended immediately prior to the date of each such calculation for which Consolidated financial statements of the Company are available, provided that such sum shall not be deemed to result in an amount less than zero for purposes of any calculation pursuant to this clause (C)(a)(i); or (ii) if such cumulative Consolidated EBITDA of the Company is zero or less, then the amount of such cumulative Consolidated EBITDA for such period; plus (b) the aggregate Net Cash Proceeds received by the Company from the sale of its Qualified Capital Stock (other than (i) to a Subsidiary of the Company and (ii) to the extent applied in connection with a Qualified Exchange), after July 30, 1999; plus (c) to the extent that any Investment (other than a Permitted Investment) that was made after July 30, 1999 is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the amount of cash or Cash Equivalents received by the Company, but only to the extent of the lesser of (i) the cash or Cash Equivalents transferred as a return of capital with respect to such Investment and (ii) the initial amount of such Investment (in either case, less the cost of disposition, if any); plus (d) in the event an Unrestricted Subsidiary is designated as a Subsidiary, an amount equal to fair market value, at such time, of the Investment of the Company and its Subsidiaries made after July 30, 1999; provided, however, that such amount shall not exceed the amount of Investments previously made in such Subsidiary that were counted as Restricted Payments pursuant to this covenant. (2) (a) The foregoing clauses (B) and (C) of Section 10.12(1), however, will not prohibit: (i) any dividend, distribution or payment of dividends on Disqualified Capital Stock permitted by Section 10.11; and (ii) any repurchase by the Company of any shares of any class or options to acquire such shares from any current, future or former directors, officers or employees of the Company or any of its Subsidiaries or Affiliates, provided that the aggregate amount of all the repurchases made under this clause shall not exceed $10,000,000 in any twelve-month period (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $14,000,000 in any calendar year); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (1) the cash proceeds from the sale of Capital Stock of the Company to its Supervisory Board members, management board members or officers of the Company and its 108 Subsidiaries that occurs after July 30, 1999, plus (2) the cash proceeds of key man life insurance policies received by the Company and its Subsidiaries after July 30, 1999; and (b) the foregoing clauses (A), (B) and (C) of Section 10.12(1) will not prohibit: (i) any dividend, distribution or other payments by any Subsidiary of the Company on its Equity Interests that is paid pro rata to all holders of such Equity Interests; (ii) a Qualified Exchange; (iii) the payment of any dividend on Qualified Capital Stock within 60 days after the date of its declaration if such dividend could have been made on the date of such declaration in compliance with the foregoing provisions; or (iv) the payment of dividends by the Company in cash or Qualified Capital Stock pursuant to the terms of any Parent Stock Instrument that is incurred or issued (as applicable) in compliance with this Indenture. The full amount of any Restricted Payment made pursuant to paragraphs 2(a)(i), (ii) and 2(b)(i), (iii) and (iv), but not pursuant to paragraph 2(b)(ii), however, will be counted as Restricted Payments made for purposes of the calculation of the aggregate amount of Restricted Payments available to be made referred to in Section 10.12(1)(C). For purposes of this section, the amount of any Restricted Payment made or returned, if other than in cash, shall be the fair market value thereof, as determined in the good faith reasonable judgment of the Company's Supervisory Board, unless stated otherwise, at the time made or returned, as applicable. Additionally, on the date of each Restricted Payment, the Company shall deliver an Officers' Certificate to the respective Trustee describing in reasonable detail the nature of such Restricted Payment, stating the amount of such Restricted Payment, stating in reasonable detail the provisions of this Indenture pursuant to which such Restricted Payment was made and certifying that such Restricted Payment was made in compliance with the terms of this Indenture. SECTION 10.13 Limitation on Dividend and Other Payment Restrictions ----------------------------------------------------- Affecting Subsidiaries. (1) The Company may not, and may not permit - ----------------------- 109 any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual restriction on the ability of any Subsidiary: (i) to pay dividends, in cash or otherwise, or make any other distributions to or on behalf of or pay any obligation to or on behalf of the Company or any Subsidiary of the Company; (ii) to make or pay loans or advances to or on behalf of the Company or any Subsidiary of the Company; or (iii) to transfer property or assets to or on behalf of the Company or any Subsidiary of the Company, except: (a) restrictions imposed by the Securities or the Senior Notes or the Indenture or the Senior Notes Indenture or by other Indebtedness of the Company ranking pari passu with the Securities and the Senior Notes, provided that such restrictions are no more restrictive than those imposed by the Indenture and the Securities; (b) restrictions imposed by applicable law; (c) restrictions under Indebtedness outstanding on July 30, 1999, including pursuant to the Credit Agreement; (d) restrictions under any Acquired Indebtedness not incurred in violation of the Indenture or any agreement (including any Equity Interest) relating to any property, asset, or business acquired by the Company or any of its Subsidiaries, which restrictions in each case existed at the time of acquisition, were not put in place in connection with or in anticipation of such acquisition, and are not applicable to any Person, other than the Person acquired, or to any property, asset or business, other than the property, assets and business so acquired; (e) any such restriction or requirement imposed by Indebtedness incurred under the Credit Agreement pursuant to Section 10.11, provided that such restriction or requirement is no more restrictive than that imposed by the Credit Agreement as of July 30, 1999; 110 (f) with respect solely to a Subsidiary of the Company imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all or substantially all of the Equity Interests or assets of such Subsidiary, provided that such restrictions apply solely to the Equity Interests or assets of such Subsidiary which are being sold; (g) restrictions under Purchase Money Indebtedness not incurred in violation of the Indenture, provided that such restrictions relate only to the property financed with such Indebtedness; (h) with respect to any Subsidiary, restrictions contained in the terms of any Indebtedness incurred in compliance with the Indenture, or any agreement pursuant to which such Indebtedness was issued, if (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the Company shall have reasonably determined that the encumbrance or restriction is not materially more disadvantageous to the Holders of the Securities than is customary in comparable financings, and (C) the Company shall have reasonably determined that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Securities; and (i) in connection with and pursuant to permitted Refinancings, replacements of restrictions imposed pursuant to clauses (a), (c), (d), or (g), or this clause (i), of this paragraph that are not more restrictive than those being replaced and do not apply to any other Person or assets than those that would have been covered by the restrictions in the Indebtedness so refinanced. (2) Notwithstanding the provisions of Section 10.13(1), (a) customary provisions restricting subletting, assignment or transfer of any lease, license, conveyance, or similar document or instrument entered into in the ordinary course of business, consistent with industry practice and (b) any asset or property subject to a Lien which is not prohibited to exist with respect to such asset pursuant to the terms of this Indenture may be subject to customary restrictions on the transfer or disposition thereof pursuant to such Lien. SECTION 10.14 Limitation on Liens Securing Indebtedness. The ----------------------------------------- Company may not, and may not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, upon any of their respective assets now owned or acquired on or after the date of this Indenture or 111 upon any income or profits therefrom securing any Indebtedness of the Company, unless the Company provides, and causes its Subsidiaries to provide, concurrently therewith, that the Securities are equally and ratably so secured; provided that if such Indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness shall be subordinate and junior to the Lien securing the Securities with the same relative priority as such Subordinated Indebtedness shall have with respect to the Securities. SECTION 10.15 Limitation on Issuances of Guarantees by Subsidiaries. ----------------------------------------------------- (1) Notwithstanding the other provisions of this Indenture, the Company may not permit any Subsidiary to, directly or indirectly, Guarantee any Indebtedness of the Company (other than Indebtedness incurred pursuant to the Credit Agreement in accordance with the terms of this Indenture) ("Guaranteed Indebtedness"), then such Subsidiary must become a Guarantor (a "Subsidiary Guarantor") of the Securities on a basis such that the Subsidiary's Guarantee of the Securities shall stand in substantially the same relative ranking in right of payment to the guarantee of such other Indebtedness as the Securities stand in relative ranking to such other Indebtedness; provided that this paragraph shall not be applicable to any guarantee by any Subsidiary that (a) existed at the time such Person became a Subsidiary of the Company and (b) was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company. (2) Subsidiary Guarantees shall be automatically released upon (i) the sale or other disposition of all or substantially all of the Company's and its Subsidiaries' beneficial interest in the Equity Interests or assets of such Subsidiary Guarantor, provided that thereafter such Subsidiary Guarantor shall cease to be a Subsidiary of the Company, (ii) the consolidation or merger of any such Subsidiary Guarantor with any Person other than the Company or a Subsidiary of the Company if, as a result of such consolidation or merger, such Subsidiary Guarantor ceases to be a Subsidiary of the Company (and shall not be a Subsidiary of the successor to the Company), (iii) a Legal Defeasance, or (iv) the unconditional and complete release of such Subsidiary Guarantor from its Guarantee of all Guaranteed Indebtedness. SECTION 10.16 Limitation on Sale of Assets and Subsidiary Stock. ------------------------------------------------- (1) The Company may not, and may not permit any Subsidiary to, in one or a series of related transactions, convey, sell, transfer, assign or otherwise dispose of, directly or indirectly, any of the Company's or such Subsidiary's property, business or assets (including by merger or consolidation in the case of a Subsidiary 112 of the Company), and including any sale or other transfer or issuance of any Equity Interests of any Subsidiary of the Company, whether by the Company or a Subsidiary or through the issuance, sale or transfer of Equity Interests by a Subsidiary of the Company, and including any sale and leaseback transaction (any of the foregoing, an "Asset Sale"), unless: (A) (1) the amount equal to the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") is