UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 18, 2015

 

 

SCRIPPS NETWORKS INTERACTIVE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Ohio   1-34004   61-1551890

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

9721 Sherrill Boulevard

Knoxville, Tennessee

  37932
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number including area code: (865) 694-2700

Not applicable

(Former Name or Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01. Entry into a Material Definitive Agreement

On May 18, 2015, we entered into an agreement (the “Revolving Loan Amendment”) to amend our existing Five-Year Competitive Advance and Revolving Credit Facility Agreement (the “Existing Credit Facility”), as previously amended, with an updated credit facility (the “Amended Revolving Credit Facility”). The Revolving Loan Amendment provides $250 million additional revolving loan capacity under the Amended Revolving Credit Facility such that we can borrow up to an aggregate principal amount of $900 million, which may be increased, at our option from time to time, up to $1,150 million. Additionally we extended the maturity date of the Amended Revolving Credit Facility by one year to a scheduled maturity of March 31, 2020, with the exception of $32.5 million which remains scheduled to mature on March 31, 2015.

Borrowings under the Amended Revolving Credit Facility incur interest charges based on the Company’s credit rating on a scale that remains unchanged from the previous terms of the Existing Credit Facility, with drawn amounts incurring interest at LIBOR plus a range of 69 to 130 basis points and undrawn amounts incurring interest at a range of 6 to 20 basis points, subject to credit ratings. The Amended Revolving Credit Facility includes certain affirmative and negative covenants, which also remain unchanged from the previous terms of the Existing Credit Facility, including maintenance of a maximum leverage ratio.

A copy of the Revolving Loan Amendment is filed as Exhibit 10.40.A.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off Balance Sheet Arrangement of a Registrant

The information under Item 1.01 above is incorporated by reference hereunder.

 

Item 8.01. Other Events

As previously announced, on March 14, 2015, Scripps Networks Interactive, Inc. (the “Company”) entered into an agreement by and among ITI Media Group Limited, a Cypriot limited liability company, Groupe Canal+ S.A., a French company, and Southbank Media Ltd., an English company and our indirect wholly-owned subsidiary, pursuant to which the Company will acquire (the “N-Vision Acquisition”) all of the outstanding shares of N-Vision B.V., a Dutch limited liability company.

The Company is filing certain historical and pro forma financial information related to the N-Vision Acquisition as exhibits to this Current Report on Form 8-K.


Item 9.01. Financial Statements and Exhibits.

 

(b) Financial Statements of N-Vision B.V.

The Annual Report including Consolidated Financial Statements as of and for the year ended December 31, 2014 is filed as Exhibit 99.1 hereto.

 

(a) Pro Forma Financial Information

The unaudited pro forma condensed combined balance sheet of Scripps Networks Interactive, Inc. as of March 31, 2015 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2015 and for the year ended December 31, 2014 are filed as Exhibit 99.2 hereto.

 

(d) Exhibits

 

10.40.A Amendment to Five-Year Competitive Advance and Revolving Credit Facility Agreement
23.1 Consent of PricewaterhouseCoopers Sp. z o.o., Independent Auditors
99.1

N-Vision Group consolidated financial statements as of and for the year ended December 31, 2014

99.2 Scripps Networks Interactive, Inc. – Unaudited Pro Forma Condensed Combined Financial Information.


SIGNATURES

 

Pursuant to the requirements 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.

 

SCRIPPS NETWORKS INTERACTIVE, INC.
Date: May 18, 2015 By:

/s/ Lori A. Hickok

Lori A. Hickok

Executive Vice President and Chief Financial officer

(Principal Financial and Accounting Officer)


EXHIBIT INDEX

 

Exhibit
No.
   Description
10.40.A    Amendment to Five-Year Competitive Advance and Revolving Credit Facility Agreement
23.1    Consent of PricewaterhouseCoopers Sp. z o.o., Independent Auditors
99.1   

N-Vision Group consolidated financial statements as of and for the year ended December 31, 2014

99.2    Scripps Networks Interactive, Inc. – Unaudited Pro Forma Condensed Combined Financial Information.


Exhibit 10.40A

Execution Version

FIRST AMENDMENT

FIRST AMENDMENT (this “First Amendment”), dated as of May 18, 2015, to the FIVE-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of March 31, 2014 (the “Credit Agreement”; the Credit Agreement, as modified by the First Amendment, the “Amended Credit Agreement”), among SCRIPPS NETWORKS INTERACTIVE, INC., an Ohio corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time party thereto (the “Banks”), JPMORGAN CHASE BANK, N.A., as administrative agent (the “Agent”), and the other agents party thereto.

W I T N E S S E T H:

WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make, and have made, certain extensions of credit to the Borrower;

WHEREAS, the Borrower has requested (i) a one-year extension of the Maturity Date of the Commitments under the Credit Agreement, (ii) a $250,000,000 increase in the aggregate commitments available under the Credit Agreement and (iii) that certain provisions of the Credit Agreement be amended as set forth herein; and

WHEREAS, the Banks are willing to agree to such amendments on the terms set forth herein;

NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the undersigned hereby agree as follows:

Section 1. Defined Terms.

(a) Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Amended Credit Agreement.

(b) As used in this First Amendment, the following terms shall have the meanings specified below:

Amendment Effective Date” means the date on which the First Amendment becomes effective.

Existing Bank” means each lender party to the Credit Agreement as a “Bank” thereunder immediately prior to the effectiveness of this First Amendment.

Existing Commitment” means the Commitments of each Existing Bank under the Credit Agreement immediately prior to the effectiveness of this First Amendment.

Increased Commitment” means, with respect to any Existing Bank, the portion of its Commitment as of the Amendment Effective Date that is in excess of its Existing Commitment.

New Banks” means each Bank signatory hereto that is not an Existing Bank.

Section 2. Amendments to the Credit Agreement.


(a) The Credit Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the following example: ) and to add the double-underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the Amended Credit Agreement attached hereto as Exhibit A.

(b) Amendment of Commitment Schedule. Schedule 2.01 of the Credit Agreement is hereby replaced with the schedule attached hereto as Exhibit B.

Section 3. Extension and Making of Commitments.

(a) Each Existing Bank signatory hereto (each, an “Extending Bank”) hereby (i) agrees that, as of the Amendment Effective Date, its Commitment shall be as set forth on Exhibit B, (ii) extends the maturity date of all of its Existing Commitment to the Extended Maturity Date and (iii) agrees that all of its Increased Commitment shall mature on the Extended Maturity Date.

(b) As of the Amendment Effective Date, the maturity date applicable to the Commitments of each other Existing Bank (in each case, a “Non-Extending Bank”) shall be the Non-Extended Maturity Date.

(c) Each New Bank signatory hereto hereby agrees that (i) as of the Amendment Effective Date, its Commitment shall be as set forth on Exhibit B and (ii) all of its Commitment set forth on Exhibit B shall mature on the Extended Maturity Date. Each New Bank (A) represents and warrants that (1) it has full power and authority, and has taken all action necessary, to execute and deliver this First Amendment and to consummate the transactions contemplated hereby and to become a Bank under the Amended Credit Agreement, (2) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to become a Bank, (3) from and after the Amendment Effective Date, it shall be bound by the provisions of the Amended Credit Agreement as a Bank thereunder and, to the extent of its Commitment, shall have the obligations of a Bank thereunder, (4) it has received copies of the most recent financial statements delivered pursuant to Section 6.04 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this First Amendment and to make Commitments on the basis of which it has made such analysis and decision independently and without reliance on the Agent, the Arrangers or any other Bank and (5) if it is a Non-US Bank, it has provided to the Agent any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by such Bank and (B) agrees that (1) it will, independently and without reliance on the Agent, any Arranger or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents and (2) it will perform, in accordance with their terms, all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank.

Section 4. Arrangers and Agents. The parties hereto hereby agree that (a) J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC are the joint lead arrangers and joint bookrunners, (b) Bank of America, N.A., is the syndication agent and (c) Wells Fargo Bank, National Association is the documentation agent, in each case for the Amended Credit Agreement and the Commitments provided thereunder.

Section 5. Bank Agreements. The Banks party hereto hereby agree that (a) solely with respect to the extension of Commitments contemplated by this First Amendment, the requirements of Section 2.12(a) in respect of an Extension Letter (and responding thereto) and notice periods are hereby waived, (b) each Non-Extending Bank as of the Amendment Effective Date shall be a “Non-Extension Bank” for purposes of the Credit Agreement and (c) the Non-Extended Maturity Date, with respect to any such Non-

 

2


Extension Bank, shall, for purposes of the Credit Agreement, be the “Current Maturity Date” immediately prior to the effectiveness of the First Amendment.

Section 6. Effectiveness. The Amendment Effective Date shall be the first date upon which the following conditions are satisfied:

(a) First Amendment. The Agent shall have received this First Amendment, duly executed and delivered by the Borrower, the Agent, the Extending Banks and the Required Banks (as defined in the Credit Agreement).

(b) Fees. The Banks, the Agent and the Arrangers shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel to the Agent) on or prior to the Amendment Effective Date.

(c) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates. The Agent shall have received: (i) a copy of the articles of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of the Borrower as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower dated the Amendment Effective Date and certifying (A) that attached thereto is a true and complete copy of the code of regulations of the Borrower as in effect on the Amendment Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower or minutes of a meeting of the Board of Directors authorizing the execution, delivery and performance of this First Amendment, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the articles of incorporation of the Borrower have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing this First Amendment or any other document delivered in connection therewith on behalf of the Borrower; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above.

(d) Legal Opinions. The Agent shall have received, on behalf of itself and the Banks, a written opinion of Latham & Watkins LLP, counsel for the Borrower, dated the Amendment Effective Date and addressed to the Banks, in form and substance reasonably satisfactory to the Agent and covering such matters relating to this First Amendment and the Loan Documents as the Agent may reasonably require.

(e) Representations and Warranties. The representations and warranties set forth in Article IV of the Amended Credit Agreement shall be true and correct in all material respects on and as of the Amendment Effective Date (or in all respects if qualified by materiality), with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(f) No Default. At the time of and immediately after giving effect to the Amendment Effective Date, no Event of Default or Default shall have occurred and be continuing.

(g) Certificate. The Agent shall have received a certificate from the Borrower, dated the Amendment Effective Date and signed by a Financial Officer thereof, confirming compliance with the conditions precedent set forth in clauses (e) and (f) of this Section 6.

 

3


Section 7. Representations and Warranties; No Default. The Borrower hereby represents and warrants that (a) the representations and warranties set forth in Article IV of the Amended Credit Agreement are true and correct in all material respects on and as of the Amendment Effective Date (or in all respects if qualified by materiality), with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date and (b) at the time of and immediately after giving effect to the Amendment Effective Date, no Event of Default or Default has occurred and is continuing.

Section 8. Reallocation of Outstanding Borrowings. Each Bank signatory hereto agrees that immediately upon the effectiveness of this First Amendment, (i) Loans and Borrowings held by Existing Banks outstanding on the Amendment Effective Date shall be reallocated among each Bank in accordance with their respective Bank Percentages after giving effect to the First Amendment and (ii) Banks shall make adjustments among themselves, and payments to each other as needed, with respect to amounts of principal, interest, fees and other amounts paid or payable with respect thereto as shall be necessary, in the opinion of the Administrative Agent, in order to effect such reallocation.

Section 9. Effect of Amendment.

(a) Except as expressly set forth herein, this First Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Banks or the Agent under the Credit Agreement or any other Loan Document (as defined in the Credit Agreement), and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Loan Document (as defined in the Credit Agreement), all of which are ratified and affirmed in all respects and shall continue in full force and affect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document (as defined in the Credit Agreement) in similar or different circumstances. Nothing in this First Amendment shall be deemed to be a novation of any obligations under the Credit Agreement or any other Loan Document (as defined in the Credit Agreement).

(b) On and after the Amendment Effective Date, each reference in the Amended Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each reference to the Credit Agreement in any other Loan Document shall be deemed a reference to the Amended Credit Agreement. This First Amendment shall constitute a “Loan Document” for all purposes of the Amended Credit Agreement and the other Loan Documents.

Section 10. General.

(a) GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

(b) Costs and Expenses. The Borrower agrees to reimburse the Agent for its reasonable out-of-pocket expenses in connection with this First Amendment, including the reasonable fees, charges and disbursements of counsel for the Agent.

(c) Counterparts. This First Amendment may be executed by one or more of the parties to this First Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this First Amendment by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

4


(d) Headings. The headings of this First Amendment are used for convenience of reference only, are not part of this First Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this First Amendment.

[remainder of page intentionally left blank]

 

5


IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized officers as of the day and year first above written.

 

SCRIPPS NETWORKS INTERACTIVE, INC., as Borrower
By: LOGO
 

 

Name: Mary E. Talbott
Title: Senior Vice President,
Deputy General Counsel and
Corporate Secretary

 

[First Amendment]


JPMORGAN CHASE BANK, N.A, as Agent
By: LOGO
 

 

Name: Olivier Lopez
Title: Vice President

 

[First Amendment]


JPMORGAN CHASE BANK, N.A, as a Bank
By: LOGO
 

 

Name: Olivier Lopez
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


BANK OF AMERICA, N.A., as a Bank
By: LOGO
 

 

Name: Sara Just
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: Wells Fargo Bank, N.A., as a Bank
By: LOGO
 

 

Name: James Travagline
Title: Director

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a Bank
By: LOGO
 

 

Name: Matthew Antioco
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

þ This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: HSBC Bank USA, NA, as a Bank
By: LOGO
 

 

Name: Joseph D. Donovan
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


KEYBANK NATIONAL ASSOCIATION, as a Bank
By: LOGO
 

 

Name: Brian P. Fox
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

þ This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: U.S. Bank National Association, as a Bank
By: LOGO
 

 

Name: Susan Bader
Title: Vice President

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: FIFTH THIRD BANK, as a Bank
By: LOGO
 

 

Name:  Megan S. Szewc
Title:  Vice President                                                         

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


LEGAL NAME: First Tennessee Bank, N.A., as a Bank
By: LOGO
 

 

Name:

 Thomas A. Heckman                                         

Title:

 SVP

By its signature hereto, this Existing Bank hereby indicates consent to the First Amendment and its consent to convert its entire Existing Commitment to an Extended Commitment.

Existing Banks electing to increase their Commitment should also complete the following:

 

x This Existing Bank hereby agrees to increase its Commitment to the amount set forth under the heading “Extended Commitment” opposite such Bank’s name on Exhibit B to this First Amendment (it being understood that the Increased Commitment shall be an Extended Commitment).


EXHIBIT A

AMENDED CREDIT AGREEMENT

[See attached.]


 

FIVE-YEAR COMPETITIVE ADVANCE AND

REVOLVING CREDIT FACILITY AGREEMENT

Dated as of March 31, 2014

among

SCRIPPS NETWORKS INTERACTIVE, INC.,

as Borrower,

THE BANKS NAMED HEREIN,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent,

BANK OF AMERICA, N.A.

as Syndication Agent,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.

as Documentation Agents,

 

 

J.P. MORGAN SECURITIES LLC,

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

WELLS FARGO SECURITIES, LLC

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.

as Joint Lead Arrangers and

Joint Bookrunners


Table of Contents

 

         Page  

ARTICLE I DEFINITIONS

     1   
 

Section 1.01 Defined Terms

     1   
 

Section 1.02 Terms Generally

     17   

ARTICLE II THE CREDITS

     18   
 

Section 2.01 Commitments

     18   
 

Section 2.02 Loans

     18   
 

Section 2.03 Competitive Bid Procedure

     19   
 

Section 2.04 Standby Borrowing Procedure

     21   
 

Section 2.05 Refinancings

     22   
 

Section 2.06 Fees

     22   
 

Section 2.07 Repayment of Loans; Evidence of Debt

     23   
 

Section 2.08 Interest on Loans

     23   
 

Section 2.09 Default Interest

     24   
 

Section 2.10 Alternate Rate of Interest

     24   
 

Section 2.11 Termination and Reduction of Commitments

     24   
 

Section 2.12 Optional Extension of Commitments

     25   
 

Section 2.13 Additional Commitments

     26   
 

Section 2.14 Prepayment

     27   
 

Section 2.15 Reserve Requirements; Change in Circumstances

     28   
 

Section 2.16 Change in Legality

     29   
 

Section 2.17 Indemnity

     30   
 

Section 2.18 Pro Rata Treatment

     31   
 

Section 2.19 Sharing of Setoffs

     31   
 

Section 2.20 Payments

     32   
 

Section 2.21 Taxes

     32   
 

Section 2.22 Mandatory Assignment; Commitment Termination

     35   
 

Section 2.23 Defaulting Banks

     36   

ARTICLE III LETTERS OF CREDIT

     38   
 

Section 3.01 L/C Commitment

     38   
 

Section 3.02 Procedure for Issuance of Letter of Credit

     39   
 

Section 3.03 Fees and Other Charges

     39   
 

Section 3.04 L/C Participations

     39   
 

Section 3.05 Reimbursement Obligation of the Borrower

     40   
 

Section 3.06 Obligations Absolute

     41   
 

Section 3.07 Letter of Credit Payments

     41   
 

Section 3.08 Applications

     41   

ARTICLE IV REPRESENTATIONS AND WARRANTIES

     42   
 

Section 4.01 Organization; Powers

     42   
 

Section 4.02 Authorization

     42   
 

Section 4.03 Enforceability

     42   
 

Section 4.04 Governmental Approvals

     42   

 

i


         Page  
 

Section 4.05 Financial Statements

     43   
 

Section 4.06 No Material Adverse Change

     43   
 

Section 4.07 Title to Properties; Possession Under Leases

     43   
 

Section 4.08 Stock of Borrower

     43   
 

Section 4.09 Litigation; Compliance with Laws

     43   
 

Section 4.10 Agreements

     44   
 

Section 4.11 Federal Reserve Regulations

     44   
 

Section 4.12 Investment Company Act

     44   
 

Section 4.13 Use of Proceeds

     44   
 

Section 4.14 Tax Returns

     44   
 

Section 4.15 No Material Misstatements

     44   
 

Section 4.16 Employee Benefit Plans

     44   
 

Section 4.17 Environmental and Safety Matters

     45   
 

Section 4.18 Anti-Corruption Law and Sanctions

     45   

ARTICLE V CONDITIONS OF LENDING

     46   
 

Section 5.01 All Borrowings

     46   
 

Section 5.02 Closing Date

     46   

ARTICLE VI AFFIRMATIVE COVENANTS

     47   
 

Section 6.01 Existence; Businesses and Properties

     47   
 

Section 6.02 Insurance

     48   
 

Section 6.03 Obligations and Taxes

     48   
 

Section 6.04 Financial Statements, Reports, etc

     48   
 

Section 6.05 Litigation and Other Notices

     50   
 

Section 6.06 ERISA

     50   
 

Section 6.07 Maintaining Records; Access to Properties and Inspections

     50   
 

Section 6.08 Use of Proceeds

     50   
 

Section 6.09 Filings

     51   
 

Section 6.10 Anti-Corruption Laws and Sanctions

     51   

ARTICLE VII NEGATIVE COVENANTS

     51   
 

Section 7.01 Indebtedness

     51   
 

Section 7.02 Liens

     52   
 

Section 7.03 Sale and Lease-Back Transactions

     53   
 

Section 7.04 Mergers, Consolidations and Sales of Assets

     54   
 

Section 7.05 Fiscal Year

     54   
 

Section 7.06 Transactions with Affiliates

     54   
 

Section 7.07 Lines of Business

     54   

ARTICLE VIII

     54   

EVENTS OF DEFAULT

     54   

ARTICLE IX THE AGENT

     57   

ARTICLE X MISCELLANEOUS

     59   

 

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         Page  
 

Section 10.01 Notices

     59   
 

Section 10.02 Survival of Agreement

     60   
 

Section 10.03 Binding Effect

     60   
 

Section 10.04 Successors and Assigns

     60   
 

Section 10.05 Expenses; Indemnity

     64   
 

Section 10.06 Rights of Setoff

     64   
 

Section 10.07 APPLICABLE LAW

     65   
 

Section 10.08 Waivers; Amendment

     65   
 

Section 10.09 Interest Rate Limitation

     65   
 

Section 10.10 Entire Agreement

     66   
 

Section 10.11 Waiver of Jury Trial

     66   
 

Section 10.12 Severability

     66   
 

Section 10.13 Counterparts

     66   
 

Section 10.14 Headings

     66   
 

Section 10.15 Jurisdiction; Consent to Service of Process

     66   
 

Section 10.16 Confidentiality

     67   
 

Section 10.17 USA Patriot Act

     67   

 

Exhibit A-1    Form of Competitive Bid Request
Exhibit A-2    Form of Notice of Competitive Bid Request
Exhibit A-3    Form of Competitive Bid
Exhibit A-4    Form of Competitive Bid Accept/Reject Letter
Exhibit A-5    Form of Standby Borrowing Request
Exhibit B    Extension Letter
Exhibit C    Commitment Increase Supplement
Exhibit D    Additional Bank Supplement
Exhibit E    Administrative Questionnaire
Exhibit F    Form of Assignment and Acceptance
Exhibit G    Form of Opinion of Counsel
Schedule 2.01    Commitments
Schedule 3.01    Existing Letters of Credit
Schedule 4.09    Litigation
Schedule 4.16    Employee Benefit Plans
Schedule 4.17    Environmental
Schedule 7.01    Indebtedness
Schedule 7.02    Existing Liens
Schedule 7.06    Transactions with Affiliates

 

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FIVE-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of March 31, 2014 (this “Agreement”), among SCRIPPS NETWORKS INTERACTIVE, INC., an Ohio corporation (the “Borrower”), JPMORGAN CHASE BANK, N.A., a New York banking corporation, as Administrative Agent for the Banks (in such capacity, the “Agent”) and the banks listed in Schedule 2.01 (the “Banks”).