applied (i) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the optional redemption of the Securities in accordance with the terms of the Indenture and other Indebtedness of the Company ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to redeem such Indebtedness with the proceeds from such Asset Sale, pro rata in proportion to the respective principal amounts (or accreted values in the case of Securities and other Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding, or (ii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) after the date of such Asset Sale to the repurchase of the Securities and such other Indebtedness ranking pari passu in right of payment with the Securities and with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from such Asset Sale pursuant to a cash offer (subject only to conditions required by applicable law, if any) pro rata in proportion to the respective principal amounts (or accreted values in the case of Securities and other Indebtedness issued with original issue discount) of the Securities and such other Indebtedness then Outstanding (the "Asset Sale Offer") at a purchase price of 100% of principal amount (or accreted value in the case of Indebtedness issued with original issue discount) (the "Asset Sale Offer Price") together with accrued and unpaid interest and Liquidated Damages, if any, to the date of payment, made within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello 113 broadband or 540 days in the case of any other Special Character Asset Sale) of such Asset Sale, or (iii) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale), to the repayment of Indebtedness then Outstanding pursuant to the Credit Agreement or, if required by the terms of such Indebtedness, of Indebtedness issued by a Subsidiary of the Company (in respect of which Indebtedness the Company is not a direct or contingent obligor except by virtue of the Company's pledge of Equity Interests of, and other interests of or claim on, such Subsidiary or the Company's guarantee of such Subsidiary's Indebtedness to the extent, in either case, the recourse against the Company is limited to such Equity Interests or claim), or (2) within 360 days (1,825 days in the case of an Asset Sale resulting from the underwritten public sale of equity securities of chello broadband or 540 days in the case of any other Special Character Asset Sale) following such Asset Sale, the Asset Sale Offer Amount is invested in assets and property which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business of the Company or such Subsidiary (if it continues to be a Subsidiary) immediately following such transaction or is used to make Permitted Investments in the Company or a Subsidiary of the Company (other than Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture), provided that (i) 50% of the Net Cash Proceeds from Special Character Asset Sales and 100% of the net proceeds from any Asset Sale of an Investment made in reliance on clause (g) of the definition of "Permitted Investments" may be reinvested in any Permitted Investment (other than, in either case, Cash Equivalents or securities of the Company or any Person controlling the Company except as permitted by the Indenture) which in the good faith reasonable judgment of the Company will immediately constitute or be a part of a Related Business and (ii) 100% of the net proceeds from an Asset Sale constituting the sale of an Investment in any Person (excluding a Person that would be Consolidated with the Company under GAAP and excluding Related Assets of the Company or any of its Subsidiaries) in which the Company or any of its Subsidiaries has an Equity Interest may be reinvested in Investments permitted by clause (e) or (f) of the definition of "Permitted Investments," 114 (B) at least 75% of the total consideration for such Asset Sale or series of related Asset Sales consists of cash, Cash Equivalents, Replacement Assets or the assumption of Indebtedness of a Subsidiary. For purposes of this subparagraph (B), total consideration received means the total consideration received for such Asset Sales, minus the amount of (a) Purchase Money Indebtedness secured solely by the assets sold and assumed by a transferee, provided that the Company and the Subsidiaries are released from any obligation in connection therewith; and (b) property that within 30 days of such Asset Sale is converted into cash or Cash Equivalents, provided that such cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to the original Asset Sale for which such property was received, (C) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect to, on a pro forma basis, such Asset Sale, and (D) in the case of a transaction or series of related transactions exceeding $15,000,000 (or the foreign currency equivalent on the date of the transaction) of consideration to any party thereto, the Supervisory Board of the Company determines in its good faith reasonable judgment that the Company or such Subsidiary, as applicable, receives fair market value for such Asset Sale. (2) An acquisition of Securities pursuant to an Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth in 1(a)(i), (iii), or 1(b) above (the "Excess Proceeds") exceeds $50,000,000 (or the foreign currency equivalent thereof), provided that, in the case of an Asset Sale by a Subsidiary of the Company that is not a Wholly Owned Subsidiary, only the Company's and its Subsidiaries' pro rata portion of such Net Cash Proceeds shall constitute Net Cash Proceeds subject to the provisions of this Section 10.16. Each Asset Sale Offer shall remain open for 20 Business Days following its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company shall apply the Asset Sale Offer Amount, plus an amount equal to accrued and unpaid interest and Liquidated Damages, if any, to the purchase of all Indebtedness properly tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued interest and Liquidated Damages, if any). To the extent that the aggregate amount of Securities and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the Company may apply any remaining Net Cash Proceeds to any 115 purpose consistent with this Indenture, and following the consummation of each Asset Sale Offer the Excess Proceeds amount shall be reset to zero. Notwithstanding, and without complying with, the foregoing provisions of this Section 10.16: (u) the Company and its Subsidiaries may, in the ordinary course of business, (a) convey, sell, transfer, assign or otherwise dispose of inventory and other assets acquired and held for resale in the ordinary course of business and (b) liquidate and otherwise dispose of Cash Equivalents; (v) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets pursuant to and in accordance with Article Eight. (w) the Company and its Subsidiaries may sell or dispose of damaged, worn out or other obsolete personal property in the ordinary course of business so long as such property is no longer necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and the Company and its Subsidiaries may replace personal property in the ordinary course of business so long as the replacement property is necessary for the proper conduct of the business of the Company or such Subsidiary, as applicable, and sell or dispose of such replaced property in the ordinary course; (x) the Company and its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of property, businesses, or assets to the Company or any of its Subsidiaries; (y) the Company and each of its Subsidiaries may surrender or waive contract rights or settle, release or surrender contract, tort or other claims of any kind in the ordinary course of business or grant Liens not otherwise prohibited by the Indenture; (z) the Company and its Subsidiaries may exchange assets for property, businesses, or assets held by any Person (including by merger or consolidation in the case of a Subsidiary of the Company); provided that (a) property, businesses and assets, which in one or 116 a series of related transactions exceeds $15,000,000 in value, received by the Company or such Subsidiaries in any such exchange in the good faith reasonable judgment of the Supervisory Board of the Company will immediately constitute, be a part of, or be used in, a Related Business of the Company or such Subsidiaries, (b) the Supervisory Board of the Company has determined that the terms of any exchange, which in one or a series of related transactions exceeds $15,000,000 in fair market value, are fair and reasonable, and (c) any cash or Cash Equivalents received by the Company or any Subsidiary in such exchange shall be treated as having been received as a result of an Asset Sale. All Net Cash Proceeds from an Event of Loss shall be used all within the period and as otherwise provided above in clause (1) of the first paragraph of this Section 10.16. (3) Any Asset Sale Offer shall be made in compliance with all applicable laws, rules, and regulations, including, if applicable, Regulation 14E of the Exchange Act and the rules and regulations thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any applicable securities laws, rules, or regulations conflict with the provisions of this section, compliance by the Company or any of its subsidiaries with such laws, rules or regulations shall not in and of itself cause a breach of its obligations under this section. (4) If the payment date in connection with an Asset Sale Offer hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any, due on such Interest Payment Date) will be paid to the Person in whose name a Security is registered at the close of business on such Record Date, and such interest (or Liquidated Damages, if applicable) will not be payable to Holders who tender Securities pursuant to such Asset Sale Offer. SECTION 10.17 Limitation on Transactions with Affiliates. The Company ------------------------------------------ may not, and may not permit any Subsidiary on or after the Issue Date to, enter into any contract, agreement, arrangement or transaction with any Affiliate of the Company (an "Affiliate Transaction"), or any series of related Affiliate Transactions, other than Exempted Affiliate Transactions, 117 (1) unless it is determined by the Supervisory Board as evidenced by a Board Resolution that the terms of such Affiliate Transaction are fair and reasonable to the Company and no less favorable to the Company than could have been obtained in an arm's length transaction with a non-Affiliate, and (2) if involving consideration to either party in excess of $15,000,000 (or its foreign currency equivalent), unless such Affiliate Transaction(s) is evidenced by an Officers' Certificate addressed and delivered to the Trustee certifying that such Affiliate Transaction (or Affiliate Transactions) has been approved by a majority of the members of the Supervisory Board of the Company that are disinterested in such transaction, if there are any directors who are so disinterested, and (3) if involving consideration to either party in excess of $15,000,000 or $30,000,000 if there are disinterested directors (or in each case its foreign currency equivalent), unless in addition the Company, prior to the consummation thereof, obtains a written favorable opinion as to the fairness of such transaction to the Company from a financial point of view from an independent investment banking firm of national reputation in the United States or, if pertaining to a matter for which such investment banking firms do not customarily render such opinions, an appraisal or valuation firm of national reputation in the United States. SECTION 10.18 Additional Amounts. All payments made by the Company ------------------ under or with respect to the Securities will be made free and clear of and without withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of any Taxing Authority within The