The Borrower has requested the Banks to extend credit to the Borrower in order to enable it to borrow and have letters of credit issued for its account on a standby revolving credit basis on and after the date hereof and at any time and from time to time prior to the Maturity Date (as herein defined) a principal amount not in excess of $650,000,000 at any time outstanding. The Borrower has also requested the Banks to provide a procedure pursuant to which the Borrower may invite the Banks to bid on an uncommitted basis on short-term borrowings by the Borrower. The proceeds of such borrowings are to be used (a) to refinance indebtedness of the Borrower under the Five-Year Competitive Advance and Revolving Credit Facility Agreement, dated as of June 30, 2008 (as amended, the “Existing Credit Agreement”), (b) for acquisitions and (c) for general corporate purposes, including, but not limited to, commercial paper backup. The Banks are willing to extend such credit to the Borrower on the terms and subject to the conditions herein set forth.

Accordingly, the Borrower, the Banks and the Agent agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:

ABR Borrowing” shall mean a Borrowing comprised of ABR Loans.

ABR Loan” shall mean any Standby Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.

Additional Bank” shall have the meaning assigned to such term in Section 2.13(c).

Additional Bank Supplement” shall mean a supplement substantially in the form of Exhibit D.

Administrative Agent Fee Letter” shall mean the letter agreement dated February 19, 2014, between the Borrower and the Agent, providing for the payment of certain fees or other amounts in connection with the credit facilities established by this Agreement.

Administrative Fees” shall have the meaning assigned to such term in Section 2.06(c).

Administrative Questionnaire” shall mean an Administrative Questionnaire in the form of Exhibit E hereto.


Affiliate” shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.

Alternate Base Rate” shall mean, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus  12 of 1% and (c) the LIBO Rate applicable for an Interest Period of one month commencing on the date two Business Days after such day plus 1.00%. For purposes hereof, “Prime Rate” shall mean the rate of interest per annum publicly announced from time to time by the Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. “Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average, as determined by the Agent, of the quotations for the day of such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it; provided that if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b), of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the LIBO rate shall be effective on the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the LIBO rate respectively.

Anti-Corruption Laws” shall mean all laws, rules and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.

Applicable Percentage” shall mean on any date, with respect to the Facility Fee or the Loans comprising any Eurodollar Standby Borrowing or ABR Borrowing, the applicable percentage set forth below based upon the ratings applicable on such date to the Borrower’s implied or actual senior, unsecured, non-credit-enhanced long-term indebtedness for borrowed money (the “Index Debt”):

FEE AND SPREAD TABLE

 

     Ratings
(S&P/Moody’s)
   Facility Fee     LIBOR
Spread
    ABR Spread  

Category 1

   A+/A1 or higher      0.0600     0.69     0.00

Category 2

   A/A2      0.0800     0.795     0.00

Category 3

   A-/A3      0.1000     0.90     0.00

 

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Category 4

   BBB+/Baa1      0.1250     1.00     0.00

Category 5

   BBB/Baa2      0.1500     1.10     0.10

Category 6

   BBB-/Baa3 or lower      0.2000     1.30     0.300

For purposes of the foregoing, (a) if no rating for the Index Debt shall be available from either Moody’s or S&P (other than by reason of the circumstances referred to in the last sentence of this definition), each such rating agency shall be deemed to have established a rating in the numerically highest category; (b) if only one of Moody’s and S&P shall have in effect a rating for the Index Debt, the Applicable Percentage shall be determined by reference to the available rating; (c) if the ratings established or deemed to have been established by Moody’s and S&P shall fall within different categories, the Applicable Percentage shall be based upon the superior (or numerically lower) category unless the ratings differ by more than one category, in which case the governing rating shall be the rating next below the higher of the two; and (d) if any rating established or deemed to have been established by Moody’s or S&P shall be changed (other than as a result of a change in the rating system of either Moody’s or S&P), such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change. Any change in the LIBOR spread due to a change in the applicable category shall be effective on the effective date of such change in the applicable category and shall apply to all Eurodollar Standby Loans that are outstanding at any time during the period commencing on the effective date of such change in the applicable category and ending on the date immediately preceding the effective date of the next such change in the applicable category. If the rating system of either Moody’s or S&P shall change, the Borrower and the Banks shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. If either Moody’s or S&P shall cease to be in the business of rating corporate debt obligations, the Borrower and the Banks shall negotiate in good faith to agree upon a substitute rating agency and to amend the references to specific ratings in this definition to reflect the ratings used by such substitute rating agency and, pending such agreement, the Applicable Percentage shall be determined on the basis of the ratings provided by the other rating agency.

Application” shall mean an application, in such form as any Issuing Bank may specify from time to time, requesting such Issuing Bank to open a Letter of Credit.

Arrangers” shall mean, collectively, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC and Bank of Tokyo-Mitsubishi UFJ, Ltd.

Arranger Fees” shall have the meaning assigned to such term in Section 2.06(b).

Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Bank and an assignee, and accepted by the Agent, in the form of Exhibit F.

 

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Bank Percentage” shall mean as to any Bank at any time the percentage which such Bank’s Commitments then constitutes of the Total Commitments (or, at any time after the Commitments have expired or terminated, the percentage which the aggregate principal amount of such Bank’s Loans plus such Bank’s share of the L/C Obligations then outstanding constitutes of the aggregate principal amount of the Loans and the L/C Obligations then outstanding).

Bankruptcy Event” shall mean, with respect to any person, such person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such person by a Governmental Authority or instrumentality thereof, provided, further, that such ownership interest does not result in or provide such person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such person.

Board” shall mean the Board of Governors of the Federal Reserve System of the United States.

Borrowing” shall mean a group of Loans of a single Type made by the Banks (or, in the case of a Competitive Borrowing, by the Bank or Banks whose Competitive Bids have been accepted pursuant to Section 2.03) on a single date and as to which a single Interest Period is in effect.

Business Day” shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; provided, however, that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

Capital Lease Obligations” of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

A “Change in Control” shall be deemed to have occurred if the signatories to the Scripps Family Agreement (other than the Borrower and The E.W. Scripps Company) shall not be the direct or indirect owners, beneficially and of record, of at least 51% of the issued and outstanding Common Voting Shares, $.01 par value per share, of the Borrower and any other common stock at any time issued by the Borrower, other than the Borrower’s Class A Common Shares, $.01 per share.

 

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Charges” shall have the meaning assigned to such term in Section 10.09.

Closing Date” shall mean March 31, 2014.

Code” shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time.

Commitment” shall mean, with respect to each Bank, the commitment of such Bank to make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum possible aggregate amount of such Bank’s Extensions of Credit hereunder, as such Commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11. The Extended Commitment and the Non-Extended Commitment of each Bank hereunder as of the First Amendment Effective Date is as set forth in Schedule 2.01 hereto as amended by the First Amendment. The Non-Extended Commitments shall automatically and permanently terminate on the Non-Extended Maturity Date. The Extended Commitments shall automatically and permanently terminate on the Extended Maturity Date.

Commitment Increase Notice” shall have the meaning assigned to such term in Section 2.13(a).

Commitment Increase Supplement” shall mean a supplement substantially in the form of Exhibit C.

Competitive Bid” shall mean an offer by a Bank to make a Competitive Loan pursuant to Section 2.03.

Competitive Bid Accept/Reject Letter” shall mean a notification made by the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.

Competitive Bid Rate” shall mean, as to any Competitive Bid made by a Bank pursuant to Section 2.03(b), (i) in the case of a Eurodollar Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Bank making such Competitive Bid.

Competitive Bid Request” shall mean a request made pursuant to Section 2.03 in the form of Exhibit A-1.

Competitive Borrowing” shall mean a borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Bank or Banks whose Competitive Bids for such Borrowing have been accepted by the Borrower under the bidding procedure described in Section 2.03.

Competitive Loan” shall mean a Loan from a Bank to the Borrower pursuant to the bidding procedure described in Section 2.03. Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.

 

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Consolidated EBITDA” shall mean with respect to any person for any period, (a) Consolidated Net Income for such period, plus (b) provisions for taxes based on income during such period, plus (c) Consolidated Interest Expense for such period, plus (d) total depreciation expense for such period, plus (e) total amortization expense for such period, plus (f) unusual and non-recurring non-cash charges recorded during such period, plus (g) non-cash compensation expenses arising from the issuance of stock, options to purchase stock and stock appreciation rights to the officers, directors and employees of the Borrower and its Subsidiaries, minus (h) cash expenditures during such period that are applied against unusual or non-recurring non-cash charges referred to in clause (f) whether such charges were recorded during such period or any prior period, all of the foregoing as determined on a consolidated basis for such person and its consolidated subsidiaries in accordance with GAAP; provided that there shall be excluded from such calculation the net gains or losses associated with the sale of any asset not in the ordinary course of business. For the purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters (each, a “Reference Period”) in connection with any calculation of the ratio of Consolidated Indebtedness of the Borrower to Consolidated EBITDA, (i) if at any time during such Reference Period the Borrower or any Subsidiary shall have made any Material Disposition, the Consolidated EBITDA for such Reference Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition for such Reference Period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such Reference Period and (ii) if during such Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Acquisition occurred on the first day of such Reference Period.

Consolidated Indebtedness” with respect to any person shall mean the aggregate Indebtedness of such person and its consolidated subsidiaries, consolidated in accordance with GAAP.

Consolidated Interest Expense” with respect to any person shall mean for any period the aggregate interest expense of such person and its consolidated subsidiaries for such period, computed and consolidated in accordance with GAAP.

Consolidated Net Income” with respect to any person shall mean for any period the aggregate net income (or net deficit) of such person and its consolidated subsidiaries for such period equal to gross revenues and other proper income less the aggregate for such person and its consolidated subsidiaries of (i) operating expenses, (ii) selling, administrative and general expenses, (iii) taxes, (iv) depreciation, depletion and amortization of properties and (v) any other items that are treated as expenses under GAAP but excluding from the definition of Consolidated Net Income any extraordinary gains or losses, all computed and consolidated in accordance with GAAP.

Consolidated Stockholders’ Equity” with respect to any person shall mean the aggregate Stockholders’ Equity of such person and its consolidated subsidiaries, consolidated in accordance with GAAP.

 

6


Continuing Banks” shall have the meaning assigned to such term in Section 2.12(b)(ii).

Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and “Controlling” and “Controlled” shall have meanings correlative thereto.

Current Maturity Date” shall have the meaning assigned to such term in Section 2.12(a).

Default” shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.

Defaulting Bank” shall mean any Bank, as reasonably determined by the Agent, that has (a) failed to fund any portion of its Loans (unless such Bank notifies the Agent in writing that such failure is the result of such Bank’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied) or participations in Letters of Credit within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Agent, the Issuing Bank or any Bank in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Bank’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) failed, within three Business Days after request by the Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Bank that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit, provided that such Bank shall cease to be a Defaulting Bank pursuant to this clause (c) upon Agent’s receipt of such certification in form and substance satisfactory to it and the Agent, (d) otherwise failed to pay over to the Agent or any other Bank any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) become the subject of a Bankruptcy Event.

dollars” or “$” shall mean lawful money of the United States of America.

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and which is treated as a single employer under Section 414 of the Code.

ERISA Event” shall mean (a) any Reportable Event; (b) the existence with respect to any Plan of a Prohibited Transaction; (c) any failure by any Pension Plan to satisfy the minimum funding standards (within the meaning of Sections 412 and 430 of the Code or Section 302 of ERISA) applicable to such Pension Plan; (d) the filing pursuant to Section 412 of the

 

7


Code or Section 302 of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (e) the failure to make by its due date a required installment under Code Section 430(j)(3)(A) or Section 303(j)(3)(A) of ERISA, with respect to any Pension Plan or the failure by Borrower or any of its ERISA Affiliates to make any required contribution to a Multiemployer Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Pension Plan, including but not limited to the imposition of any Lien in favor of the PBGC or any Pension Plan; (g) a determination that any Pension Plan is, or is expected to be, in “at risk” status (within the meaning of Code Section 430 or Section 303 of ERISA); (h) the receipt by Borrower or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan under Section 4042 of ERISA; (i) the incurrence by Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan; or (j) the receipt by Borrower or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, Insolvent, in reorganization or in endangered or critical status, within the meaning of Section 432 of the Code or Section 305 or Title IV of ERISA.

Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.

Eurodollar Competitive Loan” shall mean any Competitive Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II.

Eurodollar Loan” shall mean any Eurodollar Competitive Loan or Eurodollar Standby Loan.

Eurodollar Standby Borrowing” shall mean a Borrowing comprised of Eurodollar Standby Loans.

Eurodollar Standby Loan” shall mean any Standby Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II.

Event of Default” shall have the meaning assigned to such term in Article VIII.

Existing Credit Agreement” shall have the meaning assigned to such term in the preamble hereto.

Existing Letters of Credit” shall mean each letter of credit existing on the Closing Date and identified on Schedule 3.01.

Extended Commitment” means (a) with respect to any applicable Extending Bank other than an applicable Extension Bank, at any time, such Bank’s Commitment that it has agreed, pursuant to the First Amendment (or any other extension occurring after the First Amendment Effective Date pursuant to Section 2.12), will mature on the Extended Maturity Date and (b) with respect to an Extension Bank, at any time, such Bank’s Commitment that it has purchased by assignment in accordance with Section 2.12.

 

8


Extended Maturity Date” means March 31, 2020, as such date may be extended from time to time with respect to some or all of the Extending Banks pursuant to Section 2.12.

Extending Banks” means (a) the Banks who have agreed pursuant to the First Amendment (or any other extension occurring after the First Amendment Effective Date pursuant to Section 2.12) to extend all of their respective Commitment until the Extended Maturity Date, (b) the New Banks (as defined in the First Amendment) and (c) the Extension Banks. A Bank shall only be an Extending Bank with respect to its Extended Commitment and any Loans made by it thereunder. With respect to any extension pursuant to Section 2.12, any Non-Extension Bank may, subsequent to the effectiveness of such extension, agree to become an Extending Bank with respect to such extension.

Extension Bank” shall have the meaning assigned to such term in Section 2.12(c).

Extension Date” shall have the meaning assigned to such term in Section 2.12(b)(ii).

Extension Letter” shall mean a letter substantially in the form of Exhibit B.

Extensions of Credit” shall mean as to any Bank at any time, an amount equal to the sum of the aggregate principal amount of all (a) Loans of such Bank then outstanding and (b) such Bank’s share of the L/C Obligations then outstanding.

Facility Fee” shall have the meaning assigned to such term in Section 2.06(a).

FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code, and any intergovernmental agreement (or any law, regulation, rule, promulgation or official agreement implementing an intergovernmental agreement) with respect to the foregoing.

Fee Letters” shall mean, collectively, (i) the letter agreement dated as of February 19, 2014, between the Borrower, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC providing for the payment of certain fees or other amounts in connection with the credit facilities established by this Agreement, (ii) the letter agreement dated as of February 19, 2014, between the Borrower and Merrill Lynch, Pierce, Fenner & Smith Incorporated providing for the payment of certain fees or other amounts in connection with the credit facilities established by this Agreement, (iii) the letter agreement dated as of February 19, 2014, between the Borrower, Wells Fargo Bank, National Association and Wells Fargo Securities LLC providing for the payment of certain fees or other amounts in connection with the credit facilities established by this Agreement, (iv) the letter agreement dated as of February 19, 2014, between the Borrower and The Bank of Tokyo-Mitsubishi UFJ, Ltd. providing for the payment of certain fees or other amounts in connection with the credit facilities established by this Agreement, (v) the letter agreement dated as of May 5, 2015, between the Borrower and JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC, providing for the payment of certain fees or other amounts in connection with the First Amendment and (vi) the letter

 

9


agreement dated as of May 5, 2015, between the Borrower and Merrill Lynch, Pierce, Fenner & Smith Incorporated, providing for the payment of certain fees or other amounts in connection with the First Amendment.

Fees” shall mean the Facility Fee, the Arranger Fees and the Administrative Fees.

Final Election Date” shall have the meaning assigned to such term in Section 2.12(a).

Financial Officer” of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer, Assistant Treasurer or Controller of such corporation.

First Amendment” means the First Amendment to this Agreement, dated as of May 18, 2015, among the Borrower, the Agent and the Banks party thereto.

First Amendment Effective Date” means the date on which all the conditions set forth in Section 6 of the First Amendment are satisfied.

Fixed Rate Borrowing” shall mean a Borrowing comprised of Fixed Rate Loans.

Fixed Rate Loan” shall mean any Competitive Loan bearing interest at a fixed percentage rate per annum (the “Fixed Rate”) (expressed in the form of a decimal to no more than four decimal places) specified by the Bank making such Loan in its Competitive Bid.

GAAP” shall mean generally accepted accounting principles, applied on a consistent basis.

Governmental Authority” shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.

Guarantee” of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business.

Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person under conditional sale or other title retention agreements relating to

 

10


property or assets purchased by such person, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services, (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (f) all Guarantees by such person of Indebtedness of others, (g) all Capital Lease Obligations of such person, (h) all obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements, in such amount which exceeds $15,000,000 at any time and (i) all obligations of such person as an account party in respect of letters of credit and bankers’ acceptances; provided that the definition of Indebtedness shall not include (i) accounts payable to suppliers and (ii) programming rights, in each case incurred in the ordinary course of business and not overdue. The Indebtedness of any person shall include the recourse Indebtedness of any partnership in which such person is a general partner. For purposes of this Agreement, the amount of any Indebtedness referred to in clause (h) of the preceding sentence shall be amounts, including any termination payments, required to be paid to a counterparty after giving effect to any contractual netting arrangements, and not any notional amount with regard to which payments may be calculated.

Indemnitee” shall have the meaning assigned to such term in Section 10.05(b).

Insolvent” with respect to any Multiemployer Plan means the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

Interest Payment Date” shall mean, with respect to any Loan, the last day of the Interest Period applicable thereto and, in the case of a Eurodollar Loan with an Interest Period of more than three months’ duration or a Fixed Rate Loan with an Interest Period of more than 90 days’ duration, each day that would have been an Interest Payment Date for such Loan had successive Interest Periods of three months’ duration or 90 days’ duration, as the case may be, been applicable to such Loan and, in addition, the date of any refinancing or conversion of such Loan with or to a Loan of a different Type.

Interest Period” shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months (or, if agreed to by all Banks, 12 months) thereafter, as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing and ending on the date 90 days thereafter or, if earlier, on the Maturity Date or the date of prepayment of such Borrowing and (c) as to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing and ending on the date specified in the Competitive Bids in which the offer to make the Fixed Rate Loans comprising such Borrowing were extended, which shall not be earlier than seven days after the date of such Borrowing or later than 360 days after the date of such Borrowing; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end

 

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on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

Interpolated Rate” means, at any time, the rate per annum (rounded to the same number of decimal places as the Screen Rate) determined by the Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the Screen Rate for the longest period (for which that Screen Rate is available in dollars) that is shorter than the Impacted Interest Period and (b) the Screen Rate for the shortest period (for which that Screen Rate is available for dollars) that exceeds the Impacted Interest Period, in each case, as of the Specified Time on the Quotation Day for such Interest Period. When determining the rate for a period which is less than the shortest period for which the Screen Rate is available, the Screen Rate for purposes of clause (a) above shall be deemed to be the overnight rate for dollars determined by the Agent from such service as the Agent may select.

Issuing Bank” shall mean JPMorgan Chase Bank, N.A. and any other Bank acceptable to the Agent and to the Borrower, in its capacity as issuer of any Letter of Credit.

L/C Obligations” shall mean at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.05.

L/C Participants” shall mean the collective reference to all the Banks other than the Issuing Bank.

Letters of Credit” shall have the meaning assigned to such term in Section 3.01(a).

LIBO Rate” shall mean with respect to any Eurodollar Borrowing for any Interest Period, the London interbank offered rate as administered by the ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters Screen that displays such rate (or, in the event such rate does not appear on either of such Reuters pages, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Agent in its reasonable discretion; in each case, the “Screen Rate”) as of the Specified Time on the Quotation Day for such Interest Period; provided that if the Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement; provided further that, if the Screen Rate shall not be available at such time for such Interest Period (an “Impacted Interest Period”) with respect to dollars, then the LIBO Rate shall be the Interpolated Rate at such time; provided that if any Interpolated Rate

 

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shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement; provided further that all of the foregoing shall be subject to Section 2.10(a).

Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset or (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset.

Loan” shall mean a Competitive Loan or a Standby Loan, whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as permitted hereby.

Loan Documents” shall mean this Agreement, the Fee Letters and the Administrative Agent Fee Letter.

Margin” shall mean, as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from the LIBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan.

Margin Stock” shall have the meaning assigned to such term under Regulation U.

Material Acquisition” means any acquisition of property or series of related acquisitions of property that constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the common stock of a Person.

Material Adverse Effect” shall mean (a) a materially adverse effect on the business, assets, operations, or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) material impairment of the ability of the Borrower to perform any of its obligations under any Loan Document or (c) material impairment of the rights of or benefits expressly available to the Banks under any Loan Document.

Material Disposition” means any sale, sale leaseback, assignment, conveyance, transfer or other disposition of property or series of related sales, sale leasebacks, assignments, conveyances, transfers or other dispositions of property that yields gross proceeds to the Borrower or any of its Subsidiaries.

Maturity Date” shall mean (a) with respect to Non-Extended Commitments (and the Loans and participations in Letters of Credit made thereunder), the Non-Extended Maturity

 

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Date and (b) with respect to Extended Commitments (and the Loans and participations in Letters of Credit made thereunder), the Extended Maturity Date.

Maximum Rate” shall have the meaning assigned to such term in Section 10.09.

Multiemployer Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

New Lending Office” shall have the meaning assigned to such term in Section 2.21(g).

Non-Extended Commitment” means (i) with respect to the extension pursuant to the First Amendment, any Commitment that is not an Extended Commitment thereunder and (ii) with respect to any extension pursuant to Section 2.12 occurring after the First Amendment Effective Date, any Commitment that is not an Extended Commitment pursuant to such extension.

Non-Extended Maturity Date” means the Maturity Date in effect immediately prior to giving effect to any extension of Commitments pursuant to Section 2.12, provided that such date shall be March 31, 2019 solely with respect to Non-Extended Commitments under the First Amendment.

Non-Extension Bank” shall have the meaning assigned to such term in Section 2.12(a).

Non-US Bank” shall have the meaning assigned to such term in Section 2.21(g).

Other Taxes” shall have the meaning assigned to such term in Section 2.21(b).

Participant” shall have the meaning assigned to such term in Section 10.04(b)(vi).

PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

Pension Plan” shall mean any Plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Sections 412 and 430 of the Code or Section 303 or 304 of ERISA.

person” shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof.

Plan” shall mean any employee benefit plan as defined in Section 3(3) of ERISA, including any employee welfare benefit plan (as defined in Section 3(1) of ERISA), any employee pension benefit plan (as defined in Section 3(2) of ERISA), and any plan which is both an employee welfare benefit plan and an employee pension benefit plan, and in respect of which Borrower or any ERISA Affiliate is (or, if such Plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

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Priority Indebtedness Sum” shall mean, at any time, the sum (without duplication) of (a) the aggregate principal amount outstanding of Indebtedness incurred by Subsidiaries under Section 7.01(b)(v), (b) the aggregate principal amount outstanding of Indebtedness incurred by the Borrower and Subsidiaries that is secured by Liens permitted by Section 7.02(k) and (c) the aggregate amount outstanding incurred by the Borrower and Subsidiaries under Section 7.03(ii).

Prohibited Transaction” shall have the meaning assigned to such term in Section 406 of ERISA and Code Section 4975(c), but shall exclude any “exempt” Prohibited Transaction.

Proposed Increase Amount” shall have the meaning assigned to such term in Section 2.13(a).

Quotation Day” shall mean, with respect to any Eurodollar Loan for any Interest Period, two Business Days prior to the commencement of such Interest Period.

Rate” shall include the LIBO Rate, the Alternate Base Rate and the Fixed Rate.

Register” shall have the meaning assigned to such term in Section 10.04(b)(iv).

Regulation T” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

Reimbursement Obligation” shall mean the obligation of the Borrower to reimburse any Issuing Bank pursuant to Section 3.05 for amounts drawn under Letters of Credit issued by such Issuing Bank.

Related Parties” shall mean, with respect to any specified person, such person’s Affiliates and the respective directors, officers, employees, agents and advisors of such person and such person’s Affiliates.

Reportable Event” shall mean any “reportable event,” within the meaning of Section 4043 of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived, with respect to a Pension Plan (other than a Pension Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414).

Required Banks” shall mean, at any time, Banks having Bank Percentages aggregating more than 50%.

 

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Responsible Officer” of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement.

Sanctioned Country” shall mean, at any time, a country or territory that is the subject or target of any Sanctions.

Sanctioned Person” shall mean, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person described in the foregoing clauses (a) or (b).

Sanctions” shall mean economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.

Screen Rate” shall have the meaning assigned to such term in the definition of “LIBO Rate”.

Scripps Family Agreement” means the family agreement dated October 15, 1992, as amended, entered into by and among The E.W. Scripps Company, Scripps Networks Interactive, Inc. and the descendants of Edward W. Scripps or certain trusts established by or for the benefit of one or more descendants of Edward W. Scripps.

Specified Time” shall mean 11:00 a.m., London time.

Standby Borrowing” shall mean a borrowing consisting of simultaneous Standby Loans from each of the Banks.

Standby Borrowing Request” shall mean a request made pursuant to Section 2.04 in the form of Exhibit A-5.

Standby Loans” shall mean the revolving loans made by the Banks to the Borrower pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan or an ABR Loan.

Stockholders’ Equity” shall mean, for any corporation, the consolidated total stockholders’ equity of such corporation determined in accordance with GAAP, consistently applied.

subsidiary” shall mean, with respect to any person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at

 

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the time any determination is being made, owned, controlled or held, or (b) which is, at the time any determination is made, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

Subsidiary” shall mean any subsidiary of the Borrower.

Taxes” shall have the meaning assigned to such term in Section 2.21(a).

Total Commitment” shall mean at any time the aggregate amount of the Banks’ Commitments, as in effect at such time.

Total Extensions of Credit” shall mean at any time the aggregate amount of the Banks’ Extensions of Credit outstanding at such time.

Transactions” shall have the meaning assigned to such term in Section 4.02.

Transferee” shall have the meaning assigned to such term in Section 2.21(a).

Type”, when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined.

Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Title IV of ERISA.

Section 1.02 Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with any covenant set forth in Article VII, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower’s audited financial statements referred to in Section 4.05; provided further that all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein.

 

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ARTICLE II

THE CREDITS

Section 2.01 Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank agrees, severally and not jointly, to make Standby Loans to the Borrower, at any time and from time to time on and after the date hereof and until the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided in this Agreement, in an aggregate principal amount at any time outstanding not to exceed such Bank’s Commitment, minus such Bank’s share of the L/C Obligations then outstanding, minus the amount by which the Competitive Loans outstanding at such time shall be deemed to have used such Commitment pursuant to Section 2.18, subject, however, to the conditions that at no time shall (i) the sum of (x) the outstanding aggregate principal amount of all Standby Loans made by all Banks plus (y) the outstanding L/C Obligations plus (z) the outstanding aggregate principal amount of all Competitive Loans made by all Banks exceed (ii) the Total Commitment. Each Bank’s Commitment as of the Closing Date is set forth opposite its respective name in Schedule 2.01. Such Commitments may be terminated or reduced from time to time pursuant to Section 2.11.

Within the foregoing limits, the Borrower may borrow, pay or repay and reborrow hereunder, on and after the Closing Date and prior to the Maturity Date, subject to the terms, conditions and limitations set forth herein.

Section 2.02 Loans. (a) Each Standby Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Commitments; provided, however, that the failure of any Bank to make any Standby Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.03. The Standby Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $10,000,000 in the case of Eurodollar Standby Loans and not less than $5,000,000 in the case of ABR Loans (or an aggregate principal amount equal to the remaining balance of the available Commitments).

(b) Each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each Bank may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Bank to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing which, if made, would result in an aggregate of more than five separate Standby Loans of any Bank being outstanding hereunder at any one time. For purposes of the

 

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foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans.

(c) Subject to Section 2.05, each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Agent in New York, New York, not later than 12:00 noon, New York City time, and the Agent shall by 3:00 p.m., New York City time, wire transfer the amounts so received to the general deposit account of the Borrower at Wells Fargo, National Association (or other general deposit account designated by the Borrower in writing) or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Competitive Loans shall be made by the Bank or Banks whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the amounts so accepted and Standby Loans shall be made by the Banks pro rata in accordance with Section 2.18. Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank’s portion of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Borrowing in accordance with this paragraph (c) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Agent, such Bank and the Borrower severally agree (without duplication) to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute such Bank’s Loan as part of such Borrowing for purposes of this Agreement.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

Section 2.03 Competitive Bid Procedure. (a) In order to request Competitive Bids, the Borrower shall hand deliver or telecopy to the Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, four Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit A-1 may be rejected in the Agent’s sole discretion, and the Agent shall as soon as practicable notify the Borrower of such rejection by telecopier. Such request shall in each case refer to this Agreement and specify (x) whether the Borrowing then being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and the aggregate principal amount thereof which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000, and (z) the Interest Period with respect thereto (which may not end after the Maturity Date). As soon as practicable after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Agent shall

 

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invite by telecopier (in the form set forth in Exhibit A-2 hereto) the Banks to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to the Competitive Bid Request.

(b) Each Bank may, in its sole discretion, make one or more Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each Competitive Bid by a Bank must be received by the Agent via telecopier, in the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing. Multiple bids will be accepted by the Agent. Competitive Bids that do not conform substantially to the format of Exhibit A-3 may be rejected by the Agent after conferring with, and upon the instruction of, the Borrower, such conference between the Agent and the Borrower to occur as soon as practicable following the receipt by the Agent of such Competitive Bid, and the Agent shall notify the Bank making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Bank is willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which the Bank is prepared to make the Competitive Loan or Loans and (z) the Interest Period and the last day thereof. If any Bank shall elect not to make a Competitive Bid, such Bank shall so notify the Agent via telecopier (I) in the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing; provided, however, that failure by any Bank to give such notice shall not cause such Bank to be obligated to make any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable.

(c) The Agent shall as soon as practicable notify the Borrower by telecopier (i) in the case of Eurodollar Competitive Loans, not later than 10:00 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (ii) in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the day of a proposed Competitive Borrowing, of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Bank that made each bid. The Agent shall send a copy of all Competitive Bids to the Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03.

(d) The Borrower may in its sole and absolute discretion, subject only to the provisions of this paragraph (d), accept or reject any Competitive Bid referred to in paragraph (c) above. The Borrower shall notify the Agent by telephone, confirmed by telecopier in the form of a Competitive Bid Accept/Reject Letter in the form of Exhibit A-4, whether and to what extent it has decided to accept or reject any of or all the bids referred to in paragraph (c) above, (x) in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City time, on the day of a proposed

 

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Competitive Borrowing; provided, however, that (i) the failure by the Borrower to give such notice shall be deemed to be a rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower shall not accept a bid made at a particular Competitive Bid Rate if the Borrower has decided to reject an unrestricted bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if the Borrower shall accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids shall cause the total amount of bids to be accepted by the Borrower to exceed the amount specified in the Competitive Bid Request, then the Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided, further, however, that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of the Borrower. A notice given by the Borrower pursuant to this paragraph (d) shall be irrevocable.

(e) The Agent shall promptly notify each bidding Bank (i) in the case of Eurodollar Competitive Loans, not later than 11:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (ii) in the case of Fixed Rate Loans, not later than 11:30 a.m., New York City time, on the day of a proposed Competitive Borrowing, whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopy sent by the Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted.

(f) A Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request.

(g) If the Agent shall elect to submit a Competitive Bid in its capacity as a Bank, it shall submit such bid directly to the Borrower one hour earlier than the latest time at which the other Banks are required to submit their bids to the Agent pursuant to paragraph (b) above.

(h) All Notices required by this Section 2.03 shall be given in accordance with Section 10.01.

Section 2.04 Standby Borrowing Procedure. In order to request a Standby Borrowing, the Borrower shall hand deliver or telecopy to the Agent in the form of Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than 10:00 a.m., New York City time, three Business Days before a proposed borrowing and (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the day of a proposed borrowing.

 

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No Fixed Rate Loan shall be requested or made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable and shall in each case specify (i) whether the Borrowing then being requested is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date of such Standby Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar Standby Borrowing, the Interest Period with respect thereto. If no election as to the Type of Standby Borrowing is specified in any such notice, then the requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Standby Borrowing is specified in such notice, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. If the Borrower shall not have given notice in accordance with this Section 2.04 of its election to refinance a Standby Borrowing prior to the end of the Interest Period in effect for such Borrowing, then the Borrower shall (unless such Borrowing is repaid at the end of such Interest Period) be deemed to have given notice of an election to refinance such Borrowing with an ABR Borrowing. The Agent shall promptly advise the Banks of any notice given pursuant to this Section 2.04 and of each Bank’s portion of the requested Borrowing.

Section 2.05 Refinancings. The Borrower may refinance all or any part of any Borrowing with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, subject to the conditions and limitations set forth herein and elsewhere in this Agreement, including refinancings of Competitive Borrowings with Standby Borrowings and Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof so refinanced shall be repaid in accordance with Section 2.07 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing shall be paid by the Banks to the Agent or by the Agent to the Borrower pursuant to Section 2.02(c); provided, however, that (i) if the principal amount extended by a Bank in a refinancing is greater than the principal amount extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Agent for distribution to the Banks described in (ii) below, (ii) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount being extended by such Bank in the refinancing, the Agent shall return the difference to such Bank out of amounts received pursuant to (i) above, and (iii) to the extent any Bank fails to pay the Agent amounts due from it pursuant to (i) above, any Loan or portion thereof being refinanced with such amounts shall not be deemed repaid in accordance with Section 2.07 and shall be payable by the Borrower (without prejudice to its rights against such Bank or its ability to make any additional Borrowing for such refinancing).

Section 2.06 Fees. (a) The Borrower agrees to pay to each Bank, through the Agent, on each March 31, June 30, September 30 and December 31 and on the date on which the Commitment of such Bank shall be terminated as provided herein, a facility fee (a “Facility Fee”) at a rate per annum equal to the Applicable Percentage from time to time in effect, on the amount of the Commitment of such Bank, whether used or unused, during the preceding quarter (or shorter period commencing with the date hereof or ending with the Maturity Date or any date on which the Commitment of such Bank shall be terminated as provided in this Agreement). All Facility Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Facility Fee due to each Bank shall commence to accrue on the date hereof and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein.

 

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(b) The Borrower agrees to pay to each of the Agent and the Arrangers, for their own accounts, the fees (the “Arranger Fees”) at the times and in the amounts agreed upon in the Fee Letters.

(c) The Borrower agrees to pay to the Agent, for its own account, the fees (the “Administrative Fees”) at the times and in the amounts agreed upon in the Administrative Agent Fee Letter.

(d) [Reserved]

(e) All Fees shall be paid on the date due, in immediately available funds, to the Agent for distribution, if and as appropriate, among the Banks.

Section 2.07 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Agent for the account of each Bank the then unpaid principal amount of each Standby Loan on the Maturity Date and (ii) to the Agent for the account of each applicable Bank the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan.

(b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder.

(c) The Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, whether such Loan is a Standby Loan or a Competitive Loan, and the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Banks and each Bank’s share thereof.

(d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Bank or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Bank may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Bank a promissory note payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns) and in a usual and customary form for such Type approved by the Agent in its reasonable discretion.

Section 2.08 Interest on Loans. (a) Subject to the provisions of Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage, and (ii) in the case of each Eurodollar Competitive

 

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Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by the Borrower pursuant to Section 2.03.

(b) Subject to the provisions of Section 2.09, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to the Alternate Base Rate plus the Applicable Percentage.

(c) Subject to the provisions of Section 2.09, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Bank making such Loan and accepted by the Borrower pursuant to Section 2.03.

(d) Interest on each Loan shall be payable on each Interest Payment Date applicable to such Loan. The LIBO Rate or the Alternate Base Rate for each Interest Period or day within an Interest Period shall be determined by the Agent, and such determination shall be conclusive absent manifest error.

Section 2.09 Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder (including any Reimbursement Obligation), whether by scheduled maturity, notice of prepayment, acceleration or otherwise, the Borrower shall on demand from time to time from the Agent pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed as provided in Section 2.08(b)) equal to the Alternate Base Rate plus 2%.