Netherlands, or within any other jurisdiction in which the Company is organized or engaged in business, or any other jurisdiction if payments on the Securities are made from within such jurisdiction (each of the above, a "Relevant Taxing Jurisdiction"), unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is required to withhold or deduct any amount for or on account of Taxes (other than any estate, inheritance, gift, sales, excise, transfer, wealth or personal property tax, or any similar non-income tax, assessment or governmental charge) imposed by a Taxing Authority within a Relevant Taxing Jurisdiction, from any payment made under or with respect to the Securities, the Company will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Securities (including 118 Additional Amounts) after such withholding or deduction (including any withholding or deduction in respect of such Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided that no such Additional Amounts shall be payable with respect to a payment made to a Holder with respect to any Tax or portion thereof that would not have been imposed, payable or due: (1) but for the existence of any present or former connection between the Holder (or the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities) and The Netherlands or other jurisdiction in which the Company is organized or engaged in business other than the holding of the Securities; (2) but for the failure of the Holder to use its reasonable best efforts to comply upon written notice by the Company delivered 60 days prior to any payment date with a request by the Company to satisfy any certification, identification or other reporting requirements which shall include any applicable forms or instructions whether imposed by statute, treaty, regulation or administrative practice concerning the nationality or residence of the Holder or the connection of the Holder with The Netherlands or other jurisdiction in which the Company is organized or engaged in business: (i) provided that Holder's failure to comply with the 60 day requirement described above shall not relieve the Company of the Company's obligation to pay Additional Amounts if the Holder's application for any requested certification, identification or other reporting requirement remains Outstanding or is otherwise pending and the Holder continues to use its reasonable best efforts to obtain such information; (ii) provided, further, that the Company shall pay any Additional Amounts not paid on any payment date as a result of the operation of this clause (2) upon the satisfaction of the relevant certification, identification or other reporting requirements within 30 days after such payment date, provided that the Company shall not, as a result of such satisfaction occurring after the payment date, have already irrevocably paid to the relevant taxing authority the withheld or deducted amount in respect of which such Additional Amounts would have been payable; 119 (3) but for the failure of the Holder (or the beneficial individual owner of, or individual ultimately entitled to obtain an interest in, such Securities) who is an individual citizen or resident of a member state of the European Union to comply with a written notice by the Company delivered 60 days prior to any payment date with a request by the Company to provide any certification, identification or other reporting requirement, whether imposed by statute, treaty, regulation or administrative practice, if such action would otherwise eliminate the requirement for the withholding or deduction of Taxes; or (4) if the beneficial owner of, or person ultimately entitled to obtain an interest in, such Securities had been the Holder of the Securities and would not be entitled to the payment of Additional Amounts (excluding the impact of book entry procedures by the Depository). In addition, Additional Amounts will not be payable with respect to any Tax which is payable and so paid otherwise than by withholding or deduction from payments of, or in respect of principal of, or any interest or Liquidated Damages on, the Securities. The Company will remit the full amount of any withholdings or deductions for or on account of Taxes to the relevant Taxing Authority in accordance with applicable law. The Company will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company will furnish to the Holders, within 60 days after the date the payment of any Taxes so deducted or withheld are due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by the Company or, if such receipts are not obtainable, other evidence of such payments by the Company. At least 30 days prior to each date on which any payment under or with respect to the Securities 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 respective Trustee an Officers' Certificate stating (i) the fact that such Additional Amounts will be payable, (ii) the amounts so payable and (iii) such other information necessary to enable the Trustee to pay such Additional Amounts to the Holders of Securities on the Interest Payment Date. Wherever in this Indenture there is mentioned, in any context, the payment of amounts based upon the principal amount at maturity of the Securities or of principal, Accreted Value, premium, if any, interest or Liquidated Damages, if any, or of any other amount payable under or with respect to any of the Securities, such 120 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 10.19 Waiver of Stay, Extension or Usury Laws. The Company --------------------------------------- covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, 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, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest, if any, on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which 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 shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.20 Limitation on Lines of Business. Neither the Company ------------------------------- nor any of its Subsidiaries shall directly or indirectly engage to any substantial extent in any line or lines of business activity other than that which, in the reasonable good faith judgment of the Supervisory Board, is a Related Business. SECTION 10.21 Limitation on Status as an Investment Company. The --------------------------------------------- Company and its Subsidiaries shall not take any action or conduct their business and operations in such a way as would cause them to be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or would otherwise cause them to become subject to regulation under the Investment Company Act. 121 ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1 Right of Redemption. ------------------- (1) Optional Redemption of the Securities The Securities will be redeemable at the option of the Company, in whole or in part, at any time or from time to time on or after February 1, 2005, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices (expressed as a percentage of Accreted Value thereof) set forth below, plus accrued and unpaid interest (and Liquidated Damages, if any,) thereon, if any, to the date of redemption: YEAR Security Redemption Price ---- ------------------------- 2005............................................ 106.875% 2006............................................ 104.583% 2007............................................ 102.292% 2008 and thereafter............................. 100.000% The Company will publish a redemption notice in accordance with the procedures described under Section 1.6. (2) Redemption Upon Equity Offering Prior to February 1, 2003, upon an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount of the Securities may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days, but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a redemption price equal to 113.75% of the Accreted Value thereof together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount at maturity of the Securities originally issued (as may be increased as a result of the occurrence of an Interest Rate Adjustment Event) remain Outstanding and 122 provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Offering. (3) Redemption For Changes In Withholding Taxes The Company may, at its option, redeem all, but not less than all, of the Securities then Outstanding, in each case at 100% of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, if a Tax Event has occurred and is continuing. Notice of any such redemption must be given within not less than 30 days nor more than 60 days prior to the redemption date. No redemption pursuant to this paragraph (3) may be made unless, prior to the publication of any notice of redemption as a result of a Tax Event, the Company delivers to the Trustee (i) an Officer's Certificate stating that a Tax Event has occurred (irrespective of whether the amendment or change is then effective), describing the facts leading thereto and stating that the Company cannot avoid the requirement to pay Additional Amounts by taking reasonable measures available to it and (ii) an opinion of counsel reasonably acceptable to the Trustee to the effect that the Company is or will become obligated to pay Additional Amounts as a result of such change or amendment. (4) Mandatory Redemption The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the Securities. SECTION 11.2 Applicability of Article. Redemption of Securities at ------------------------ the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 11.3 Election to Redeem; Notice to Trustee. The election of ------------------------------------- the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount at maturity of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 11.4. 123 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed. If ------------------------------------------------- less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption pro rata, by lot or by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount at maturity of Securities; provided, however, that no such partial redemption shall reduce the portion of the principal amount at maturity of a Security not redeemed to less than $1,000 (or such greater amount made necessary as a result of the occurrence of an Interest Rate Adjustment Event). The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount at maturity thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount at maturity of such Security which has been or is to be redeemed. SECTION 11.5 Notice of Redemption. Notice of redemption shall be -------------------- given in the manner provided for in Section 1.6 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. Each notice of redemption shall state: (1) the Redemption Date, (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 11.7, if any, (3) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of a partial redemption, the principal amount at maturity) of the particular Securities to be redeemed, (4) in case any Security is to be redeemed in part only, that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, 124 without charge, a new Security or Securities of authorized denominations for the principal amount at maturity thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 11.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue and that the Accreted Value of the Securities will cease to increase on and after said date, and (6) the place or places where such Securities are to be presented and surrendered for payment of the Redemption Price and accrued interest, if any. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.6 Deposit of Redemption Price. Prior to any Redemption --------------------------- Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of U.S. Dollars sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.7 Securities Payable on Redemption Date. Notice of ------------------------------------- redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest and Liquidated Damages, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal or Accreted Value (and premium, if 125 any) shall, until paid, accrete or bear interest from the Redemption Date at the rate of accretion of or interest rate borne by the Securities. SECTION 11.8 Securities Redeemed in Part. Any Security which is to be --------------------------- redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount at maturity equal to and in exchange for the unredeemed portion of the principal amount at maturity of the Security so surrendered. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.1 Company's Option to Effect Defeasance or Covenant ------------------------------------------------- Defeasance. The Company may, at its option by Board Resolution, at any time - ---------- prior to the Stated Maturity of the Securities, with respect to the Securities, elect to have either Section 12.2 or Section 12.3 be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article Twelve. SECTION 12.2 Defeasance and Discharge. Upon the Company's exercise ------------------------ under Section 12.1 of the option applicable to this Section 12.2, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 12.4 are satisfied (hereinafter, "Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 12.5 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of 126 Outstanding Securities to receive, solely from the trust fund described in Section 12.4 and as more fully set forth in such Section, payments in respect of the principal or Accreted Value of, premium, if any, and interest (and Liquidated Damages, if any) on such Securities when such payments are due and any rights of the Holders with respect to such amounts, (B) the Company's obligations with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3; (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 12.2 notwithstanding the prior exercise of its option under Section 12.3 with respect to the Securities. SECTION 12.3 Covenant Defeasance. Upon the Company's exercise under ------------------- Section 12.1 of the option applicable to this Section 12.3, the Company shall be released from its obligations under any covenant contained in Section 8.1 and in Sections 10.8 through 10.18 with respect to the Outstanding Securities ("Covenant Defeasance") on and after the date the conditions set forth below are satisfied, and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.1(3), 5.1(4) and 5.1(5), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.4 Conditions to Defeasance or Covenant Defeasance. The ----------------------------------------------- following shall be the conditions to application of either Section 12.2 or Section 12.3 to the Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another Trustee satisfying the requirements of Section 6.8 who shall agree to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities: (A) U.S. legal tender (with respect to the Securities), or 127 (B) U.S. Government Obligations (with respect to the Securities) or (C) a combination thereof, sufficient, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying Trustee) to pay and discharge, the principal or Accreted Value of (and premium, if any) and interest on the Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal or Accreted Value (and premium, if any) or installment of interest; provided that the Holders of Securities must have a valid, perfected, exclusive security interest in such trust. (2) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (6) and (7) of Section 5.1 are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound. (4) In the case of an election under Section 12.2, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture, there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Defeasance had not occurred. (5) In the case of an election under Section 12.3, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect that (i) the Holders of the Outstanding Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the 128 same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (6) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such Outstanding Securities over any other of the Company's creditors or with the intent of defeating, hindering, delaying or defrauding any other of the Company's creditors or others; and (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for relating to either the Defeasance under Section 12.2 or the Covenant Defeasance under Section 12.3 (as the case may be) have been complied with; and, in the case of the opinion of counsel, that paragraphs (1) (with respect to the validity and perfection of the security interest), (2), (3) and (5) of this Section 12.4 have been complied with, and the Company shall have delivered to the Trustee an Officers' Certificate, subject to such qualifications and exceptions as the Trustee deems appropriate, to the effect that, assuming no Holder of the Securities is an insider of the Company, the trust funds will not be subject to the effect of any applicable Federal bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. SECTION 12.5 Deposited Money and U.S. Government Securities to Be ---------------------------------------------------- Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the - --------------------------------------------- last paragraph of Section 10.3, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying Trustee, collectively for purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal or Accreted Value, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee and (if applicable) its officers, directors, employees and agents against any tax, fee or other charge imposed on or assessed against the U.S. Government Securities deposited pursuant to Section 12.4 or the principal and interest received in respect thereof other than any 129 such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.4 which, in the opinion of a firm of independent public accountants that is nationally recognized in the United States expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Defeasance or Covenant Defeasance, as applicable, in accordance with this Article Twelve. SECTION 12.6 Reinstatement. If the Trustee or any Paying Agent is ------------- unable to apply any money in accordance with Section 12.5 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.2 or 12.3, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.5; provided, however, that if the Company makes any payment of principal or Accreted Value of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. 130 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. UNITED PAN-EUROPE COMMUNICATIONS N.V. By:____________________________________ Name:__________________________________ Title:_________________________________ Citibank, N.A. (London Branch), Trustee By:____________________________________ Name:__________________________________ Title:_________________________________ EXHIBIT A [FORM OF SECURITIES] [If a Global Security, then insert:] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC"), EUROCLEAR OR CEDELBANK (EACH, A "DEPOSITARY") OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN A DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY A DEPOSITARY TO A NOMINEE OF A DEPOSITARY OR BY A NOMINEE OF A DEPOSITARY TO A DEPOSITARY OR ANOTHER NOMINEE OF A DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. [If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF SUCH DEPOSITARY OR A NOMINEE OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY (AND ANY PAYMENT IS MADE TO ITS NOMINEE OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF A DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, A NOMINEE OF A DEPOSITARY, HAS AN INTEREST HEREIN. [If a Restricted Global Security, then insert:] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION A-1 OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY ITS ACCEPTANCE HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) (A "QIB"), OR IS OTHERWISE ACQUIRING THIS SECURITY PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QIB AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO PERSONS THAT ARE NOT U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT ("REGULATION S") OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. OFFERS, SALES OR OTHER TRANSFERS OF THIS SECURITY UNDER CLAUSES (C), (D) AND (E) ABOVE ARE SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFERS, SALES OR OTHER TRANSFERS TO A-2 REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S. [If a Regulation S Security, then insert:] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT TO THE SECURITIES) NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. BY ITS ACCEPTANCE HEREOF, THE HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS SECURITY MAY NOT BE OFFERED, TRANSFERRED OR SOLD AS PART OF ITS INITIAL DISTRIBUTION, OTHER THAN TO INDIVIDUALS OR LEGAL ENTITIES, SITUATED IN OR OUTSIDE THE NETHERLANDS, WHO OR WHICH TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF THEIR PROFESSION OR BUSINESS (WHICH INCLUDES BANKS, BROKERS, DEALERS, INSURANCE COMPANIES, PENSION FUNDS, OTHER INSTITUTIONAL INVESTORS AND OTHER PARTIES (INCLUDING TREASURY DEPARTMENTS OF COMMERCIAL ENTERPRISE AND FINANCE COMPANIES OR GROUPS), WHICH REGULARLY TRADE OR INVEST IN SECURITIES). A-3 THIS SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. UPON REQUEST, THE COMPANY WILL PROMPTLY MAKE AVAILABLE THE FOLLOWING INFORMATION TO HOLDERS OF THIS SECURITY: THE ISSUE PRICE; THE AMOUNT OF ORIGINAL ISSUE DISCOUNT; THE ISSUE DATE; AND THE YIELD TO MATURITY OF THIS SECURITY. HOLDERS SHOULD CONTACT UNITED PAN-EUROPE COMMUNICATIONS N.V., P.O. BOX 74763, 1070 BT AMSTERDAM, THE NETHERLANDS, ATTENTION: ANTON M. TUIJTEN, GENERAL COUNSEL. A-4 United Pan-Europe Communications N.V. $1,000,000,000 13 3/4% Senior Discount Notes Due 2010 [CUSIP][ISIN][Common Code]: [_] No. [_] $ [_] United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company," which term includes any successor corporation), for value received, hereby promises to pay to the registered holder, Cede & Co., as nominee of The Depository Trust Company or registered assigns, the principal sum of [ ] DOLLARS, which amount includes amortization of original issue discount, on February 1, 2010. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-5 IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officer. Dated: January 20, 2000 UNITED PAN-EUROPE COMMUNICATIONS N.V. By: ________________________________ Authorized Signatory A-6 TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: January 20, 2000 This is one of the Securities referred to in the within-mentioned Indenture. CITIBANK, N.A. Not in its individual capacity, but solely as Trustee By: _____________________________________ Authorized Signatory A-7 [REVERSE OF NOTE] UNITED PAN-EUROPE COMMUNICATIONS N.V. $1,000,000,000 13 3/4% SENIOR DISCOUNT NOTE DUE 2010 1. Method of Payment. The initial Accreted Value will increase at the ----------------- rate of 13 3/4% per annum, compounded semi-annually, on the Securities. Payment of the principal of, or premium, if any, on the Securities or such lesser amount payable upon the acceleration of the maturity of the Securities will include accrued amortization of original issue discount. Interest payable in cash will commence to accrue on February 1, 2005, and will be payable semi-annually in arrears on each February 1 and August 1, commencing on August 1, 2005. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest will be paid upon overdue principal and premium, and interest, if any, compounded semi-annually from the due date at the rate borne by the Securities to the extent such payment is lawful. In the event that, at any time prior to 180 days following the Issue Date, the Company (x) issues or sells, or (y) offers or negotiates to issue or sell, for cash, any debt securities (other than debt securities convertible or exchangeable into Capital Stock of the Company) to Qualified Institutional Buyers who, as a regular part of their business, purchase debt securities comparable to the Securities or the Senior Notes (any of the events described in (x) or (y) at any time during such 180 day period, an "Interest Rate Adjustment Event"), the rate of accretion of Accreted Value otherwise applicable to the Securities shall, on and after the date of such Interest Rate Adjustment Event, be increased by 25 basis points such that on and after the date of such Interest Rate Adjustment Event, the Accreted Value of the Securities will accrete at a rate of 14% per annum from the date of such Interest Rate Adjustment Event until the Securities reach their principal amount at maturity on February 1, 2005. If an Interest Rate Adjustment Event has occurred, interest payable in cash on the Securities will accrue at a rate of 14% per annum from February 1, 2005 or from the most recent Interest Payment Date to which cash interest has been paid or duly provided for, and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2005 to the Holders of record on the immediately preceding Regular Record Date. A-8 Promptly following the occurrence of an Interest Rate Adjustment Event, the Company shall give notice of the occurrence thereof to the Trustee, to the Paying Agent and to each Holder of Securities in the manner provided for in Section 1.6 of the Indenture. Such notice shall include (a) the adjusted principal amount at maturity on February 1, 2005, setting forth the calculation thereof in reasonable detail and (b) the amount to be paid to the Holders of record as of each Regular Record Date immediately prior to each Interest Payment Date beginning August 1, 2005. The Holder must surrender this Security to a Paying Agent to collect payments. The principal of, Accreted Value, interest and premium, if any, on this Security will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment may be made by check mailed to the Holders of the Securities at their respective addresses set forth in the register of Holders of Securities. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. All payments shall be in coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 2. Paying Agent and Registrar. Initially, Citibank, N.A. (London -------------------------- Branch) (the "Trustee") and Citibank, N.A. (New York Branch) will act as Paying Agent and Registrar and Banque Internationale a Luxembourg will act as Paying Agent in Luxembourg. The Company may change any Paying Agent or Registrar without notice. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 3. Indenture. The Company issued $1,000,000,000 13 3/4% Senior --------- Discount Notes due 2010 under an Indenture dated as of January 20, 2000 (the "Indenture") between the Company and the Trustee. This is one of an issue of Securities of the Company issued, or to be issued, under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of them. Capitalized and certain other terms used herein and not otherwise defined have the meanings set forth in the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. A-9 4. Additional Amounts. The Company will pay to the Holders of ------------------ Securities such Additional Amounts as may become payable under Section 10.18 of the Indenture. 5. Optional Redemption of the Securities. The Securities will be ------------------------------------- redeemable at the option of the Company, in whole or in part, at any time or from time to time on or after February 1, 2005, upon not less than 30 nor more than 60 days' prior notice to each Holder of Securities, at the Redemption Prices (expressed as a percentage of Accreted Value thereof) if redeemed during the 12- month period beginning on February 1 of the years indicated below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date: REDEMPTION YEAR PRICE ----- ---------------- 2005....................... 106.875% 2006....................... 104.583% 2007....................... 102.292% 2008 and thereafter........ 100.000% 6. Redemption Upon Equity Offering. Prior to February 1, 2003, upon ------------------------------- an Equity Offering of Common Stock for cash of the Company, up to 35% of the aggregate principal amount at maturity of the Securities may be redeemed at the Company's option within 90 days of such Equity Offering, on not less than 30 days', but not more than 60 days', notice to each Holder of the Securities to be redeemed, with cash in an amount not in excess of the Net Cash Proceeds of such Equity Offering, at a redemption price equal to 113.750% of the Accreted Value thereof, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount at maturity of the Securities originally issued (as may be increased as a result of an Interest Rate Adjustment Event) remain Outstanding and provided, further, that such redemption shall occur within 90 days after the date of the closing of such Equity Offering. 7. Redemption for Changes in Withholding Taxes. The Company may, at ------------------------------------------- its option, redeem all, but not less than all, of the Securities then Outstanding, at 100% of the Accreted Value of the Securities redeemed, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date, if a Tax Event has occurred and is continuing. A-10 8. Mandatory Redemption. The Company is not required to make -------------------- mandatory redemption payments or sinking fund payments with respect to the Securities. 9. Notice of Redemption. Notice of redemption will be mailed within -------------------- not less than 30 days nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed at his registered address. On and after the Redemption Date, unless the Company defaults in making the redemption payment, interest ceases to accrue, and, if applicable, the Accreted Value will cease to increase, on Securities or portions thereof called for redemption. 10. Purchase of Securities upon Change of Control. The Indenture --------------------------------------------- provides that upon the occurrence of a Change of Control and subject to further limitations contained therein, the Company shall make an offer to purchase Outstanding Securities in accordance with the procedures set forth in the Indenture. 11. Registration Rights. Pursuant to a Registration Rights Agreement, ------------------- dated January 20, 2000, among the Company and the Initial Purchasers named therein, the Company will be obligated to consummate an Exchange Offer pursuant to which the Holder of this Security shall have the right to exchange this Security for notes of a separate series issued under the Indenture which have been registered under the Securities Act, in like principal amount at maturity and having substantially identical terms as the Securities. The Holders shall be entitled to receive certain payments in the event such Exchange Offer is not consummated ("Liquidated Damages") and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 12. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. Under certain circumstances set forth in the Indenture, the Registrar need not register the transfer of or exchange any Securities. 13. Persons Deemed Owners. The registered Holder of this Security may --------------------- be treated as the owner of this Security for all purposes. A-11 14. Unclaimed Money. If money for the payment of principal 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, all liability of the Trustee and any such Paying Agent with respect to such money shall cease. 15. Amendment, Supplement, Waiver, Etc. The Company and the Trustee ----------------------------------- may, without the consent of the Holders of any Outstanding Securities, amend, waive or supplement the Indenture or the Securities for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies. Other amendments and modifications of the Indenture or the Securities may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount at maturity of the Outstanding Securities and with other holders of notes of other series issued under the Indenture, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. 16. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments, make certain Investments, create or incur Liens, enter into transactions with Affiliates, enter into agreements restricting the ability of Subsidiaries to pay dividends and make distributions and on the ability of the Company to merge or consolidate with any other person or transfer all or substantially all of the Company's assets. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 17. Defaults and Remedies. Events of Default are set forth in the --------------------- Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than certain events of bankruptcy, insolvency or reorganization affecting the Company) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount at maturity of the Outstanding Securities under the Indenture may, by written notice to the Trustee and the Company, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount at maturity of the Outstanding Securities shall, declare all principal of and accrued interest on all Securities to be immediately due and payable and such amounts shall become immediately due and payable. 18. Trustee Dealings with Company. The Trustee, in its individual or ----------------------------- any other capacity, may make loans to, accept deposits from, and perform services A-12 for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 19. No Recourse Against Others. No board member, director, officer, -------------------------- employee, agent, authorized representative, incorporator or shareholder of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture for a claim based on, in respect of, or by reason of, such obligations or their creation by reason of his, her or its status as such. Each Holder of Securities by accepting a Security waivers and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Discharge. The Company's obligations pursuant to the Indenture --------- will be discharged, except for obligations pursuant to certain provisions thereof, subject to the terms of the Indenture, upon the payment of all the Securities or upon the irrevocable deposit with the Trustee of U.S. Dollars or U.S. Government Securities denominated in U.S. Dollars sufficient to pay when due principal of and interest on the Securities to maturity or redemption. 21. Authentication. This Security shall not be valid until the -------------- Trustee signs the certificate of authentication on the other side of this Security. 22. Governing Law. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING WITHOUT LIMITATION SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B), AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE A-13 LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BOUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to the Indenture or the Securities. 23. 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). 24. Currency of Account. U.S. Dollars are the sole currency of ------------------- account and payment for all sums payable by the Company under the Securities. 