Section 2.10 Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Agent shall have determined that dollar deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Bank of making or maintaining its Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the LIBO Rate, the Agent shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower and the Banks. In the event of any such determination, until the Agent shall have advised the Borrower and the Banks that the circumstances giving rise to such notice no longer exist, (i) any request by the Borrower for a Eurodollar Competitive Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be denied by the Agent and (ii) any request by the Borrower for a Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a request for an ABR Borrowing. Each determination by the Agent hereunder shall be conclusive absent manifest error.

Section 2.11 Termination and Reduction of Commitments. (a) The Commitments shall be automatically terminated on the Maturity Date.

 

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(b) Upon at least three Business Days’ prior irrevocable written or telecopy notice to the Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction of the Total Commitment shall be in an integral multiple of $5,000,000 and in a minimum principal amount of $5,000,000 and (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the aggregate outstanding principal amount of the Loans.

(c) Each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitments. The Borrower shall pay to the Agent for the account of the Banks, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced accrued to the date of such termination or reduction.

Section 2.12 Optional Extension of Commitments. (a) The Borrower may, by sending an Extension Letter in substantially the form of Exhibit B to the Agent (in which case the Agent shall promptly deliver a copy to each of the Banks), not less than 30 days and not more than 60 days prior to any anniversary of the Closing Date, request that the Banks extend the Maturity Date then in effect (the “Current Maturity Date”) so that it will occur one year after the Current Maturity Date; provided that in no event shall there be more than two such one-year extensions. Each Bank, acting in its sole discretion, shall advise in response to such extension request, by notice to the Agent in writing given not less than 15 days and not more than 30 days prior to such anniversary of the Closing Date (the last date described in this Section 2.12(a) on which a Bank may give notice of its intention to extend the Current Maturity Date being referred to herein as the “Final Election Date”) whether or not such Bank agrees to such extension (each Bank that so advises the Agent that it will not extend the Current Maturity Date being referred to herein as a “Non-Extension Bank”); provided that any Bank that does not advise the Agent by the Final Election Date shall be deemed to be a Non-Extension Bank. The election of any Bank to agree to such extension shall not obligate any other Bank to agree.

(b) (i) In response to an extension request under subsection (a) above, if Required Banks (determined on or immediately prior to the Final Election Date) have not agreed to extend the Maturity Date, then the Current Maturity Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be due and payable on the Current Maturity Date.

(ii) In response to an extension request under subsection (a) above, if (and only if) Required Banks (determined on or immediately prior to the Final Election Date) have agreed to extend the Current Maturity Date, the Agent shall notify the Borrower of such agreement in writing promptly, and effective on the date of such notice by the Agent to the Borrower (the “Extension Date”), the Maturity Date applicable to the Banks that have agreed to such extension (such Banks being referred to herein as “Continuing Banks”) shall be the day that is one year after the Current Maturity Date. In the event of such extension, the Commitment of each Non-Extension Bank shall terminate on the Current Maturity Date applicable to such Non-Extension Bank, all Loans and other amounts (including non-contingent L/C Obligations) payable hereunder to such Non-Extension Bank shall become due and payable on such Current Maturity Date and the

 

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Total Commitments of the Banks hereunder shall be reduced by the aggregate Commitments of Non-Extension Banks so terminated on such Current Maturity Date. Each Non-Extension Bank shall be required to maintain its original Commitments up to the Current Maturity Date. A Non-Extension Bank shall not deliver a Competitive Bid Request with respect to a Competitive Borrowing having an Interest Period ending after the Current Maturity Date.

(c) In the event that the conditions of clause (ii) of paragraph (b) above have been satisfied, the Borrower shall have the right on or before or after the Extension Date (but, in any event, prior to the Current Maturity Date without giving effect to the relevant extension), at its own expense, to require any Non-Extension Bank to transfer and assign without recourse or representation (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in 10.04 (provided that the applicable Non-Extension Bank shall not be required to sign the applicable Assignment and Acceptance in respect of such transfer and assignment)) all its interests, rights and obligations under the Loan Documents (including with respect to any Letter of Credit) to one or more banks, financial institutions or other entities (which may include any Bank) (each, an “Extension Bank”); provided that (x) such Extension Bank, if not already a Bank hereunder, shall be subject to the approval of the Agent and any Issuing Bank (which consents shall not be unreasonably withheld) and (y) the Extension Bank shall pay to such Non-Extension Bank in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-Extension Bank hereunder and all other amounts accrued for such Non-Extension Bank’s account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Maturity Date shall become effective unless, on the Extension Date, the conditions set forth in Section 5.01(b) and (c) shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Extension Date) and the Agent shall have received a certificate to that effect on behalf of the Borrower dated the Extension Date.

(d) On the Current Maturity Date, if the Commitments of the Banks other than the Non-Extension Banks are still in effect and the conditions set forth in Sections 5.01(b) and (c) are then satisfied (as to which the Borrower shall be deemed to have made a representation and warranty as of such date, unless it has otherwise notified the Agent to the contrary) the shares of the Non-Extension Banks in any outstanding Letters of Credit shall be deemed to be extinguished and the shares therein of other Banks shall be adjusted to be in proportion to their new Bank Percentages; provided that the Borrower shall prepay Loans as required such that after giving effect to such prepayment and adjustment the sum of each Bank’s Loans plus its share of the L/C Obligations outstanding does not exceed its Commitment.

Section 2.13 Additional Commitments. (a) In the event that the Borrower wishes to increase the Commitments at any time when no Default or Event of Default has occurred and is continuing or would exist after giving effect thereto, it shall notify the Agent in writing of the amount (the “Proposed Increase Amount”) of such proposed increase, the Banks and other Persons agreeing to participate therein and the proposed effective date thereof (such notice, a “Commitment Increase Notice”). The Borrower may, with the consent of the Agent and any Issuing Banks (which consents shall not be unreasonably withheld), offer one or more additional

 

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banks, financial institutions or other entities the opportunity to participate in all or a portion of the Proposed Increase Amount pursuant to paragraph (b) below.

(b) Any Bank which agrees with the Borrower to increase its Commitment pursuant to this Section 2.13 shall execute a Commitment Increase Supplement with the Borrower and the Agent, substantially in the form of Exhibit C, whereupon such Bank shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and Schedule 2.01 shall be deemed to be amended to so increase the Commitment of such Bank.

(c) Any additional bank, financial institution or other entity which agrees with the Borrower to participate in the increased Commitments pursuant to this Section 2.13 shall execute an Additional Bank Supplement with the Borrower and the Agent, substantially in the form of Exhibit D, whereupon such bank, financial institution or other entity (an “Additional Bank”) shall become a Bank for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and Schedule 2.01 shall be deemed to be amended to add the name and Commitment of such Additional Bank as so agreed; provided that the Commitment of any such Additional Bank shall be in an amount not less than $5,000,000.

(d) Notwithstanding anything to the contrary in this Section 2.13, (i) in no event shall the aggregate amount of increases in Commitments pursuant to this Section 2.13 exceed the sum of (x) $250,000,000 and (y) an amount equal to the aggregate amount of optional reductions of Commitments made by the Borrower pursuant to Section 2.11 of the Credit Agreement after the First Amendment Effective Date and (ii) no Bank shall have any obligation to increase its Commitment unless it agrees to do so in its sole discretion. It shall be a condition to the effectiveness of any increase in the Commitments pursuant to this Section 2.13 that on the proposed effective date therefor that the conditions set forth in Sections 5.01(b) and (c) are then satisfied (and the Borrower shall be deemed to have made a representation and warranty as of such date to such effect).

(e) Upon any increase in the Commitments pursuant to this Section 2.13 becoming effective, the shares of the Banks (including any Additional Banks) in any outstanding Letters of Credit shall be adjusted to be in proportion to their new Bank Percentages. The Agent shall also be entitled, upon any such effectiveness, to establish arrangements, which may be inconsistent in certain respects with other provisions of the Agreement but which it believes to be reasonable in the circumstances (with the intention of minimizing expense to the Borrower under Section 2.17 and disruptions for the Banks), to provide for the Additional Banks and the Banks with increasing Commitments to make Standby Loans over a reasonable period on a basis that makes their participation in the outstanding Standby Borrowings proportional to their new Bank Percentages and during such period for the Banks to receive ratable treatment with respect to their outstanding Standby Loans.

Section 2.14 Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Standby Borrowing, in whole or in part, upon giving written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Agent: (i) before 10:00 a.m., New York City time, three Business Days prior to prepayment, in

 

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the case of Eurodollar Loans and (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $10,000,000. The Borrower shall not have the right to prepay any Competitive Borrowing.

(b) On the date of any termination or reduction of the Commitments pursuant to Section 2.11, the Borrower shall pay or prepay so much of the Standby Borrowings as shall be necessary in order that the aggregate principal amount of the Competitive Loans and Standby Loans outstanding will not exceed the Total Commitment after giving effect to such termination or reduction.

(c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.14 shall be subject to Section 2.17 but otherwise without premium or penalty. All prepayments under this Section 2.14 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment.

Section 2.15 Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such Bank or any Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such Bank by the jurisdiction in which such Bank has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Bank, or shall impose on such Bank or the London interbank market any other condition affecting this Agreement or any Eurodollar Loan or Fixed Rate Loan made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) by an amount deemed by such Bank to be material, then the Borrower will pay to such Bank within 30 days of demand such additional costs incurred or reduction suffered. Notwithstanding the foregoing, no Bank shall be entitled to request compensation under this paragraph with respect to any Competitive Loan if it shall have been aware of the change giving rise to such request at the time of submission of the Competitive Bid pursuant to which such Competitive Loan shall have been made.

(b) If any Bank shall have determined that the adoption after the date hereof of any law, rule, regulation or guideline regarding capital adequacy or liquidity, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) or any Bank’s holding company with any request or directive regarding capital adequacy or liquidity

 

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(whether or not having the focus of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank’s capital or on the capital of such Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank or such Bank’s holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Bank’s policies and the policies of such Bank’s holding company with respect to capital adequacy or liquidity) by an amount deemed by such Bank to be material, then from time to time the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank or such Bank’s holding company for any such reduction suffered.

(c) Notwithstanding anything herein to the contrary, (i) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or by United States or foreign regulatory authorities, in each case pursuant to Basel III, and (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in implementation thereof, shall in each case be deemed to be a change in applicable law, regardless of the date enacted, adopted, issued or implemented.

(d) Notwithstanding any other provision of this Section 2.15, no Bank shall demand compensation for any increased cost or reduction referred to in paragraph (a), (b), or (c) above if it shall not at the time be the general policy or practice of such Bank to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any.

(e) A certificate of a Bank setting forth (i) such amount or amounts as shall be necessary to compensate such Bank as specified in paragraph (a), (b), or (c) above, as the case may be, and (ii) in reasonable detail the basis of the calculation of such amount or amounts shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay each Bank the amount shown as due on any such certificate delivered by it within 30 days after the receipt of the same. If any Bank subsequently receives a refund of any such amount paid by the Borrower it shall remit such refund to the Borrower.

(f) Failure on the part of any Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Bank’s right to demand compensation with respect to any other period; provided that if any Bank fails to make such demand within 90 days after it obtains knowledge of the event giving rise to the demand such Bank shall, with respect to amounts payable pursuant to this Section 2.15 resulting from such event, only be entitled to payment under this Section 2.15 for such costs incurred or reduction in amounts or return on capital from and after the date 90 days prior to the date that such Bank does make such demand. The protection of this Section shall be available to each Bank regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed.

Section 2.16 Change in Legality. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any governmental

 

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authority charged with the administration or interpretation thereof shall make it unlawful for any Bank to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written or telecopy notice to the Borrower and to the Agent, such Bank may:

(i) declare that Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon such Bank shall not submit a Competitive Bid in response to a request for Eurodollar Competitive Loans and any request by the Borrower for a Eurodollar Standby Borrowing shall, as to such Bank only, be deemed a request for an ABR Loan unless such declaration shall be subsequently withdrawn; and

(ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below.

In the event any Bank shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Bank or the converted Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans made by such Bank in lieu of, or resulting from the conversion of, such Eurodollar Loans.

(b) For purposes of this Section 2.16, a notice to the Borrower by any Bank shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.

(c) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of paragraph (a) of this Section 2.16 with respect to such Bank, it shall have a duty to endeavor in good faith to mitigate the adverse effects that may arise as a consequence of such event to the extent that such mitigation will not, in the reasonable judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower.

Section 2.17 Indemnity. The Borrower shall indemnify each Bank against any loss or expense which such Bank may sustain or incur as a consequence of (a) any failure by the Borrower to fulfill on the date of any borrowing hereunder the applicable conditions set forth in Article V, (b) any failure by the Borrower to borrow or to refinance or continue any Loan hereunder after irrevocable notice of such borrowing, refinancing or continuation has been given pursuant to Section 2.03 or 2.04, (c) any payment, prepayment or conversion of a Eurodollar Loan or Fixed Rate Loan required by any other provision of this Agreement or otherwise made or deemed made on a date other than the last day of the Interest Period applicable thereto, (d) any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise) or (e) the occurrence of any Event of Default, including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan or

 

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Fixed Rate Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Bank, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, converted or not borrowed (assumed to be the LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for the period from the date of such payment, prepayment or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid or not borrowed for the remainder of such period or Interest Period, as the case may be. A certificate of any Bank setting forth (i) any amount or amounts which such Bank is entitled to receive pursuant to this Section and (ii) in reasonable detail the basis of the calculation of such amount or amounts shall be delivered to the Borrower and shall be conclusive absent manifest error.

Each Bank shall have a duty to mitigate the damages to such Bank that may arise as a consequence of clause (a), (b), (c), (d) or (e) above to the extent that such mitigation will not, in the reasonable judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower.

Section 2.18 Pro Rata Treatment. Except (i) as required under Section 2.16 and (ii) subject to the execution of the First Amendment by all Banks (other than any Non-Extension Bank that transfers its interests, rights and obligations under the Loan Documents pursuant to Section 2.12(c)) immediately prior to the First Amendment Effective Date, as required under Sections 2.12 and 2.13 (including the payment of Loans and Borrowings made in respect of Non-Extended Commitments on the applicable Non-Extended Maturity Date), each Standby Borrowing, each payment or prepayment of principal of any Standby Borrowing, each payment of interest on the Standby Loans, each payment of the Facility Fees, each reduction of the Commitments and each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata among the Banks in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Standby Loans). Each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For purposes of determining the available Commitments of the Banks at any time, each outstanding Competitive Borrowing shall be deemed to have utilized the Commitments of the Banks (including those Banks which shall not have made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Bank agrees that in computing such Bank’s portion of any Borrowing to be made hereunder, the Agent may, in its discretion, round each Bank’s percentage of such Borrowing to the next higher or lower whole dollar amount.

Section 2.19 Sharing of Setoffs. Each Bank agrees that if it, except as otherwise expressly permitted by this Agreement, shall through the exercise of a right of banker’s lien, setoff or counterclaim against the Borrower, or pursuant to, a secured claim under

 

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Section 506 of title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Standby Loan or Loans as a result of which the unpaid principal portion of the Standby Loans shall be proportionately less than the unpaid principal portion of the Standby Loans of any other Bank, it shall be deemed simultaneously to have purchased from such other Bank at face value, and shall promptly pay to such other Bank the purchase price for, a participation in the Standby Loans of such other Bank, so that the aggregate unpaid principal amount of the Standby Loans and participations in the Standby Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Standby Loans then outstanding as the principal amount of its Standby Loans prior to such exercise of banker’s lien, setoff or counterclaim or other event was to the principal amount of all Standby Loans outstanding prior to such exercise of banker’s lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustment shall be made pursuant to this Section 2.19 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustments restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Bank holding a participation in a Standby Loan deemed to have been so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Bank by reason thereof as fully as if such Bank had made a Standby Loan directly to the Borrower in the amount of such participation.

Section 2.20 Payments. The Borrower shall initiate each payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder and under any other Loan Document, without set-off, counterclaim or deduction of any kind, not later than 12:00 (noon), New York City time, on the date when due in dollars to the Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds.

Section 2.21 Taxes. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.20, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings imposed by any Governmental Authority, including any interest, additions to tax or penalties and all liabilities with respect thereto, excluding (i) income taxes imposed on the net income of the Agent or any Bank (or any transferee or assignee thereof, including a participation holder (any such entity a “Transferee”)) and (ii) franchise taxes imposed on the net income of the Agent or any Bank (or Transferee), in each case by the jurisdiction under the laws of which the Agent or such Bank (or Transferee) is organized or has its principal place of business or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, and withholdings, including any interest, additions to tax or penalties and all liabilities with respect thereto, collectively or individually, “Taxes”). If the Borrower or any person acting on behalf of the Borrower (including the Agent) shall be required to deduct any Taxes from or in respect of any sum payable hereunder to any Bank (or any Transferee) or the Agent, (i) the Borrower shall increase the sum payable by the amount (an “additional amount”) necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.21) such Bank (or Transferee) or the Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deduction been made, (ii)

 

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the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower agrees to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (“Other Taxes”).

(c) The Borrower will indemnify each Bank (or Transferee) and the Agent for the full amount of Taxes and Other Taxes paid by such Bank (or Transferee) or the Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney’s fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared by a Bank, or the Agent on its behalf, setting forth in reasonable detail the basis of the calculation of such payment or liability, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Bank (or Transferee) or the Agent, as the case may be, makes written demand therefor. For purposes of determining withholding Taxes imposed under FATCA, from and after the First Amendment Effective Date, the Borrowers and the Agent shall treat (and the Banks hereby authorize the Agent to treat) the Loan Documents and any Borrowings as not qualifying as “grandfathered obligations” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i) (any such Taxes, “Deemed Taxes”).

(d) If a Bank (or Transferee) or the Agent shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Taxes or Other Taxes as to which it has been indemnified by the Borrower, or with respect to which the Borrower has paid additional amounts, pursuant to this Section 2.21, it shall promptly notify the Borrower of the availability of such refund claim and shall, within 30 days after receipt of a request by the Borrower, make a claim to such Governmental Authority for such refund at the Borrower’s expense. If a Bank (or Transferee) or the Agent receives a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.21, it shall within 30 days from the date of such receipt pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.21 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Bank (or Transferee) or the Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the Borrower, upon the request of such Bank (or Transferee) or the Agent, agrees to repay the amount paid over to the Borrower (plus penalties, interest or other charges) to such Bank (or Transferee) or the Agent in the event such Bank (or Transferee) or the Agent is required to repay such refund to such Governmental Authority.

(e) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Borrower to the relevant Governmental Authority, the Borrower will deliver to the Agent,

 

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at its address referred to in Section 10.01, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof.

(f) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.21 shall survive the payment in full of the principal of and interest on all Loans made hereunder.

(g) Each Bank (or Transferee) that is organized under the laws of the United States, any State thereof or the District of Columbia shall deliver to the Borrower and the Agent two copies of the United States Internal Revenue Service Form W-9. Each Bank (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “Non-U.S. Bank”) shall deliver to the Borrower and the Agent two copies of either United States Internal Revenue Service Form W-8BEN-E or Form W-8ECI, or, in the case of a Non-U.S. Bank claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN-E, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Bank delivers a Form W-8BEN-E, a certificate representing that such Non-U.S. Bank is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Bank claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Bank on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Bank changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Bank shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Bank. Notwithstanding any other provision of this Section 2.21(g), a Non-U.S. Bank shall not be required to deliver any form pursuant to this Section 2.21 (g) that such Non-U.S. Bank is not legally able to deliver.