25. CUSIP, ISIN and Common Code Numbers. The Company has caused ----------------------------------- CUSIP, ISIN or Common Code numbers, as applicable, to be printed on the Securities and the Trustee may use CUSIP, ISIN or Common Code numbers, as applicable, in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed hereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: United Pan-Europe Communications N.V. P.O. Box 74763 1070 BT Amsterdam The Netherlands Attn: Treasurer A-14 FORM OF ASSIGNMENT If you, the holder, want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to: _______________________________________________________________________________ (Insert assignee's social security or tax ID number) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint________________________________________________________ of_____________________________________________________________________________ Agent to transfer this Security on the books of the Company. The Agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the United States Securities and Exchange Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as may be permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any Predecessor Security) or the last date on which the Company or any Affiliate of the Company was the owner of this Security (or any Predecessor Security), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [_] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or A-15 [_] (b) this Security is being transferred other than in accordance with (a) above and documents, including a transferee certificate substantially in the form attached hereto, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If neither of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer or registration set forth herein and in Section 3.13 and Section 3.14 of the Indenture shall have been satisfied. Dated:______________________ Your signature:________________________________ (Sign exactly as your name appears on the other side of this Security) By:____________________________________________ NOTICE: To be executed by an executive officer Signature Guaranteed:___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) A-16 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED: The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:____________________ ______________________________ NOTICE: To be executed by an executive officer A-17 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY
Amount of Amount of increase in Principal Amount decrease in Principal at maturity Principal Amount Amount of this at maturity at maturity Global Security Signature of of this of this following authorized Date of Global Global such decrease officer of Exchange Security Security (or increase) Trustee - -------------- ------------------ ---------------- ------------------ ---------------- Initial $ balance as of 20/1/00
A-18 EXHIBIT B FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY (Transfers pursuant to Sections 3.13(b)(ii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 13 3/4% Senior Discount Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$] _____ principal amount at maturity of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). ________________________________ CERTIFICATE No(s). _________________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. B-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: 1. the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; 2. the offer of the Specified Securities was not made to a person in the United States; 3 either: (a) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (b) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions have been prearranged with a buyer in the United States; 4. no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; 5. if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; 6. the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and B-2 7. upon completion of the transaction, the beneficial interest being transferred will be held through an Agent Member acting for and on behalf of Euroclear or Cedelbank. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:_____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) B-3 EXHIBIT C FORM OF TRANSFER CERTIFICATE -- RESTRICTED GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (Transfers Pursuant to Sections 3.13(b)(iii) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 13 3/4% Senior Discount Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A., as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$] _____ principal amount at maturity of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. C-1 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Regulation S Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (A) the Owner is not a distributor of the Specified Securities, an Affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States; or (i) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transactions has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any Affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and C-2 (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after [date one year after the latest date of issuance of any of the Specified Securities] and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (B) the transfer is occurring after [date two years after the latest date of issuance of any of the Specified Securities] and the Owner is not, and during the preceding three months has not been, an Affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ___________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) C-3 EXHIBIT D FORM OF TRANSFER CERTIFICATE -- REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY (Transfers to QIBs Pursuant to Sections 3.13(b)(iv) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 13 3/4% Senior Discount Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee, (the "Indenture"). Terms used but not defined herein and defined in Regulation S under the U.S. Securities Act of 1933 (the "Securities Act") or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to [U.S.$] ______ principal amount at maturity of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): [CUSIP][CINS][ISIN] No(s). _________________________ CERTIFICATE No(s). __________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a D-1 Global Security, they are held through the appropriate Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of an interest in the Restricted Global Security. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 144A under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (2) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers under the Purchase Agreement. Dated: ________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By:_____________________________________ Name: Title: (If the Undersigned is a Corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) D-2 EXHIBIT E UNITED PAN-EUROPE COMMUNICATIONS N.V. OFFICERS' CERTIFICATE [Name], [title(s)] of United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company"), and [name], [title(s)] of the Company, hereby certify pursuant to Sections ____ and ____ of the Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A., as trustee (the "Trustee"), that: (i) he or she has read and understands the provisions of the Indenture and the definitions relating thereto, (ii) the statements made in this Officers' Certificate are based upon an examination of the provisions of the Indenture and upon the relevant books and records of the Company, (iii) in his or her opinion, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not the covenants and conditions of the Indenture relating to the [authentication of the Securities] [execution of the Indenture] [OTHER] have been complied with and (iv) in his or her opinion, such covenants and conditions have been complied with. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate on this ____ day of ____________, ____. By: _________________________ Name: Titles: By: _________________________ Name: Titles: E-1 EXHIBIT F [Date] Citibank, N.A. 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Ladies and Gentlemen: We have acted as special counsel to United Pan-Europe Communications N.V., a public company with limited liability organized and existing under the laws of The Netherlands (the "Company"), in connection with the [initial issuance and sale by the Company of $1,000,000,000 aggregate principal amount at maturity of the Company's 13 3/4% Senior Discount Notes due 2010 (the "Securities"), which will be issued under an Indenture, dated as of January 20, 2000 (the "Indenture"), between the Company and Citibank, N.A. as trustee (the "Trustee")]. This opinion is being furnished to your pursuant to Sections ____ and ____ of the Indenture. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such letter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. As to any facts material to the opinions expressed herein which we did not independently establish or verify, we have relied upon oral or written statements or representations of officers and other representatives of the Company and others. Pursuant to Sections ____ and ____ of the Indenture, we advise you that in our opinion: F-1 1. We have reviewed Article __ of the Indenture setting forth certain provisions of general application, and in particular, the pertinent provisions of Section ___ of the Indenture setting forth the definitions of certain terms, and Sections ___ and ___ of the Indenture providing that the Trustee is entitled to receive an Officers' Certificate and an Opinion of Counsel in connection with any request by the Company to take any action and setting forth certain requirements with respect to the forms of such documents. We have also reviewed Article ___ of the Indenture, pertaining to ____. 2. In our opinion, we have made such examination or investigation (including an examination of the Officers' Certificate of the Company, dated as of the date hereof, as to the matters addressed in Sections ___ and ___ of the Indenture) as we deem necessary to enable us to express an informed opinion as to whether or not the conditions precedent to [the authentication of the Securities] [the execution of the Indenture] [OTHER] under Section ___ of the Indenture have been complied with. 3. In our opinion, the conditions precedent to be satisfied with respect to the [authentication of the Securities] [execution of the Indenture] [OTHER] under Section __ of the Indenture have been complied with. Members of our firm are admitted to the bar in the States of ______ and New York, and we do not express any opinion as to the laws of any jurisdiction other than the laws of such States and the General Corporation Law of the State of Delaware and the laws of the United States of America. This opinion is furnished to you solely for your benefit in connection with the [authentication of the Securities] [execution of the Indenture] [OTHER] and is not to be relied upon by any other person without our express written permission. Very truly yours, F-2 EXHIBIT G FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS (Transfers Pursuant to Section 3.14(a) of the Indenture) Citibank, N.A. as Trustee 5 Carmelite Street London EC4Y 0PA Attention: Global Agency & Trust Services Re: United Pan-Europe Communications N.V. 13 3/4% Senior Discount Notes due 2010 (the "Securities") Ladies and Gentlemen: Reference is hereby made to the Indenture, dated as of January 20, 2000 between the Company and Citibank, N.A. as trustee (the "Indenture"). Terms used but not defined herein have the meanings given to them in the Indenture. This certificate relates to [U.S. $] ___ principal amount at maturity of Securities, which are evidenced by the following certificate(s) (the "Securities"): 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold except as permitted in the following sentence. We understand and agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, (x) that such Securities are being offered only in a transaction not involving any public offering within two years after the date of the original issuance of the Securities or if within three months after we cease to be an affiliate (within the meaning of Rule 144 under the Securities Act) of the Company, such Securities may be resold, pledged or transferred only (i) to the Company, (ii) so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person whom we reasonably believe is a "qualified institution buyer" (as defined in Rule 