(h) The Borrower shall not be required to indemnify any Bank, or to pay any additional amounts to any Bank, in respect of Taxes pursuant to paragraph (a) or (c) above to the extent that (i) in the case of United States federal withholding Taxes, the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Bank became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Bank designated such New Lending Office with respect to a Loan; provided, however, that this clause (i) of this subsection 2.21(h) shall not apply to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of the Borrower; and provided, further, however, that this clause (i) of this subsection 2.21(h) shall not apply to the extent the indemnity payment or additional amounts any Transferee, or Bank (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (i) of this subsection 2.21(h)) do not exceed the indemnity payment or additional amounts that the

 

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person making the assignment, participation or transfer to such Transferee, or Bank (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation; (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Bank to comply with the provisions of paragraph (g) above; or (iii) such Taxes are Deemed Taxes or any other Taxes imposed with respect to FATCA.

(i) Any Bank (or Transferee) claiming any additional amounts payable under this Section 2.21 shall (A) to the extent legally able to do so, upon written request from the Borrower, file any certificate or document if such filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue, and the Borrower shall not be obligated to pay such additional amounts if, after the Borrower’s request, any Bank (or Transferee) could have filed such certificate or document and failed to do so; or (B) consistent with legal and regulatory restrictions, use reasonable efforts to change the jurisdiction of its applicable lending office if the making of such change would avoid the need for or reduce the amount of any additional amounts which may thereafter accrue and would not, in the sole determination of such Bank (or Transferee), be otherwise disadvantageous to such Bank (or Transferee).

(j) If a payment made to a Bank under any Loan Document would be subject to United States Federal withholding Tax imposed by FATCA or Deemed Taxes if such Bank were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Bank shall deliver to the Borrower and the Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Bank has complied with such Bank’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this paragraph (j), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(k) Nothing contained in this Section 2.21 shall require any Bank (or Transferee) or the Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

Section 2.22 Mandatory Assignment; Commitment Termination. In the event any Bank delivers to the Agent or the Borrower, as appropriate, a certificate in accordance with Section 2.15(e) or a notice in accordance with Section 2.16, or the Borrower is required to pay any additional amounts or other payments in accordance with Section 2.21, or if any Bank becomes a Defaulting Bank, the Borrower may, at its own expense, and in its sole discretion (a) require such Bank to transfer and assign in whole or in part, without recourse (in accordance with Section 10.04), all or part of its interests, rights and obligations under this Agreement (other than outstanding Competitive Loans) to an assignee which shall assume such assigned obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority and (ii) the Borrower or such assignee shall have paid to the

 

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assigning Bank in immediately available funds the principal of and interest accrued to the date of such payment on the Loans made by it hereunder and all other amounts owed to it hereunder or (b) so long as no Event of Default has occurred and is continuing, terminate the Commitment of such Bank and prepay all outstanding Loans (other than Competitive Loans) of such Bank; provided that (x) such termination of the Commitment of such Bank and prepayment of Loans does not conflict with any law, rule or regulation or order of any court or Governmental Authority and (y) the Borrower shall have paid to such Bank in immediately available funds the principal of, accrued interest and accrued fees to the date of such payment on the Loans (other than Competitive Loans) made by it hereunder and all other amounts owed to it hereunder. Notwithstanding the foregoing, if prior to any such transfer and assignment (a) such Bank shall waive its right to claim compensation under Section 2.15(e) in respect of such circumstances or event or shall withdraw its notice under Section 2.16 or shall waive its right to payments under Section 2.21 in respect of such circumstances or event, as the case may be or (b) with respect to any transfer as a result of any Bank becoming a Defaulting Bank, such Bank ceases to be a Defaulting Bank, then, in each case, such Bank shall not thereafter be required to make any such transfer and assignment hereunder.

Section 2.23 Defaulting Banks. Notwithstanding any provision of this Agreement to the contrary, if any Bank becomes a Defaulting Bank, then the following provisions shall apply for so long as such Bank is a Defaulting Bank:

(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Bank pursuant to Section 2.06;

(b) the Bank Percentage of such Defaulting Bank shall not be included in determining whether all Banks or the Required Banks have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 10.08), provided that this clause (b) shall not apply to the vote of a Defaulting Bank in the case of an amendment, waiver or other modification requiring the consent of such Bank or each Bank affected thereby;

(c) if any L/C Obligations exist at the time a Bank becomes a Defaulting Bank then:

(i) all or any part of such Defaulting Bank’s Bank Percentage of the L/C Obligations shall be reallocated among the non-Defaulting Banks in accordance with their respective Bank Percentages but only to the extent the sum of all non-Defaulting Banks’ Standby Loans and their Bank Percentages of the L/C Obligations and the outstanding Competitive Loans expressed as a dollar amount plus such Defaulting Bank’s Bank Percentage of the L/C Obligations does not exceed the total of all non-Defaulting Banks’ Commitments;

(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one Business Day following notice by the Agent, cash collateralize such Defaulting Bank’s Bank Percentage of the L/C Obligations (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance

 

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with the procedures set forth in Article VIII for so long as such Defaulting Bank’s Bank Percentage of the L/C Obligations is outstanding;

(iii) if the Borrower cash collateralizes any portion of such Defaulting Bank’s Bank Percentage of the L/C Obligations pursuant to Section 2.23(c)(ii), the Borrower shall not be required to pay any fees to such Defaulting Bank pursuant to Section 3.03 with respect to such Defaulting Bank’s Bank Percentage of the L/C Obligations during the period such Defaulting Bank’s Bank Percentage of the L/C Obligations is cash collateralized;

(iv) if the Bank Percentages of the L/C Obligations of the non-Defaulting Banks are reallocated pursuant to Section 2.23(c)(i), then the fees payable to the Banks pursuant to Section 2.06 and Section 3.03 shall be adjusted in accordance with such non-Defaulting Banks’ Bank Percentages; and

(v) if any Defaulting Bank’s Bank Percentage of the L/C Obligations is neither cash collateralized nor reallocated pursuant to this Section 2.23(c), then, without prejudice to any rights or remedies of the Issuing Bank or any Bank hereunder, all Facility Fees that otherwise would have been payable to such Defaulting Bank (solely with respect to the portion of such Defaulting Bank’s Commitment that was utilized by such Defaulting Bank’s Bank Percentage of the L/C Obligations) and letter of credit fees payable under Section 3.03 with respect to such Defaulting Bank’s Bank Percentage of the L/C Obligations shall be payable to the Issuing Bank until such Defaulting Bank’s Bank Percentage of the L/C Obligations is cash collateralized and/or reallocated;

(d) so long as any Bank is a Defaulting Bank, the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Commitments of the non-Defaulting Banks and/or cash collateral provided by the Borrower in accordance with Section 2.23(c), and participating interests in any such newly issued or increased Letter of Credit shall be allocated among non-Defaulting Banks in a manner consistent with Section 2.23(c)(i) (and Defaulting Banks shall not participate therein); and

(e) any amount payable to such Defaulting Bank hereunder (whether on account of principal, interest, fees or otherwise and including any amount that would otherwise be payable to such Defaulting Bank) shall, in lieu of being distributed to such Defaulting Bank, be retained by the Agent in a segregated account and, subject to any applicable requirements of law, be applied at such time or times as may be determined by the Agent (i) first, to the payment of any amounts owing by such Defaulting Bank to the Agent hereunder, (ii) second, pro rata, to the payment of any amounts owing by such Defaulting Bank to the Issuing Bank hereunder, (iii) third, if so determined by the Agent or requested by an Issuing Bank, held in such account as cash collateral for future funding obligations of the Defaulting Bank in respect of any existing or future participating interest in any Letter of Credit, (iv) fourth, to the funding of any Loan in respect of which such Defaulting Bank has failed to fund its portion thereof as required by this Agreement, as determined by the Agent, (v) fifth, if so determined by the Agent and the Borrower, held in such account as cash collateral for future funding obligations of the Defaulting Bank in respect of any Loans under this Agreement, (vi) sixth, to the payment of any amounts

 

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owing to the Banks or an Issuing Bank as a result of any judgment of a court of competent jurisdiction obtained by any Bank or such Issuing Bank against such Defaulting Bank as a result of such Defaulting Bank’s breach of its obligations under this Agreement, (vii) seventh, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Bank as a result of such Defaulting Bank’s breach of its obligations under this Agreement, and (viii) eighth, to such Defaulting Bank or as otherwise directed by a court of competent jurisdiction, provided, with respect to this clause (viii), that if such payment is (x) a prepayment of the principal amount of any Loans or Reimbursement Obligations which a Defaulting Bank has funded its participation obligations and (y) made at a time when the conditions set forth in Section 5.01 are satisfied, such payment shall be applied solely to prepay the Loans of, and Reimbursement Obligations owed to, all non-Defaulting Banks pro rata prior to being applied to the prepayment of any Loans, or Reimbursement Obligations owed to, any Defaulting Bank.

In the event that the Agent, the Borrower and the Issuing Bank each agrees that a Defaulting Bank has adequately remedied all matters that caused such Bank to be a Defaulting Bank, then the Bank Percentages of the L/C Obligations of the Banks shall be readjusted to reflect the inclusion of such Bank’s Commitment and on such date such Bank shall purchase at par such of the Standby Loans of the other Banks as the Agent shall determine may be necessary in order for such Bank to hold such Loans in accordance with its Bank Percentage.

ARTICLE III

LETTERS OF CREDIT

Section 3.01 L/C Commitment. (a) Subject to the terms and conditions hereof, each Issuing Bank, in reliance on the agreements of the L/C Participants set forth in Section 3.04(a), agrees to issue letters of credit (“Letters of Credit”) for the account of the Borrower on any Business Day, at any time and from time to time on and after the date hereof and until the earlier of the Maturity Date and the date of termination of the Commitments in such form as may be approved from time to time by the relevant Issuing Bank; provided that no Issuing Bank shall issue any Letters of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed $50,000,000 or (ii) the Total Extensions of Credit would exceed the Total Commitments. Each Letter of Credit shall (i) be denominated in dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date that is five Business Days prior to the Maturity Date then in effect, provided that any Letter of Credit with a one-year term may, at the option of the Borrower, provide for the renewal thereof for additional one-year periods (which shall, subject to the first proviso below, in no event extend beyond the date referred to in clause (y) above); provided that a Letter of Credit may extend beyond the date five Business Days prior to the Maturity Date then in effect if it shall be cash collateralized on such date in a manner satisfactory to the relevant Issuing Bank; provided further that if the aggregate undrawn and unexpired amount under Letters of Credit outstanding as of the date five Business Days prior to a date on which the Total Commitments shall be reduced as a result of certain Banks not having extended their Commitments pursuant to Section 2.12 shall exceed the Total Commitments after giving effect to such reduction, such excess shall be cash collateralized on such date in a manner satisfactory to the relevant Issuing Banks.

 

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(b) No Issuing Bank shall at any time be obligated to issue any Letter of Credit if such issuance would conflict with, or cause such Issuing Bank or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law.

(c) The parties hereto agree that the Existing Letters of Credit shall be deemed to be Letters of Credit for all purposes under this Agreement, without any further action by the Borrower, the Issuing Bank, or any other Person.

Section 3.02 Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that an Issuing Bank issue a Letter of Credit by delivering to such Issuing Bank an Application therefor, completed to the satisfaction of such Issuing Bank, and such other certificates, documents and other papers and information as such Issuing Bank may request in connection therewith. Upon receipt of any Application, such Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall such Issuing Bank be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by such Issuing Bank and the Borrower. Such Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. Such Issuing Bank shall promptly furnish to the Agent, which shall in turn promptly furnish to the Banks, notice of the issuance of each Letter of Credit (including the amount thereof).

Section 3.03 Fees and Other Charges. (a) The Borrower will pay a fee on all outstanding Letters of Credit at a per annum rate equal to the Applicable Percentage then in effect with respect to Eurodollar Standby Loans, shared ratably among the Banks and payable quarterly in arrears on the last day of each March, June, September and December after the issuance date and on the Maturity Date. In addition, the Borrower shall pay to each Issuing Bank for its own account a fronting fee of 0.125% per annum on the undrawn and unexpired amount of each Letter of Credit issued by such Issuing Bank (or as otherwise agreed between the Borrower and such Issuing Bank), payable quarterly in arrears on the last day of each March, June, September and December after the issuance date and on the Maturity Date.

(b) In addition to the foregoing fees, the Borrower shall pay or reimburse each Issuing Bank for such normal, customary and reasonable costs and expenses as are incurred or charged by such Issuing Bank in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit issued by such Issuing Bank.

Section 3.04 L/C Participations. (a) Each Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce each Issuing Bank to issue Letters of Credit, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from each Issuing Bank, on the terms and conditions set forth below, for such L/C Participant’s own account and risk an undivided interest equal to such L/C Participant’s Bank Percentage in such Issuing Bank’s obligations and rights under and in respect of each Letter of Credit and the amount of each draft paid by such Issuing Bank thereunder. Each L/C Participant agrees with each Issuing Bank that, if a draft is paid under any Letter of Credit for which such

 

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Issuing Bank is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Bank upon demand at such Issuing Bank’s address for notices specified herein an amount equal to such L/C Participant’s Bank Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. Each L/C Participant’s obligation to pay such amount shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such L/C Participant may have against such Issuing Bank, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of an Event of Default or the failure to satisfy any of the other conditions specified in Article V, (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower or any other L/C Participant or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

(b) If any amount required to be paid by any L/C Participant to the relevant Issuing Bank pursuant to Section 3.04(a) in respect of any unreimbursed portion of any payment made by such Issuing Bank under any Letter of Credit is paid to such Issuing Bank within three Business Days after the date such payment is due, such L/C Participant shall pay to such Issuing Bank on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to such Issuing Bank, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.04(a) is not made available to the relevant Issuing Bank by such L/C Participant within three Business Days after the date such payment is due, such Issuing Bank shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans. A certificate of such Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error.

(c) Whenever, at any time after the relevant Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 3.04(a), such Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise), or any payment of interest on account thereof, such Issuing Bank will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by such Issuing Bank shall be required to be returned by such Issuing Bank, such L/C Participant shall return to such Issuing Bank the portion thereof previously distributed by such Issuing Bank to it.

(d) The participations of the other Banks in Letters of Credit cash collateralized on the date five Business Days prior to Maturity Date shall end on the Maturity Date and the participations of Non-Extension Banks in Letters of Credit cash collateralized five Business Days prior to the date that is the then Current Maturity Date in respect of the Commitments of such Non-Extension Banks shall end on such then Current Maturity Date.

Section 3.05 Reimbursement Obligation of the Borrower. If any draft is paid under any Letter of Credit, the Borrower shall reimburse the Issuing Bank that issued such Letter of Credit for the amount of (a) the draft so paid and (b) any taxes, fees, charges or other costs or

 

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expenses incurred by such Issuing Bank in connection with such payment, not later than 12:00 Noon, New York City time, on (i) the Business Day that the Borrower receives notice of such draft, if such notice is received on such day prior to 10:00 A.M., New York City time, or (ii) if clause (i) above does not apply, the Business Day immediately following the day that the Borrower receives such notice. Each such payment shall be made to such Issuing Bank at its address for notices referred to herein in dollars and in immediately available funds. Interest shall be payable on any such amounts from the date on which the relevant draft is paid until payment in full at the rate set forth in (x) until the third Business Day next succeeding the date of the relevant notice, Section 2.08(b) and (y) thereafter, Section 2.09.

Section 3.06 Obligations Absolute. The Borrower’s obligations under this Article III shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against any Issuing Bank, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with each Issuing Bank that no Issuing Bank shall be responsible for, and the Borrower’s Reimbursement Obligations under Section 3.05 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. No Issuing Bank shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Issuing Bank. The Borrower agrees that any action taken or omitted by the relevant Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall not result in any liability of any Issuing Bank to the Borrower.

Section 3.07 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the relevant Issuing Bank shall promptly notify the Borrower of the date and amount thereof. The responsibility of each Issuing Bank to the Borrower in connection with any draft presented for payment under any Letter of Credit issued by such Issuing Bank shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit.

Section 3.08 Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article III, the provisions of this Article III shall apply.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to each of the Banks that:

Section 4.01 Organization; Powers. The Borrower and each Subsidiary of the Borrower (a) is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite corporate or other entity power and authority to own its property and assets and to carry on its business as now conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not be reasonably likely to have a Material Adverse Effect, and (d) in the case of the Borrower, has the corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents to which it is a party and each other agreement or instrument contemplated thereby to which it is or will be a party and to borrow hereunder.

Section 4.02 Authorization. The execution, delivery and performance by the Borrower of this Agreement and the execution, delivery and performance by the Borrower of each of the other Loan Documents and the borrowings hereunder (collectively, the “Transactions”) (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws (or code of regulations) of the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any indenture, agreement or other instrument to which the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument and (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary, except for any such violation, conflict, creation or imposition which does not impair the Borrower’s ability to enter into and perform the Transactions or would not be reasonably likely to have a Material Adverse Effect or materially impair the position of the Banks with respect to any other creditors of the Borrower.

Section 4.03 Enforceability. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan document when executed and delivered by the Borrower will constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity.

Section 4.04 Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required by the Borrower in connection with the Transactions, except such as have been made or obtained and are in full force and effect, and except for filings required by applicable securities laws after the date of this Agreement.

 

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Section 4.05 Financial Statements. The Borrower has heretofore furnished to the Banks the consolidated balance sheets and consolidated statements of operations, cash flows and changes in equity of the Borrower as of and for the fiscal years ended December 31, 2012 and December 31, 2013, audited by and accompanied by the opinion of Deloitte & Touche LLP, independent public accountants, in each case certified by the chief financial officer of the Borrower. Such financial statements (subject, in the case of such interim statements, to normal year-end audit adjustments) present fairly in all material respects the financial condition and results of operations of the Borrower as of such dates and for such periods. Such balance sheets and the notes thereto disclose, in accordance with GAAP, all material liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.

Section 4.06 No Material Adverse Change. There has been no change in the business, assets, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries since December 31, 2013 that would constitute a Material Adverse Effect which is not reflected in the financial statements referred to in Section 4.05.

Section 4.07 Title to Properties; Possession Under Leases. (a) Each of the Borrower and its Subsidiaries has good and marketable title to, or valid leasehold interests in, all its properties and assets, except for defects in title that would not, in the aggregate, be reasonably likely to have a Material Adverse Effect. All material properties and assets are free and clear of Liens, other than Liens permitted by Section 7.02.

(b) Each of the Borrower and its Subsidiaries has complied with all obligations under all leases to which it is a party, all such leases are in full force and effect and each of the Borrower and its Subsidiaries enjoys peaceful and undisturbed possession under all such leases, except for any noncompliance, ineffectiveness or other conditions that would not, in the aggregate, be reasonably likely to have a Material Adverse Effect.

Section 4.08 Stock of Borrower. More than 51% of the outstanding Common Voting Shares, par value $.01, of the Borrower are owned directly or indirectly, beneficially and of record by signatories to the Scripps Family Agreement (other than the Borrower and The E.W. Scripps Company).

Section 4.09 Litigation; Compliance with Laws. (a) Except as set forth in Schedule 4.09 or otherwise disclosed to the Banks in writing, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary or any business, property or rights of any such person (i) which involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect.

(b) None of the Borrower nor any of its Subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would be reasonably likely to have a Material Adverse Effect.

 

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Section 4.10 Agreements. (a) None of the Borrower nor any of its Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or would be reasonably likely to result in a Material Adverse Effect.

(b) None of the Borrower nor any of its Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default would be reasonably likely to have a Material Adverse Effect.

Section 4.11 Federal Reserve Regulations. (a) None of the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

(b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose, or (ii) for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.

(c) After applying proceeds of the Loans, no more than 25% of the reasonable value of the assets of the Borrower and its Subsidiaries is represented by Margin Stock.

Section 4.12 Investment Company Act. None of the Borrower nor any Subsidiary is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.

Section 4.13 Use of Proceeds. The Borrower will use the proceeds of the Loans only for the purposes specified in the preamble to this Agreement and in accordance with the provisions of Section 4.11.

Section 4.14 Tax Returns. Each of the Borrower and its Subsidiaries has filed or caused to be filed all Federal, state and local tax returns required to have been filed by it and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or a Subsidiary shall have set aside on its books adequate reserves.

Section 4.15 No Material Misstatements. No material information, report, financial statement, exhibit or schedule furnished by the Borrower in writing to the Agent or any Bank in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading.

Section 4.16 Employee Benefit Plans. Except as would not reasonably be likely to have a Material Adverse Effect, and except as set forth in Schedule 4.16, (i) the Borrower and

 

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each of its ERISA Affiliates is in compliance with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder and (ii) no ERISA Event has occurred or is reasonably expected to occur. Except as set forth in Schedule 4.16, the present value of all accumulated benefit obligations under each Pension Plan (based on those assumptions used for purposes of Accounting Standards Codification No. 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than a material amount the fair market value of the assets of such Pension Plan allocable to such accrued benefits, and the present value of all accumulated benefit obligations of all underfunded Pension Plans (based on those assumptions used for purposes of Accounting Standards Codification No. 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than a material amount the fair market value of all such underfunded Pension Plans.

Section 4.17 Environmental and Safety Matters. Except as set forth in Schedule 4.17 or otherwise previously disclosed to the Banks in writing, the Borrower and each of its Subsidiaries has complied with all Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control or to employee health or safety, except for violations which, in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Except as set forth in Schedule 4.17 or otherwise previously disclosed to the Banks in writing, neither the Borrower nor any of its Subsidiaries has received written notice of any failure so to comply. Except as set forth in Schedule 4.17 or otherwise previously disclosed to the Banks in writing, the Borrower’s and its Subsidiaries’ plants do not manage any hazardous wastes, hazardous substances, hazardous materials, toxic substances, toxic pollutants, or substances similarly denominated, as those terms or similar terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act or any other applicable law relating to environmental pollution or employee health and safety, in violation in any material respect of any law or any regulations promulgated pursuant thereto, except for violations which, in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Except as set forth in Schedule 4.17 or otherwise previously disclosed to the Banks in writing, neither the Borrower nor any of its Subsidiaries is aware of any events, conditions or circumstances involving environmental pollution or contamination or employee health or safety that is reasonably expected to result in liability which would have a Material Adverse Effect.

Section 4.18 Anti-Corruption Law and Sanctions. The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and employees, and to the knowledge of the Borrower its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower or such Subsidiary any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No

 

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Letter of Credit issued hereunder or use of proceeds of any Loan will violate Anti-Corruption Laws or applicable Sanctions.

ARTICLE V

CONDITIONS OF LENDING

The obligations of the Banks to make Loans hereunder are subject to the satisfaction of the following conditions:

Section 5.01 All Borrowings. On the date of each Borrowing and of each issuance of a Letter of Credit (excluding each Borrowing in which Loans are refinanced with new Loans in the same or a lesser principal amount as contemplated by Section 2.05):

(a) In the case of a Borrowing, the Agent shall have received a notice of such Borrowing as required by Section 2.03 or Section 2.04, as applicable.

(b) The representations and warranties set forth in Article IV hereof (except, subject to Section 5.02(e), the representations set forth in Sections 4.06 and 4.09(a)) shall be true and correct in all material respects on and as of the date of such Borrowing or such issuance, as the case may be, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(c) At the time of and immediately after such Borrowing or such issuance, as the case may be, no Event of Default or Default shall have occurred and be continuing.

Each Borrowing, and each such issuance, shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section 5.01.

Section 5.02 Closing Date. On the Closing Date:

(a) The Agent shall have received a favorable written opinion of Dinsmore & Shohl LLP, counsel for the Borrower, dated the Closing Date and addressed to the Banks, to the effect set forth in Exhibit G hereto, and the Borrower hereby instructs such counsel to deliver such opinion to the Agent.

(b) All legal matters incident to this Agreement and the borrowings hereunder shall be satisfactory to the Banks and their counsel and to Simpson Thacher & Bartlett LLP, counsel for the Agent.

(c) The Agent shall have received (i) a copy of the articles of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of the Borrower as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the code of regulations of the

 

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Borrower as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the articles of incorporation of the Borrower have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan document or any other document delivered in connection herewith on behalf of the Borrower; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Banks or their counsel or Simpson Thacher & Bartlett LLP, counsel for the Agent, may reasonably request.

(d) The Agent shall have received a certificate from the Borrower, dated the Closing Date and signed by a Financial Officer thereof, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 5.01.

(e) The representations and warranties set forth in Sections 4.06 and 4.09(a) shall be true and correct in all material respects.

(f) The Agent shall have received all Fees and other amounts due and payable on or prior to the Closing Date.

(g) All extensions of credit under the Existing Credit Agreement shall have been repaid and commitments thereunder terminated except for the Existing Letters of Credit which shall be deemed to be Letters of Credit under this Agreement.

ARTICLE VI

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with each Bank that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, or while any Letter of Credit remains outstanding, unless the Required Banks shall otherwise consent in writing, it will, and will cause each of its Subsidiaries to:

Section 6.01 Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 7.04 and except with respect to the Subsidiaries of the Borrower where such failure would not reasonably be likely to have a Material Adverse Effect.

(b) Except to the extent that the failure to do or cause the same to be done would not be reasonably likely to have a Material Adverse Effect, (i) do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses,

 

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permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; (ii) maintain and operate such business in substantially the manner in which it is presently conducted and operated (subject to changes in the ordinary course of business); (iii) comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted; and (iv) at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.

Section 6.02 Insurance. (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; (b) maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including commercial general liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it, and (c) maintain such other insurance as may be required by law; provided, however, that, in lieu of or supplementing any such insurance described in (a) or (b) above, it may adopt such other plan or method of protection conforming to its self-insurance practices existing on the date hereof, including the creation of a “captive” insurance company.

Section 6.03 Obligations and Taxes. Except to the extent the failure to do so would not, in the aggregate, be reasonably likely to have a Material Adverse Effect, pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower or a Subsidiary shall have set aside on its books adequate reserves with respect thereto.

Section 6.04 Financial Statements, Reports, etc. Furnish to the Agent and each Bank:

(a) within the earlier of (x) the period for the required filing of a report on Form 10-K with the Securities and Exchange Commission including such financial statements and (y) 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its consolidated subsidiaries, the related consolidated statements of operations and the related consolidated statements of stockholders’ equity and cash flows, showing the financial condition of the Borrower and its consolidated subsidiaries as of the close of such fiscal year and the results of its operations during such year, all such consolidated financial statements audited by and accompanied by the report thereon of Deloitte & Touche LLP or other independent public accountants of recognized national standing reasonably acceptable to the Required Banks and

 

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accompanied by an opinion of such accountants (which shall not be qualified in any material respect);

(b) within the earlier of (x) the period for the required filing of a report on Form 10-Q with the Securities and Exchange Commission including such financial statements and (y) 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a consolidated balance sheet and related consolidated statements of income, retained earnings and cash flows, showing the financial condition of the Borrower and its consolidated subsidiaries as of the close of such fiscal quarter and the results of its operations during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by a Financial Officer of the Borrower as fairly presenting in all material respects the financial condition and results of operations of the Borrower on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments;

(c) no later than three Business Days after any delivery of financial statements under (a) or (b) above, a certificate of a Financial Officer of the Borrower opining on or certifying such statements (i) stating that no Event of Default or Default has occurred and is continuing or, if such an Event of Default or Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) setting forth computations in reasonable detail satisfactory to the Agent demonstrating compliance with the covenants contained in Sections 7.01(a) and (b)(v) and 7.03;

(d) promptly after the same become publicly available, copies of all material periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any governmental authority succeeding to any of or all the functions of said Commission, or with any national securities exchange, or distributed to its public shareholders, as the case may be;

(e) promptly after the same become publicly available, copies of all material reports pertaining to any change in ownership filed by the Borrower or any Subsidiary with any Governmental Authority; and

(f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Agent or any Bank may reasonably request.

Information required to be furnished pursuant to this Section 6.04 shall be deemed to have been furnished to the Agent and the Banks if such information, or one or more annual or quarterly reports containing such information, shall have been posted by the Agent on an IntraLinks or similar site to which the Banks have been granted access or shall be available on the website of the Securities and Exchange Commission at http://www.sec.gov (and a confirming electronic correspondence shall have been delivered or caused to be delivered to the Banks providing notice of such posting or availability). Information required to be delivered pursuant to this Section 6.04 may also be delivered by electronic communications pursuant to procedures approved by the Agent.

 

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Section 6.05 Litigation and Other Notices. Furnish to the Agent and each Bank prompt written notice of the following:

(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;

(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Subsidiary thereof which could be reasonably anticipated to be adversely determined and, if adversely determined, could result in a Material Adverse Effect; and

(c) any development that has resulted in, or is reasonably anticipated by the Borrower to result in, a Material Adverse Effect.

Section 6.06 ERISA. Furnish to the Agent (a) promptly after, and in any event with 10 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred that alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrower in an aggregate amount exceeding a material amount, notice describing such ERISA Event and a statement of a Financial Officer setting forth details as to such ERISA Event and the action proposed to be taken with respect thereto, together with a copy of the notice, if any, of such ERISA Event given to or received from the PBGC, any plan administrator, or any Multiemployer Plan and (ii) promptly following receipt thereof, copies of any documents described in Sections 101(k) or 101(l) of ERISA that Borrower or any ERISA Affiliate may request with respect to any Multiemployer Plan; provided, that if the Borrower or any of its ERISA Affiliates has not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan, then upon reasonable request of the Agent, the Borrower and/or its ERISA Affiliates shall promptly make a request for such documents or notices from such administrator or sponsor and the Borrower shall provide copies of such documents and notices promptly after receipt thereof.

Section 6.07 Maintaining Records; Access to Properties and Inspections. Maintain all financial records in accordance with GAAP and permit any representatives designated by any Bank to visit and inspect the financial records and the properties of the Borrower or any Subsidiary upon reasonable prior notice at reasonable times and as often as reasonably requested (provided that such Bank shall make reasonable efforts not to interfere unreasonably with the business of the Borrower or any Subsidiary) and to make extracts from and copies of such financial records, and permit any representatives designated by any Bank to discuss the affairs, finances and condition of the Borrower or any Subsidiary with the officers thereof and independent accountants therefor; provided that each person obtaining such information shall hold all such information in strict confidence in accordance with the restrictions set forth in Section 10.16.

Section 6.08 Use of Proceeds. Use the proceeds of the Loans only for the purposes set forth in the preamble to this Agreement.

 

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Section 6.09 Filings. Make all filings required to be made by it with any Governmental Authority, except where the failure to make any such filings would not reasonably be likely to have a Material Adverse Effect.

Section 6.10 Anti-Corruption Laws and Sanctions. (a) Maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions and (b) ensure that the Borrower and its Subsidiaries shall not use, and the respective directors, officers, employees and agents of the Borrower and its Subsidiaries shall not use, the proceeds of any Loan or Letter of Credit (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.

ARTICLE VII

NEGATIVE COVENANTS

The Borrower covenants and agrees with each Bank and the Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, or while any Letter of Credit remains outstanding, unless the Required Banks shall otherwise consent in writing, it will not, and will not cause or permit any of its Subsidiaries to:

Section 7.01 Indebtedness. (a) Permit the ratio of Consolidated Indebtedness of the Borrower to Consolidated EBITDA of the Borrower at the end of and for the most recently ended four consecutive calendar quarters at any time to be greater than 4.5 to 1.0.

(b) Permit any Subsidiary of the Borrower to incur, create, assume or permit to exist any Indebtedness, except:

(i) Indebtedness existing on the date hereof as set forth in Schedule 7.01 hereto, and additional Indebtedness incurred pursuant to commitments by persons to lend to any Subsidiary but only to the extent such commitments are available and unused as of the date hereof as set forth in Schedule 7.01 hereto;

(ii) Indebtedness of a Subsidiary or business existing at the time such Subsidiary or business was acquired by the Borrower or a Subsidiary; provided that such Indebtedness was not incurred in contemplation of such acquisition;

(iii) Indebtedness to the Borrower or to another Subsidiary of the Borrower;

(iv) Indebtedness (whether Capital Lease Obligations, deferred purchase price or otherwise) of a Subsidiary secured by Liens permitted by Section 7.02(f) and incurred after the date hereof for the acquisition, construction or improvement of real or personal property; and

 

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(v) other Indebtedness exclusive of the Indebtedness permitted by clauses (i) through (iv) above, provided that, if at the time of the incurrence of any such other Indebtedness and after giving pro forma effect to such incurrence (other than any such other Indebtedness representing a refinancing of Indebtedness previously incurred under this Section 7.01(b)(v)), the ratio on a pro forma basis of Consolidated Indebtedness of the Borrower at the end of the most recently ended fiscal quarter to Consolidated EBITDA of the Borrower for the four consecutive fiscal quarters then ended is greater than 3.5 to 1.0, then at the time of the incurrence of such Indebtedness the Priority Indebtedness Sum shall not exceed 15% of the Consolidated Stockholders’ Equity of the Borrower at such time.

Section 7.02 Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except:

(a) Liens incurred or pledges and deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and old-age pensions and other social security benefits;

(b) Liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety and appeal bonds and other obligations of like nature, incurred as an incident to and in the ordinary course of business;

(c) Liens imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s, suppliers’, repairmen’s and vendors’ liens, incurred in good faith in the ordinary course of business with respect to obligations not delinquent or which are being contested in good faith by appropriate proceedings and as to which the Borrower or a Subsidiary shall have set aside on its books adequate reserves;

(d) Liens securing the payment of taxes, assessments and governmental charges or levies, either (i) not delinquent or (ii) being contested in good faith by appropriate legal or administrative proceedings and as to which the Borrower or a Subsidiary, as the case may be, shall have set aside on its books adequate reserves;

(e) zoning restrictions, easements, licenses, reservations, restrictions on the use of real property or minor irregularities incident thereto (and with respect to leasehold interests: mortgages, obligations, liens and other encumbrances that are incurred, created, assumed or permitted to exist and arise by, through or under or are asserted by a landlord or owner of the leased property, with or without consent of the lessee) which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not in the aggregate materially detract from the value of the property or assets of the Borrower or a Subsidiary, as the case may be, or impair the use of such property for the purposes for which such property is held by the Borrower or such Subsidiary;

 

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(f) Liens to secure the purchase price of real or personal property acquired, constructed or improved after the date hereof; provided that any such Lien is existing or created at the time of, or substantially simultaneously with, the acquisition, construction or improvement by the Borrower or a Subsidiary of the property so acquired and at all times covers only such property;

(g) Liens on property of a Subsidiary in favor of the Borrower or another Subsidiary;

(h) Liens created by or resulting from any litigation or proceeding which is currently being contested in good faith by appropriate proceedings and as to which (i) levy and execution have been stayed and continue to be stayed and (ii) the Borrower or a Subsidiary shall have set aside on its books adequate reserves;

(i) Liens on property of a Subsidiary existing at the time it becomes a Subsidiary; provided that such Liens were not created in contemplation of the acquisition by the Borrower or another Subsidiary of such Subsidiary;

(j) Liens on the property of the Borrower or a Subsidiary incidental to the conduct of its business or the ownership of its property which were not incurred in connection with the borrowing of money or the obtaining of advances or credit or other financial accommodations (including but not limited to interest rate swap obligations or letter of credit obligations of the Borrower or any Subsidiary), and which do not in the aggregate materially detract from the value of its property or assets or impair the use thereof in the operation of its business;

(k) the Borrower and any Subsidiary may incur, and thereafter permit to exist, Liens not otherwise permitted by this covenant securing Indebtedness if, after giving effect to such Liens, the Priority Indebtedness Sum shall not exceed 15% of Consolidated Stockholders’ Equity of the Borrower at such time;

(l) judgment Liens that do not constitute an Event of Default;

(m) Liens on property acquired by the Borrower or any of its Subsidiaries after the Closing Date so long as such Liens are limited to the property acquired and were not created in contemplation of the acquisition;

(n) Liens on property of the Borrower or any of its Subsidiaries existing on the date hereof as set forth in Schedule 7.02 hereto; and

(o) Liens not otherwise permitted by this Section so long as the aggregate outstanding principal amount of the obligations secured thereby does not exceed (as to the Borrower and all Subsidiaries) $25,000,000 at any one time.

Section 7.03 Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same

 

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purpose or purposes as the property being sold or transferred, except that (i) any Subsidiary may enter into such an arrangement for the sale or transfer of its property to another Subsidiary or to the Borrower and (ii) the Borrower and the Subsidiaries may enter into any other such arrangements if after giving effect thereto the Priority Indebtedness Sum shall not exceed 15% of the Consolidated Stockholders’ Equity of the Borrower at such time.

Section 7.04 Mergers, Consolidations and Sales of Assets. Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of any other person, except that if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing, (a) the Borrower or a Subsidiary may merge with another corporation in a transaction in which the surviving entity is the Borrower or such Subsidiary, respectively, and, in the case of a Subsidiary, the surviving entity is a wholly owned Subsidiary, (b) any Subsidiary may merge into the Borrower or another Subsidiary; or (c) the Borrower or a Subsidiary may purchase, lease or otherwise acquire any assets of any other person.

Section 7.05 Fiscal Year. Change its fiscal year.

Section 7.06 Transactions with Affiliates. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Subsidiary) unless such transaction is (a) not otherwise prohibited under this Agreement, (b) in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate; provided, however, this Section 7.06 shall not be deemed to prohibit any of the transactions or relationships with Affiliates contemplated by the agreements listed in Schedule 7.06 attached hereto.

Section 7.07 Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto.

ARTICLE VIII

EVENTS OF DEFAULT

In case of the happening of any of the following events (“Events of Default”):

(a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;

 

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(b) default shall be made in the payment of any principal of any Loan or Reimbursement Obligation when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

(c) default shall be made in the payment of any interest on any Loan, Reimbursement Obligation or any Fee or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of 5 Business Days;

(d) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 6.01(a), 6.05(a), 6.10(b) or in Article VII;

(e) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after written notice thereof from the Agent or any Bank to the Borrower;

(f) the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $10,000,000, when and as the same shall become due and payable, subject, in the case of interest only, to any applicable grace period (but not for more than 5 Business Days), or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, such Indebtedness to become due prior to its stated maturity;

(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Subsidiary, or of a substantial part of the property or assets of the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or a Subsidiary or (iii) the winding-up or liquidation of the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 90 days or an order or decree approving or ordering any of the foregoing shall be unstayed and in effect for 90 days;

(h) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest

 

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in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;

(i) one or more final judgments for the payment of money in excess of $10,000,000, excluding such amounts which are covered by insurance, shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Subsidiary to enforce any such judgment;

(j) (i) except to the extent that the actions, facts or circumstances described in Schedule 4.16 constitute or may result in a Reportable Event, an ERISA Event shall have occurred, (ii) a trustee shall be appointed by a United States district court to administer any Pension Plan, (iii) the PBGC shall institute proceedings to terminate any Pension Plan(s), (iv) Borrower or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred or will be assessed Withdrawal Liability to such Multiemployer Plan and such entity does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner; or (v) any other event or condition (except as described, or resulting from the matters described, in Schedule 4.16) shall occur or exist with respect to a Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to result in a Material Adverse Effect; or

(k) there shall have occurred a Change in Control;

then, and in every such event (other than an event with respect to the Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Agent, at the request of the Required Banks, shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder), shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to the Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then

 

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outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder), shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Amounts deposited in the cash collateral account shall bear interest at a rate at least equal to the rate generally offered by the Agent for overnight deposits equal to the amount deposited by the Borrower in the cash collateral account.