144A) ("QIB") that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A (as indicated G-1 by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities), (iii) in an offshore transaction in accordance with Regulation S under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the Note if the Note is not in book-entry form), and, if such transfer is being effected by certain transferors prior to the expiration of the "40-day distribution compliance period" (within the meaning of Rule 903(b)(2) of Regulation S under the Securities Act), a certificate that may be obtained from the Trustee is delivered by the transferee, (iv) to an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (as indicated by the box checked by the transferor on the Certificate of Transfer on the reverse of the certificate for the Securities) which has certified to the Company and the Trustee for the Securities that it is such an accredited investor and is acquiring the Securities for investment purposes and not for distribution (provided that no Securities purchased from a foreign purchaser or from any person other than a QIB or an institutional accredited investor pursuant to this clause (iii) shall be permitted to transfer any Securities so purchased to an institutional accredited investor pursuant to this clause (iv) prior to the expiration of the "applicable restricted period" (within the meaning of Regulation S under the Securities Act), (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, or (vi) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States, and we will notify any purchaser of the Securities from us of the above resale restriction, if then applicable. We further understand that in connection with any transfer of the Securities by us that the Company and the Trustee for the Securities may request, and if so requested we will furnish, such certificates, legal opinions and other information as they may reasonably require to confirm that any such transfer complies with the foregoing restrictions. 2. We are able to fend for ourselves in the transactions contemplated by this Offering Circular, we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment and can afford the complete loss of such investment. 3. We understand that the Company, Donaldson, Lufkin & Jenrette International and the other Initial Purchasers named as such in the Offering Circular as the initial purchasers of the Securities ("Initial Purchasers"), and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and we agree that if any of the acknowledgments, representations and G-2 warranties deemed to have been made by us by our purchase of Securities, for our own account or of one or more accounts as to each of which we exercise sole investment discretion, are no longer accurate, we shall promptly notify the Company and the Initial Purchasers. 4. We are acquiring the Securities purchased by us for investment purposes and not for distribution of our own account or for one or more accounts as to each of which we exercise sole investment discretion and we are or such account is an institutional "accredited investor" (as defined in rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act). 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, ___________________________________ (Name of Purchaser) By:________________________________ Date:______________________________ G-3 EXHIBIT H OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 10.10 of the Indenture, check the box: [_] Section 10.10 If you wish to have a portion of this Security purchased by the Company pursuant to Section 10.10 of the Indenture, state the amount: [$ (multiple of $1000)] [(Euro dollar) (multiple of Euro dollar 1000)] Dated:_____________ Your Signature:________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranteed:___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program acceptable to the Trustee) H-1 EX-12.1 5 RATIO OF COMBINED FIXED CHARGES Exhibit 12.1 Exhibit Ratio of Combined Fixed Charges and Preferred Stock Dividends (000's)
Predecessor Interest ----------- Six Months Six Months ------------------------------------------- Ended Ended Years Ended December 31, June 30, December 31, ------------------------------------------- 1995 1995 1996 1997 1998 1999 ----------- ------------ ------- -------- -------- -------- Net income (loss) from continuing operations 9,574 (72,171) (40,211) (82,154) (255,579) (784,298) ADD BACK: Income tax benefit (expense) - (70) 231 (748) 551 (1,822) Minority interest - 87 1,002 (69) (523) (1,651) Equity in losses of affiliates, net 1,044 14,410 13,936 11,552 28,962 29,760 ----------- ------------ ------- -------- -------- -------- Total Fixed Charges 1,044 14,427 15,169 10,735 28,990 26,287 Adjusted Earnings 10,618 (7,744) (25,042) (71,419) (226,589) (758,011) Fixed Charges - 9,020 17,464 32,108 47,355 186,408 ----------- ------------ ------- -------- -------- -------- Ratio of Earnings to Fixed Charges - - - - - - =========== ============ ======= ======== ======== ======== Coverage Deficiency - (16,764) (42,506) (103,528) (273,944) (944,419) =========== ============ ======= ======== ======== ========
EX-21.1 6 UPC SUBSIDIARIES Exhibit 21.1 UPC Subsidiaries Entity Jurisdiction chello broadband Australia ppt....................................Australia Telekabel Fernsehnetz Klagenfurt Betriebsgesellschaft mbH.........Austria Telekabel-Fernsehnetz Wiener Neustadt/Neunkirchen Betriebsgesellschaft mbH..........................................Austria Telekabel Wien GmbH...............................................Austria Telekabel Fernsehnetz Graz Betriebsgesellschaft mbH...............Austria Telekabel-Fernsehnetz Region Baden Betriebsgesellschaft mbH.......Austria chello broadband GmbH.............................................Austria Priority Wireless Telecommunications GmbH.........................Austria chello broadband Belgium SA/NV....................................Belgium UPC Belgium S.A...................................................Belgium chello broadband Brasil Ltda......................................Brazil UCI Enterprises Inc...............................................Colorado UPC Iberian Progamming, Inc.......................................Colorado UPC Aviation, Inc.................................................Colorado UPC Romania, Inc..................................................Colorado United International Investments..................................Colorado G.P. Melita Partnership................................................Delaware Mozaic Entertainment, Inc.........................................Delaware Poland Communications, Inc........................................Connecticut Kabel Net Holding A.S.............................................Czech Republic Kabel Net Brno A.S................................................Czech Republic Kabel Plus A.S....................................................Czech Republic ScatNet spol SRO..................................................Czech Republic Besy Praha SRO....................................................Czech Republic Czech Link SRO....................................................Czech Republic Exhibit 21.1 Trade A Technology AS.............................................Czech Republic Kabel Plus Tel AS.................................................Czech Republic Kabel Plus Rodina SRO.............................................Czech Republic Kabel Plus Severni Cechy AS.......................................Czech Republic Kabel Plus Vychodni AS............................................Czech Republic Kabel Plus CB AS..................................................Czech Republic Kabel Plus Severni Morava AS......................................Czech Republic Kabel Plus Stredni Morava AS......................................Czech Republic Kabel Plus Jizni Morava AS........................................Czech Republic Kabel Plus Praha AS...............................................Czech Republic UII Management....................................................Delaware G.P. UIH Romania Ventures, Inc.........................................Delaware Kabelkom Management Co............................................Delaware G.P. Kabelkom Holding Co...............................................Delaware G.P. @Entertainment, Inc...............................................Delaware @Entertainment Programming, Inc...................................Delaware UPC Aviation Services, Inc........................................Colorado Ibercom, Inc......................................................Delaware chello broadband USA, Inc.........................................Delaware UPC Staffing, Inc.................................................Delaware MediaReseaux S.A..................................................France UPC France S.A....................................................France chello broadband S.A.R.L..........................................France Sud Ouest Videopole...............................................France Sud Est Videopole.................................................France Herault Videopole Holding S.A.....................................France Videopole Services................................................France Exhibit 21.1 Videopole Assistance....................................................France Videopole Publication...................................................France Aorta S.A...............................................................France A.C.Associes............................................................France Videopole S.A...........................................................France Ain Videopole...........................................................France Ardennes Videopole......................................................France Atlantique Videopole....................................................France Aveyron Videopole.......................................................France Bean Bigore Videopole...................................................France Intercomm Holding France................................................France Cablage Dynamique Videopole.............................................France Citecable Caladois......................................................France Citecable Centre Bretagne...............................................France Citecable Auverge.......................................................France Citecable Essonne.......................................................France Citecable Saintonge.....................................................France Citecable Goussainville.................................................France Citecable Jurassienne...................................................France Citecable Rhone Aspes...................................................France Citecable S.A...........................................................France CiteReseau S.A..........................................................France Citecable Regions S.A...................................................France Citecable Est S.A.......................................................France Citecable Haute-Saone S.A...............................................France Est Videopole...........................................................France Exhibit 21.1 Franche Comte Videopole...................................................France Investissements Reseaux Participations SA.................................France Iroise Videopole..........................................................France Loire Videopole...........................................................France MediaPartic S.A...........................................................France Nord Est Cable Carling L'Hopital..........................................France Nord Est Cable Videopole..................................................France Nord