ARTICLE IX

THE AGENT

In order to expedite the transactions contemplated by this Agreement, JPMorgan Chase Bank, N.A. is hereby appointed to act as Agent on behalf of the Banks. Each of the Banks, and each transferee of any Bank, hereby irrevocably authorizes the Agent to take such actions on behalf of such Bank or transferee and to exercise such powers as are specifically delegated to the Agent by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Agent is hereby expressly authorized by the Banks, without hereby limiting any implied authority, (a) to receive on behalf of the Banks all payments of principal of and interest on the Loans and all other amounts due to the Banks hereunder, and promptly to distribute to each Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Banks to the Borrower of any Event of Default specified in this Agreement of which the Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Bank copies of all notices, financial statements and other materials delivered by the Borrower pursuant to this Agreement as received by the Agent.

Neither the Agent nor any of its directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower of any of the terms, conditions, covenants or agreements contained in any Loan Document. The

 

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Agent shall not be responsible to the Banks for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents or other instruments or agreements. The Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Banks and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Banks. The Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Borrower on account of the failure of or delay in performance or breach by any Bank of any of its obligations hereunder or to any Bank on account of the failure of or delay in performance or breach by any other Bank or the Borrower of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. The Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel.

The Banks hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Banks.

Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by notifying the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor. If no successor shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent’s resignation hereunder, the provisions of this Article and Section 10.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent.

With respect to the Loans made by it hereunder, the Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Bank and may exercise the same as though it were not the Agent, and the Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Agent.

Each Bank agrees (i) to reimburse the Agent, on demand, (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), in the amount of its pro rata share (based on its Commitment hereunder) of any expenses incurred for the benefit of the Banks by the Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Banks, which shall not have been reimbursed by the Borrower and (ii) to indemnify and hold harmless the Agent and any of its

 

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directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (irrespective of whether the Agent is a party to the action for which indemnification hereunder is sought) of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower; provided that no Bank shall be liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent or any of its directors, officers, employees or agents.

Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder.

Anything herein to the contrary notwithstanding, none of the Joint Bookrunners, Joint Lead Arrangers, Syndication Agent or Documentation Agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Agent or a Bank hereunder.

ARTICLE X

MISCELLANEOUS

Section 10.01 Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(a) if to the Borrower, to it at 312 Walnut Street, Suite 2800, Cincinnati, Ohio 45202, Attention of Treasurer (Telecopy No. 513-977-3729) with a copy to Latham & Watkins LLP, counsel for the Borrower, to it at Joshua A. Tinkelman, Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834 (Email: joshua.tinkelman@lw.com; Telecopy No. 212-751-4864);

(b) if to the Agent, to JPMorgan Chase Bank, N.A., 10 South Dearborn, Floor 7, Mail Code IL1-0110, Chicago, IL 60603, Attention of Duyanna Goodlet (Telecopy No. 312-385-7106), with copies to JPMorgan Chase Bank, N.A., 10 South Dearborn Street, Floor 9, Mail Code IL1-0364, Chicago, IL 60603, Attention of Robert S. Sheppard

 

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(Telecopy No. 312-732-3144); and

(c) if to a Bank, to it at its address (or telecopy number) set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Bank shall have become a party hereto.

All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 10.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 10.01. Notices and other communications to the Banks hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Agent.

Section 10.02 Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other material instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Banks and shall survive the making by the Banks of the Loans, regardless of any investigation made by the Banks or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not been terminated.

Section 10.03 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have received copies hereof which, when taken together, bear the signatures of each Bank, and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior consent of all the Banks.

Section 10.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Bank (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Bank may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent and the Banks) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Bank may assign to one or more assignees, other than a natural person, all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at

 

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the time owing to it) with the prior written consent (such consent not to be unreasonably withheld, conditioned or delayed) of:

(A) the Borrower; provided that, the Borrower shall be deemed to have consented to an assignment unless it shall have objected thereto by written notice to the Agent within ten (10) Business Days after having received notice thereof; provided further that no consent of the Borrower shall be required for an assignment to a Bank, an Affiliate of a Bank, an Approved Fund (as defined below) or, if an Event of Default under clause (b), (c), (g) or (h) of Article VIII has occurred and is continuing, any other assignee; and

(B) the Agent, provided that no consent of the Agent shall be required for an assignment to an assignee that is a Bank or an Affiliate of a Bank immediately prior to giving effect to such assignment.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Bank or an Affiliate of a Bank or an assignment of the entire remaining amount of the assigning Bank’s Commitment, the amount of the Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Agent) shall not be less than $5,000,000 unless each of the Borrower and the Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default under clause (b), (c), (g) or (h) of Article VIII has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Bank’s rights and obligations under this Agreement, provided that this clause shall not apply to rights in respect of outstanding Competitive Loans;

(C) the parties to each assignment shall execute and deliver to the Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500;

(D) the assignee, if it shall not be a Bank, shall deliver to the Agent an Administrative Questionnaire; and

(E) in the case of an assignment to a CLO (as defined below), the assigning Bank shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and Acceptance between such Bank and such CLO may provide that such Bank will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to Section 10.08(b) that affects such CLO.

For the purposes of this Section 10.04(b), the terms “Approved Fund” and “CLO” have the following meanings:

 

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Approved Fund” means (a) a CLO and (b) with respect to any Bank that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Bank or by an Affiliate of such investment advisor.

CLO” means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Bank or an Affiliate of such Bank.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Bank under this Agreement, and the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Bank’s rights and obligations under this Agreement, such Bank shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.17, 2.21 and 10.05). Any assignment or transfer by a Bank of rights or obligations under this Agreement that does not comply with this Section 10.04 shall be treated for purposes of this Agreement as a sale by such Bank of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitment of, and principal amount of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Agent and the Banks may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Bank and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Bank hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph

(vi) Any Bank may, without the consent of the Borrower or the Agent, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Bank’s rights and obligations under this Agreement (including all or a portion of its

 

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Commitment and the Loans owing to it); provided that (A) such Bank’s obligations under this Agreement shall remain unchanged, (B) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Bank sells such a participation shall provide that such Bank shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Bank will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.08(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.17 and 2.21 to the same extent as if it were a Bank and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.06 as though it were a Bank, provided such Participant agrees to be subject to Section 2.19 as though it were a Bank. Each Bank that sells a participation shall, acting for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Bank shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Bank shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.

(vii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.21 than the applicable Bank would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Non-U.S. Bank if it were a Bank shall not be entitled to the benefits of Section 2.21 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.21(g) as though it were a Bank.

(c) Any Bank may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Bank, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Bank from any of its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto.

 

63


Section 10.05 Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable and actual fees, charges and disbursements of Simpson Thacher & Bartlett LLP, counsel for the Agent, incurred by the Agent in connection with the preparation, execution and delivery of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) and all out-of-pocket expenses incurred by the Agent or any Bank in connection with the enforcement or protection of their rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made hereunder, including, in connection with any such enforcement or protection, the reasonable fees, charges and disbursements of any counsel for the Agent or any Bank. The Borrower further agrees that it shall indemnify the Banks from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or any of the other Loan Documents.

(b) The Borrower agrees to indemnify the Agent, each Bank and each of their respective directors, officers, employees and agents (each such person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, any and all losses, costs, actions, suits, obligations, penalties, judgments, claims, damages, liabilities, taxes and related expenses, including reasonable counsel fees, charges and disbursements (irrespective of whether the Agent or any Bank is a party to the action for which indemnification hereunder is sought), incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, costs, actions, suits, obligations, penalties, judgments, claims, damages, liabilities, taxes or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (A) in the case of the Agent or any Bank, any unexcused breach by the Agent or such Bank of any of its obligations under this Agreement or (B) the gross negligence or willful misconduct of such Indemnitee.

(c) The provisions of this Section 10.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Agent or any Bank. All amounts due under this Section 10.05 shall be payable on written demand therefor.

(d) Any Bank may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank; provided that no such assignment shall release a Bank from any of its obligations hereunder.

Section 10.06 Rights of Setoff. If an Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or

 

64


demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and other Loan Documents held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Bank under this Section are in addition to other rights and remedies (including other rights of setoff which such Bank may have.

Section 10.07 APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

Section 10.08 Waivers; Amendment. (a) No failure or delay of the Agent or any Bank in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent and the Banks hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Agent, the Borrower and the Required Banks; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment of or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Bank affected thereby, (ii) change or extend the Commitment or decrease the Facility Fees of any Bank without the prior written consent of such Bank, or (iii) amend or modify the provisions of Section 2.18, the provisions of this Section, or the definition of “Required Banks”, without the prior written consent of each Bank; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Agent hereunder without the prior written consent of the Agent; provided further that no such agreement shall amend, modify or waive any provision of Article III without the written consent of each Issuing Bank; provided further that no such agreement shall amend, modify or waive any provision of Section 2.23 without the written consent of the Agent and each Issuing Bank.

Section 10.09 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges which are treated as interest under applicable law (collectively the “Charges”), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Bank, shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by such Bank in

 

65


accordance with applicable law, the rate of interest payable hereunder, together with all Charges payable to such Bank, shall be limited to the Maximum Rate.

Section 10.10 Entire Agreement. This Agreement and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.

Section 10.11 Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement or any of the other Loan Documents. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement and the other Loan Documents, as applicable, by, among other things, the mutual waivers and certifications in this Section 10.11.

Section 10.12 Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible so that of the invalid, illegal or unenforceable provisions.

Section 10.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 10.03. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 10.14 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

Section 10.15 Jurisdiction; Consent to Service of Process. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard

 

66


and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Bank may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower or its properties in the courts of any jurisdiction.

(b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

Section 10.16 Confidentiality. During the term of this Agreement and for a period of two years after the termination hereof, each Bank agrees to keep confidential (and to cause its respective officers, directors, employees, agents and representatives to keep confidential) the Information (as defined below), except that any Bank shall be permitted to disclose Information (i) to such of its officers, directors, employees, agents and representatives (including outside counsel) as need to know such Information and who are informed of the confidential nature of such information; (ii) to the extent required by applicable laws and regulations or by any subpoena or similar legal process, or requested by any bank regulatory authority (provided that such Bank shall, except (A) as prohibited by law and (B) for Information requested by any such bank regulatory authority, promptly notify Borrower of the circumstances and content of each such disclosure and shall request confidential treatment of any information so disclosed); (iii) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Agreement, (B) becomes available to such Bank on a non-confidential basis from a source other than the Borrower or its Affiliates or (C) was available to such Bank on a non-confidential basis prior to its disclosure to such Bank by the Borrower or its Affiliates; (iv) to the extent the Borrower shall have consented to such disclosure in writing; or (v) to data service providers, including league table providers, that serve the lending industry, to the extent such information is information routinely provided by arrangers to such data service providers. As used in this Section 10.16, as to any Bank, “Information” shall mean any financial statements, materials, documents and other information that the Borrower or any of its Affiliates may have furnished or made available or may hereafter furnish or make available to the Agent or any Bank in connection with this Agreement or any other materials prepared by any such person from any of the foregoing.

Section 10.17 USA Patriot Act. Each Bank which is subject to Section 326 of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), hereby notifies the Borrower that, pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes

 

67


the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

 

68


EXHIBIT B

Schedule 2.01

LOAN COMMITMENTS

 

Lender

   Extended
Commitment
     Non-Extended
Commitment
 

J.P. Morgan Chase Bank, N.A.

   $ 120,000,000         —     

Bank of America, N.A.

   $ 120,000,000         —     

Wells Fargo Bank, National Association

   $ 120,000,000         —     

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

   $ 120,000,000         —     

HSBC Bank USA, National Association

   $ 90,000,000         —     

KeyBank National Association

   $ 90,000,000         —     

U.S. Bank National Association

   $ 90,000,000         —     

Fifth Third Bank

   $ 70,000,000         —     

First Tennessee Bank, NA

   $ 47,500,000         —     

SunTrust Bank

     —         $ 32,500,000   
  

 

 

    

 

 

 

Total

$ 867,500,000    $ 32,500,000   
  

 

 

    

 

 

 


Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-200213) and S-8 (No. 333-152087) of Scripps Networks Interactive, Inc. of our report dated May 15, 2015 relating to the financial statements of N-Vision B.V., which appears in the Current Report on Form 8-K of Scripps Networks Interactive, Inc. dated May 18, 2015.

/s/ PricewaterhouseCoopers Sp. z o.o.

Warsaw, Poland

May 18, 2015



Exhibit 99.1

N-Vision Group

Consolidated Financial Statements

As of and for the year ended December 31, 2014


Approval of the

Consolidated Financial Statements

These consolidated financial statements of N-Vision B.V. and its subsidiaries (the “N-Vision Group”) as of and for the year ended December 31, 2014, have been prepared in order to present the financial position, financial results and cash flows of the N-Vision Group in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, issued and effective as at the balance sheet date and are audited.

The consolidated financial statements of the N-Vision Group as of and for the year ended December 31, 2014 include the: consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in shareholders’ equity, consolidated cash flow statement and notes to the consolidated financial statements. These consolidated financial statements were authorized for issuance by the Management Board of N-Vision B.V.

 

LOGO
Duma Corporate Services B.V.
LOGO
Tenbit B.V.

Amsterdam, May 15, 2015


N-Vision Group

 

Contents    Page  

Auditor’s report

     F-1   

Consolidated Income Statement

     F-3   

Consolidated Statement of Comprehensive Income

     F-4   

Consolidated Balance Sheet

     F-5   

Consolidated Statement of Changes in Shareholders’ Equity

     F-6   

Consolidated Cash Flow Statement

     F-7   

Notes to the Consolidated Financial Statements

     F-8   


LOGO

Independent Auditor’s Report

To the Management Board of N-Vision B.V.

We have audited the accompanying consolidated financial statements of N-Vision B.V. and its subsidiaries (the ‘N-Vision Group’), which comprise the consolidated balance sheet as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the N-Vision Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the N-Vision Group’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

PricewaterhouseCoopers Sp. z o.o., Al. Armii Ludowej 14, 00-638 Warszawa, Poland
   T: +48 (22) 523 4000, F: +48 (22) 523 4040, www.pwc.com

PricewaterhouseCoopers. Sp. z o.o. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw under KRS number 0000044655, NIP 526-021-02-28. The share capital is PLN 10.363.900. The seat of the Company is in Warsaw at Al. Armii Ludowej 14.


LOGO

Basis for Qualified Opinion

As discussed in Note 2, the accompanying financial statements do not include comparative figures for the prior year as required by lAS 1 Presentation of Financial Statements. In our opinion, inclusion of comparative figures is necessary to obtain a proper understanding of the current period’s financial statements.

Qualified Opinion

In our opinion, except for the effects of the matter discussed in the Basis for Qualified Opinion paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the N-Vision Group as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

LOGO

PricewaterhouseCoopers Sp. z o.o.

Warsaw, Poland

May 15, 2015

 

2


N-Vision Group

Consolidated Income Statement

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

          Year ended  
     Note    December 31, 2014  

Revenue

   5      1,593,804   

Cost of revenue

   6      (886,184

Selling expenses

   6      (107,276

General and administration expenses

   6      (147,235

Share of profits/ (losses) of associates and joint ventures

   25      31,651   

Other operating expenses, net

        (3,062

Incremental costs related to the potential change of control transaction

   6      (37,263
     

 

 

 

Operating profit

  444,435   

Interest income

7   9,747   

Finance expense

7   (357,937

Foreign exchange losses, net

7   (74,951
     

 

 

 

Profit/ (loss) before income tax

  21,294   

Income tax (charge)/ credit

23   (1,592
     

 

 

 

Profit/ (loss) for the period

  19,702   
     

 

 

 

Profit/ (loss) attributable to:

Owners of the parent

  (57,372

Non-controlling interest

26   77,074   
     

 

 

 
  19,702   
     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 3 -


N-Vision Group

Consolidated Statement of Comprehensive Income

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

          Year ended  
     Note    December 31, 2014  

Profit/ (loss) for the period

        19,702   

Other comprehensive income/ (loss) reclassifiable to income statement when specific conditions are met:

     

Cash flow hedge – foreign exchange forward contracts

   13      1,555   

Income tax relating to components of other comprehensive income/ (loss)

   23      (285

Share of other comprehensive income/ (loss) of associates

   25      3,928   

Currency translation difference

        (31,495
     

 

 

 

Other comprehensive loss for the period, net of tax

  (26,297
     

 

 

 

Total comprehensive income/ (loss) for the period

  (6,595
     

 

 

 

Total comprehensive income/ (loss) attributable to:

Owners of the parent

  (86,209

Non-controlling interest

26   79,614   
     

 

 

 
  (6,595
     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 4 -


N-Vision Group

Consolidated Balance Sheet

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

     Note    As at December 31, 2014  

ASSETS

     

Non-current assets

     

Property, plant and equipment

   8      364,943   

Goodwill

   9      144,127   

Brands

   10      32,862   

Other intangible assets

   11      69,803   

Non-current programming rights

   12      152,272   

Investments in associates and joint ventures

   25      1,762,457   

Deferred tax asset

   23      311,461   

Other non-current assets

   15      1,071   
     

 

 

 
  2,838,996   

Current assets

Current programming rights

12   222,610   

Trade receivables

14   350,243   

Prepayments and other assets

15   93,107   

Derivative financial assets

13   1,202   

Restricted cash

16   91,371   

Bank deposits with maturity over three months

16   45,000   

Cash and cash equivalents

16   270,763   
     

 

 

 
  1,074,296   
     

 

 

 

TOTAL ASSETS

  3,913,292   
     

 

 

 

EQUITY

Shareholders’ equity/ (deficit)

Share capital

17   227,186   

Share premium

  968,725   

Other reserves and deficits

  (2,248,440

Accumulated profit

  301,173   

Cumulative translation adjustment

  14,186   
     

 

 

 
  (737,170

Non-controlling interest

26   458,867   
     

 

 

 
  (278,303

LIABILITIES

Non-current liabilities

Non-current borrowings

19   3,562,190   

Deferred tax liability

23   5,819   

Non-current trade payables

20   11,435   

Other non-current liabilities

  16,625   
     

 

 

 
  3,596,069   

Current liabilities

Current trade payables

20   161,895   

Current borrowings

19   96,405   

Derivative financial liabilities

13   214   

Corporate income tax payable

  —     

Other liabilities and accruals

21   337,012   
     

 

 

 
  595,526   
     

 

 

 

Total liabilities

  4,191,595   
     

 

 

 

TOTAL EQUITY AND LIABILITIES

  3,913,292   
     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 5 -


N-Vision Group

Consolidated Statement of Changes in Shareholders’ Equity

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

    Number of                 Other                 Total equity              
    shares                 reserves           Cumulative     attributable     Non-        
    (not in     Share     Share     and     Accumulated     translation     to owners of     controlling     Total equity  
    thousands)     capital     premium     deficits (*)     profit     adjustment     the Company     interests     / (deficit)  

Balance as at January 1, 2014

    58,818,806        227,186        968,725        (2,259,125     357,807        45,681        (659,726     444,079        (215,647

Total comprehensive income/(loss) for the period

    —          —          —          2,658        (57,372     (31,495     (86,209     79,614        (6,595

Share buyback (see Note 18)

    —          —          —          (154     —          —          (154     (122,423     (122,577

Transactions with non-controlling interest – Share option plan

    —          —          —          25,271        738        —          26,009        43,029        69,038   

Business combinations and transactions with non-controlling interests

    —          —          —          (17,090     —          —          (17,090     14,568        (2,522
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at December 31, 2014

  58,818,806      227,186      968,725      (2,248,440   301,173      14,186      (737,170   458,867      (278,303
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Other reserves and deficits

 

                 Other reserves               
                 related to               
     Employee share           transactions with               
     option plan     Cash flow     non-controlling     Reorganization         
     reserve     hedge     interest     reserve      Total  

Balance as at January 1, 2014

     16,241        (1,300     (2,540,808     266,742         (2,259,125

Transactions with non-controlling interests – Share option plan

     25,271        —          —          —           25,271   

Credit for the period

     —          795        —          —           795   

Deferred tax on credit for the period

     —          (145     —          —           (145

Share buyback

     —          —          (154     —           (154

Share of other comprehensive income of associates

     —          2,008        —          —           2,008   

Business combinations and transactions with non-controlling interests

     —          —          (17,090     —           (17,090

Expiry of share option plan of TVN S.A.