Videopole............................................................France Ouest Videopole...........................................................France Regicom Partenariat.......................................................France Reseaux Participations S.A................................................France Reseaux Cables de France S.A..............................................France Reseaux Cables du Bretagne Sud............................................France Reseaux Cables du Perigord................................................France Reseaux Cable du Roannais.................................................France Reseaux Cable du Pays Yonnais.............................................France Reseaux Cable Choletais...................................................France Reseaux Cable du Nivernais................................................France Reseaux Cables Cote d'Azur................................................France Reseaux Cables du Hainaut.................................................France Reseaux Cables de Indres..................................................France Rhone Vision Cable S.A.S..................................................France Savoie Videopole..........................................................France Seine et Marne............................................................France SIRC Holding SNC..........................................................France SIRC SNC..................................................................France SLC Tignes................................................................France Exhibit 21.1 Somerco SARL.....................................................France chello broadband GmbH............................................Germany UPC Magyarovszag Kft.............................................Hungary Monor Telefon....................................................Hungary Sopron Varosi Onallo Kozsolgalati Televizio Kft..................Hungary Satimax KFT......................................................Hungary Szabinet KFT.....................................................Hungary Szolnex KFT......................................................Hungary chello broadbrand Germany Gmbh...................................Germany UPC Ireland Ltd..................................................Ireland Tara Television Ltd..............................................Ireland Tishdoret........................................................Israel Melita Cable P.L.C...............................................Malta UPC Intermediates B.V............................................The Netherlands UPC Nederland Services B.V.......................................The Netherlands chello broadband Nederland B.V...................................The Netherlands Cable Network Zuid-Oost Brabant Holding B.V......................The Netherlands Cable Network Holding B.V........................................The Netherlands Priority Telecom N.V.............................................The Netherlands Priority Telecom Netherlands B.V.................................The Netherlands Priority Wireless B.V............................................The Netherlands UPC Nederland N.V................................................The Netherlands A2000 Holding N.V................................................The Netherlands Kabeltelevisie Amsterdam B.V.....................................The Netherlands A2000 Hilversum B.V..............................................The Netherlands Cable Network Brabant Holding B.V................................The Netherlands N.V. TeleKabel Beheer............................................The Netherlands Exhibit 21.1 N.V. TeleKabel...................................................The Netherlands TeleKabel Omroep Facilitair Bedrijf B.V..........................The Netherlands Cable-Networks Austria Holding B.V...............................The Netherlands Algemene Kabel Exploitatie Maatschappij B.V......................The Netherlands Belmarken Holding B.V............................................The Netherlands Interway Holding B.V.............................................The Netherlands chello broadband Nederland B.V...................................The Netherlands Binan Investments B.V............................................The Netherlands U.C.T. - Netherlands B.V.........................................The Netherlands Stipdon Investments B.V..........................................The Netherlands UPC Facility B.V.................................................The Netherlands Zeblas B.V.......................................................The Netherlands Selasa Holding B.V...............................................The Netherlands Paruse B.V.......................................................The Netherlands Bicatobe Investments B.V.........................................The Netherlands Kabeltelevisie Son en Breugel B.V................................The Netherlands TeleKabel Hungary N.V............................................The Netherlands Zomerwind Holding B.V............................................The Netherlands Uniport Communications B.V.......................................The Netherlands Cable Network Netherlands Holding B.V............................The Netherlands Kabeltelevisie Eindhoven N.V.....................................The Netherlands UPC Programming B.V..............................................The Netherlands UPC Slovakia Holding B.V.........................................The Netherlands UPC Czech Holding B.V............................................The Netherlands UPC Romania Holding B.V..........................................The Netherlands United Telekabel Holding II B.V..................................The Netherlands Iberian Programming Services CV..................................The Netherlands Exhibit 21.1 Plator Holding B.V...............................................The Netherlands Nidlo B.V........................................................The Netherlands Poland Cablevision (Netherlands) B.V.............................The Netherlands Wizja TV B.V. (fka Sereke Holding B.V.).........................The Netherlands Gelrevision UPC Holding B.V......................................The Netherlands UPC Romania V.O.F................................................The Netherlands ScanInvest I B.V.................................................The Netherlands UPCtv Holding B.V................................................The Netherlands UPC Intermediates B.V............................................The Netherlands Priority Wireless B.V............................................The Netherlands chello broadband N.V.............................................The Netherlands chello broadband B.V.............................................The Netherlands Hungary Holding Co...............................................New York G.P. United Pan-Europe Communications Norge A.S.......................Norway chello broadband A.S.............................................Norway Priority Telecom Norway A.S......................................Norway Wizja TV Spoka Produkcyjna Sp z o.o..............................Poland ETV Sp. z o.o....................................................Poland Gosat-Service Sp.z o.o...........................................Poland Ground Zero Media Sp. z o.o......................................Poland At Media Sp. z o.o. Poland.......................................Poland Kolor-Sat Sp. z o.o..............................................Poland Mazurska Telewizja Kablowa Sp. z o.o.............................Poland Opolskie TTT S.A.................................................Poland Polska Telewizja Kablowa Krakow S.A..............................Poland Polska Telewizja Kablowa Lublin S.A..............................Poland Polska Telewizja Kablowa Operator Sp. z o.o......................Poland Exhibit 21.1 Polska Telewizja Kablowa S.A. Poland.............................Poland Polska Telewizja Kablowa Szczecin Sp. z o.o......................Poland Polska Telewizja Kablowa Warszaw S.A.............................Poland Otwocka TK SP z.o.o..............................................Poland Szczecinska Telewizja Kablowa Sp. z o.o..........................Poland Telkat Sp. z o.o.................................................Poland TV Kabel Sp. z o.o...............................................Poland TV-SAT Ursus Sp. z o.o. Poland (in liquidation)..................Poland Wizja TV Sp. z o.o...............................................Poland Multicanal Televisao por Cabo, SGPS, Lda.........................Portugal Intercabo - Televisao por Cabo, SGPS, Lda........................Portugal Intercabo Centro Televisao por Cabo, S.A.........................Portugal Intercabo Atlantico - Comunicacoes por Cabo, S.A.................Portugal Intercabo Norte - Comunicacoes por Cabo, S.A.....................Portugal Intercabo Capital - Comunicacoes por Cabo, S.A...................Portugal Eurosat S.R.L....................................................Romania Multicanal Holdings S.R.L........................................Romania Control Cable Ventures S.R.L.....................................Romania Selectronic S.R.L................................................Romania Diplomatic International Comimpex S.R.L..........................Romania Trnavatel s r.o..................................................Slovak Republic UPC Slovensko s r.o..............................................Slovak Republic KabelTel S.R.O...................................................Slovak Republic Kabelplus Akiowa Spolocnost SRO..................................Slovak Republic Kabelplus Vychodne Slovensko SRO.................................Slovak Republic Kabelplus Bratislava SRO.........................................Slovak Republic Multicanal TPS SC................................................Spain Exhibit 21.1 Mundi Telecom........................................................Spain chello broadband Sweden AS...........................................Sweden SBS Broadcasting SA..................................................Sweden NBS Nordic Broadband Servics AB......................................Sweden SpaceNet AB..........................................................Sweden Starport SA..........................................................Sweden Stjarnan Multimedia Varlden AB.......................................Sweden StjarnTV AB..........................................................Sweden StjarnTVnatet AB.....................................................Sweden Stockholms Kabel TV AB...............................................Sweden Stockholms Stads Televisions AB......................................Sweden UPC Zwitzerland AG...................................................Switzerland Xtra Music Limited...................................................UK Wizja Television Limited (fka At Entertainment Limited).............UK chello broadband Limited.............................................UK UPC Services Ltd.....................................................UK Tara Television UK...................................................UK At Entertainment Services Limited....................................UK Tara Television Global Limited.......................................UK EX-27 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from United Pan-Europe Communications N.V.'s 1999 Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 EUROS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 0.9938 1,042,595 0 144,239 (16,754) 66,403 1,336,662 1,908,414 (194,205) 6,802,272 778,739 2,743,889 0 0 435,605 1,584,595 6,802,272 0 447,501 0 (1,026,108) 0 0 (186,408) (786,120) 1,822 (784,298) 0 0 0 (784,298) (2.08) (2.08)
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