     (41,512     —          41,512        —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as at December 31, 2014

  —        1,358      (2,516,540   266,742      (2,248,440
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 6 -


N-Vision Group

Consolidated Cash Flow Statement

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

     Note   

Year ended

December 31, 2014

 

Operating activities

     

Cash generated from operations

   22      610,179   

Tax paid, net

        (1,668
     

 

 

 

Net cash generated by operating activities

  608,511   

Investing activities

Distribution received from an associate

25   8,133   

Payments to acquire property, plant and equipment

  (49,439

Proceeds from sale of property, plant and equipment

  1,732   

Payments to acquire intangible assets

  (22,618

Bank deposits with maturity over three months

  (45,000

Interest received

  8,571   
     

 

 

 

Net cash (used in)/ generated by investing activities

  (98,621

Financing activities

Issue of shares, net of issue cost

26 (i)   69,038   

Share buyback

18   (122,577

Acquisition and repayment of the Notes

19   (243,963

Repayments of the Cash Loan

19   (21,021

Bank charges

  (7,142

Settlement of foreign exchange forward contracts

13   (1,584

Acquisition of non-controlling interest

  (2,525

Restricted cash

16   (14,340

Interest paid

  (295,030
     

 

 

 

Net cash used in financing activities

  (639,144
     

 

 

 

(Decrease)/ increase in cash and cash equivalents

  (129,254

Cash and cash equivalents at the start of the period

  401,375   

Effects of exchange rate changes

  (1,358
     

 

 

 

Cash and cash equivalents at the end of the period

  270,763   
     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 7 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

1. N-VISION B.V.

These consolidated financial statements were authorized for issuance by the Management Board of N-Vision B.V. on May 15, 2015.

N-Vision B.V. (“N-Vision” or the “Company”) was incorporated on March 9, 1995 under the laws of the Netherlands and has its corporate seat in Amsterdam, the Netherlands.

The Company is a holding company, which through its direct subsidiary, Polish Television Holding B.V. (“PTH”), holds controlling interest in TVN S.A. (“TVN”), an entity domiciled in Poland. TVN S.A. (and collectively with all of TVN’s subsidiaries, referred to as “TVN Group”) is Poland’s leading commercial television broadcaster operating ten television channels and one teleshopping channel in Poland: TVN, TVN 7, TVN 24, TVN Meteo, TVN Turbo, ITVN, TVN Style, TVN 24 Biznes i Świat, NTL Radomsko, TTV and Telezakupy Mango 24. The TVN Group’s channels broadcast news, information and entertainment shows, series, movies and teleshopping.

The TVN Group together with Groupe Canal+ S.A. (“Canal+ Group”) operate a Polish leading premium direct-to-home (“DTH”) digital satellite platform nC+, which offers technologically advanced pay television services. The TVN Group in its online activities is a partner to Ringier Axel Springer Media AG (“RAS”), which through Grupa Onet.pl S.A. (“Grupa Onet.pl”) operates Onet.pl, the leading internet portal in Poland.

The Company is a subsidiary of the ITI Group (“ITI Group”), holding 51% interest with the remaining 49% held by Canal+ Group. ITI Group’s principal activities are television broadcasting and production and investment holding. The ITI Group’s parent company is International Trading and Investments Holdings S.A., Luxembourg (“ITI Holdings”). ITI Holdings and therefore ITI Group is privately held.

On October 16, 2014 ITI Group and Canal+ Group, who together control 51% of TVN Group, announced their intent to jointly review their strategic options in connection with the possible disposal of their investment in TVN Group. In connection with this announcement, TVN Group has appointed financial and legal advisors to support TVN Group during this process, and has also agreed to manage and finance the conducting of various due diligence processes (see Note 6 for expenses incurred by the N-Vision Group). See also Note 19 which describes certain prepayments options related to the Notes which may be exercised by holders of the Notes in case of change of control over TVN S.A. and Note 32 related to the events after the reporting period.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1. Basis of preparation

These financial statements of the N-Vision Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB. These are the first consolidated financial statements prepared by the N-Vision Group in accordance with IFRS as issued by IASB.

The consolidated financial statements of the N-Vision Group for year ended December 31, 2014 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS EU”); these consolidated financial statements were authorised for the issue on February 6, 2015. As at 31 December 2014 there are some differences between IFRS as adopted by EU and IFRS as issued by IASB, nevertheless the N-Vision Group is not affected by those differences.

Due to the fact that there are no differences for the N-Vision Group between IFRS as adopted by EU and IFRS as issued by IASB therefore these consolidated financial statements prepared in accordance with IFRS as issued by IASB are a continuation of the

 

These notes are an integral part of these consolidated financial statements.

F- 8 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

consolidated financial statements prepared in accordance with IFRS EU and IFRS 1 “First time adoption of IFRS” has not been applied.

The difference between the consolidated financial statements for year ended December 31, 2014 prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS UE financial statements”) and these consolidated financial statements for the same year prepared in accordance with International Financial Reporting Standards as issued by IASB (“IFRS IASB financial statements”) result from the adjusting post balance sheet events that occurred between the date of the authorisation for the issue of the IFRS EU financial statements (i.e. February 6, 2015) and the date of the authorisation of these IFRS IASB financial statements for the issue. These post balance sheet events relate to the update of provision for Long-Term Incentive Plan (see note 29) in the amount of 32,149 and deferred tax asset calculated on this temporary difference in the amount of 6,108.

These financial statements have been prepared to fulfill the United States Securities and Exchange Commission reporting requirements and in connection with the plans of Scripps Networks Interactive Inc. Group (that entered into a share purchase agreement described in note 32) to raise indebtedness on international capital markets. The N-Vision Group does not present comparable figures as required under IFRS. Such comparatives are not required by Rule 3-05 of the United States Securities and Exchange Commission Regulation S-X. These consolidated financial statements are prepared on a going concern basis, please refer to Note 31.2 for a detailed discussion on the liquidity position of the N-Vision Group. As of December 31, 2014 N-Vision Group has negative Shareholders’ equity in the amount of 278,303, however the main operating subsidiary TVN Group is generating profits sufficient to support the operations of N-Vision Group. Therefore the negative Shareholders’ equity does not have an impact on a going concern assessment of the N-Vision Group.

The Company also prepares on an annual basis unaudited separate financial statements in accordance with accounting principles generally accepted in the Netherlands for statutory purposes. For statutory purposes the Company does not prepare consolidated financial statements.

The accounting policies used in the preparation of the consolidated financial statements as of and for the year ended December 31, 2014 are consistent with those used in the consolidated financial statements as of and for the year ended December 31, 2013 prepared in accordance with the IFRS as adopted by EU except for application of IFRS 12 which has not been applied in 2013 and the application of standards, amendments to standards and IFRIC interpretations which according to effective dates determined by IASB became effective January 1, 2014:

 

(i) Application of IFRS 12 Disclosure of Interests in Other Entities (effective date set by IASB – 1 January 2013)

The standard replaced the disclosure requirements in IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures. It applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity.

The new standard requires disclosures in a number of areas, including significant judgements and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarized financial information of

 

These notes are an integral part of these consolidated financial statements.

F- 9 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

subsidiaries with material non-controlling interests and detailed disclosures of interests in unconsolidated structured entities.

The new disclosures required by IFRS 12 are presented in Notes 25, 26 and 27.

 

(ii) The other standard, amendments and interpretations effective from 1 January 2014

Other standards, amendments to standards or IFRIC interpretations effective from January 1, 2014 are either not relevant for the N-Vision Group or do not have significant impact on the N-Vision Group’s consolidated financial statements.

These consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through income statement.

 

2.2. Business combination transactions and reorganisation transaction under common control

The N-Vision Group has the policy to account for business combination transactions (i.e. where the acquirer and the acquiree are businesses) under common control using the acquisition method under IFRS 3 Revised (as further described in Note 2.4 Business Combinations).

Transactions which are not a business combinations (i.e. where the business is transferred to the holding company which does not meet the definition of a business), are accounted for using the reorganization method. Under the reorganization method, the transaction is accounted for using the carrying amounts of the assets and liabilities from the financial statements of the combining entities.

The comparatives are restated as if both entities were combined starting from the beginning of the earliest presented period.

The share capital and the share premium of the transferred entity is eliminated, all other elements of the equity (including retained earnings) of the transferred entity are recognized from the beginning of the earliest presented period at N-Vision Group’s share in the transferred entities net assets.

The equity shows the share capital and the share premium of the acquirer.

The reorganization method was used in the first consolidated financial statements prepared in accordance with IFRS EU for the year ended 31 December 2012 to account for the acquisition by N-Vision of an interest in TVN Group and subsequent increases in the Company’s holding in TVN. The differences between cost of investment and the carrying amounts of the assets and liabilities from the consolidated financial statements of TVN Group is recorded in equity as part of the “reorganization reserve” and “other reserves related to transactions with non-controlling interest”.

The interest in TVN Group not held by Company is shown as the Non-controlling interest in all presented periods.

 

These notes are an integral part of these consolidated financial statements.

F- 10 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.3. Consolidation

Subsidiary undertakings, which are those companies in which the N-Vision Group, directly or indirectly, has an interest of more than half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the N-Vision Group, and are no longer consolidated from the date the N-Vision Group ceases to have control.

All intercompany transactions, balances and unrealized gains and losses on transactions between N-Vision Group companies have been eliminated. Unrealized losses on transactions between N-Vision Group companies are eliminated to the extent they are not indicative of an impairment.

Transactions with non-controlling interests are transactions with equity owners of the N-Vision Group. For purchases of shares from non-controlling interests, the difference between the fair value of consideration and the relevant share acquired of the carrying value of the net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. The transaction costs of an equity transaction are accounted for as a deduction from equity (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

When the N-Vision Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in the carrying amount recognized in the income statement. The fair value is the initial carrying amount for purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset.

 

2.4. Business combinations

The N-Vision Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the N-Vision Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the N-Vision Group recognizes any non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the acquiree’s net assets or at the fair value.

The excess of the sum of consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previously held equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement.

 

2.5. Joint arrangements – Joint ventures

The N-Vision Group classifies its joint arrangements as either joint operations or joint ventures depending on the rights of the venturers to assets and obligations towards liabilities of a joint arrangement.

 

These notes are an integral part of these consolidated financial statements.

F- 11 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Interests in joint ventures are accounted for using the equity method. Under this method, the interests are initially recognised in the consolidated balance sheet at cost and adjusted thereafter to recognise the N-Vision Group’s share of the post-acquisition profits or losses, and movements in other comprehensive income, in income statement and other comprehensive income respectively.

Where the N-Vision Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which include any long-term interests that, in substance, form part of the N-Vision Group’s net investment in the joint ventures), the N-Vision Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the N-Vision Group and its joint ventures are eliminated to the extent of the N-Vision Group’s interest in the joint ventures. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred.

The N-Vision Group does not have any joint operations.

 

2.6. Associates

Associates are all entities over which the N-Vision Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method and are initially recognized at cost (cost comprises also the transaction costs incurred). The N-Vision Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.

The N-Vision Group’s share of post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition other comprehensive income and movements in equity is recognized appropriately in other comprehensive income or in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the N-Vision Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the N-Vision Group does not recognize further losses, unless it is obliged to cover losses or make payments on behalf of the associate. Unrealized gains on transactions between the N-Vision Group and its associates are eliminated to the extent of the N-Vision Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred.

Investments in associates are assessed for impairment in accordance with the policy in Note 2.14.

 

2.7. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the committee which is responsible for assessing performance of the operating segments. The committee created on TVN level, which is composed of the Vice-President of the Management Board responsible, inter alia, for the TVN Group’s financial reporting and heads of the teams within the TVN Group’s financial department.

 

These notes are an integral part of these consolidated financial statements.

F- 12 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.8. Foreign currency

The accompanying financial statements are presented in Polish Zloty (“PLN”).

Items included in the financial statements of each of the N-Vision Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The functional currency of the Company and PTH is EUR; the functional currency of the main operating subsidiary (TVN) is PLN.

Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange applicable at the balance sheet date. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Gains and losses arising from the settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities at year-end exchange rates are recognized in the income statement. Qualifying cash flow hedges are recognized in other comprehensive income.

Changes in the fair value of monetary securities denominated in a foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in the income statement, and other changes in carrying amount are recognized in other comprehensive income.

For available-for-sale financial assets that are non-monetary assets, the gain or loss that is recognized in other comprehensive income includes any related foreign exchange translation component.

The results and financial position of all the N-Vision Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

    Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.

 

    Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions).

 

    Share capital is translated using the historical exchange rate; other equity positions are also translated using the historical exchange rate.

 

    Any resulting exchange differences are recognised in other comprehensive income.

 

2.9. Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Where the carrying amount of an asset is greater than its estimated recoverable amount (the higher of fair value less costs to sell and its value-in-use), it is written down immediately to its recoverable amount (detailed policy for impairment testing is provided in the Note 2.14).

Subsequent expenditure relating to an item of property, plant and equipment is added to the carrying amount of the asset when it is probable that future economic benefits associated with the item will flow to the enterprise and the cost of the item can be measured reliably. All other repair and maintenance expenses are charged to the income statement during the financial period in which they are incurred.

 

These notes are an integral part of these consolidated financial statements.

F- 13 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Depreciation is charged so as to write off the cost of property, plant and equipment less their estimated residual values on a straight-line basis over their expected useful lives as follows:

 

     Term

Buildings

   up to 40 years

Television, broadcasting and other technical equipment

   2-10 years

Vehicles

   3-5 years

Studio vehicles

   7 years

Leasehold improvements

   up to 10 years

Furniture and fixtures

   4-5 years

Leasehold improvements are amortized over the shorter of their useful life or the related lease term. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost less their residual values over their estimated useful lives.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are included in operating profit.

Assets’ residual values and useful lives are reviewed and adjusted if appropriate at least at each financial year end. No material adjustments to remaining useful lives and residual values were required as a result of the review as at December 31, 2014.

 

2.10. Goodwill

Goodwill is tested for impairment annually or more frequently if there are indicators of possible impairment. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

 

2.11. Brands

Brands, both acquired through business combinations and acquired separately, unless an indefinite useful life can be justified, are amortized on a straight-line basis over their useful lives. Brands with an indefinite useful life are tested annually for impairment or whenever there is an indicator for impairment. The following useful lives are applied by the N-Vision Group:

 

     Term  

Mango Media

     indefinite   

Religia.tv

     indefinite   

 

2.12. Other intangible assets

Broadcasting licenses

Expenditures on broadcasting licenses are capitalised and amortized using the straight line method over the license period.

Software and other

Software and other include acquired computer software, capitalised development costs, perpetual usufruct of land and other intangible assets.

Acquired computer software and other intangible assets are capitalised and amortized using the straight-line method over two to three years.

 

These notes are an integral part of these consolidated financial statements.

F- 14 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Research expenditure is recognized as an expense as incurred. Costs incurred on development that can be measured reliably and that are directly associated with the production of identifiable, unique and technically feasible technology projects and know-how controlled by the N-Vision Group, and that will probably generate economic benefits exceeding costs beyond one year and where management has the intention and ability to use or sell the projects and adequate resources to complete the project exist, are recognized as intangible assets. Other development expenditures that do not meet these criteria are recognized as expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Direct costs recognized as intangible assets include employee costs and an appropriate portion of relevant overheads. Development costs recognized as intangible assets are amortized on a straight line basis over their estimated useful lives. Development assets are tested for impairment annually, in accordance with IAS 36.

Perpetual usufruct of land is capitalised and amortized using the straight-line method over the term for which the right has been granted.

 

2.13. Programming rights

Programming rights include acquired program rights, co-production and production costs. Programming rights are reviewed for impairment every year or whenever events or changes indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount. The individual accounting policies adopted for each of these categories are summarized below.

Acquired program rights

Program rights acquired by the N-Vision Group under license agreements and the related obligations are recorded as assets and liabilities at their present value when the program is available and the license period begins. Contractual costs are allocated to individual programs within a particular contract based on the relative value of each to the N-Vision Group. The capitalised costs of program rights are recorded in the balance sheet at the lower of unamortized cost or estimated recoverable amount (the higher of its fair value less cost to sell or its value-in-use). A write down is recorded if unamortized costs exceed the recoverable amount.

 

These notes are an integral part of these consolidated financial statements.

F- 15 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The program rights purchased by the Group are amortized as follows:

 

Program categories    Number of
runs
   Percentage of amortization per
run
          1st    2nd      3rd

Movies, including feature films, made for television or cable, whether first run, library or rerun

   1

2

3 or more

   100

60
50 or 40

    
 
40
35
  
  
   15 or 25

Weekly fiction series, including dramas, comedies or series, first run or library, live action and animation

   1

2

3 or more

   100

60

60

    
 
40
25
  
  
   15

Weekly non-fiction series, including documentary series, docu-soaps, reality and nature

   1

2

3 or more

   100

90

90

    
 
10
10
  
  
   0

Entertainment documentaries, one-off documentaries of less than timely topics

   1

2 or more

   100

80

     20       0

Clips shows of comedy material

   1

2

3 or more

   100

60

55

    
 
40
35
  
  
   10

Programming rights are allocated between current and non-current assets based on estimated date of broadcast. Amortization of program rights is included in cost of revenue.

Capitalised production costs

Capitalised production costs comprise capitalised internal and external production costs in respect of programs specifically produced by or for the N-Vision Group under its own licences or under licences from third parties.

 

These notes are an integral part of these consolidated financial statements.

F- 16 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Capitalised production costs are stated at the lower of cost or recoverable amount on a program by program basis. Capitalised production costs are amortized based on the ratio of net revenues for the period to total estimated revenues, and the amortization pattern is determined individually for each program. The majority of programs are amortized as set out below:

 

     Percentage of amortization per run

Programs expected to be broadcast once

   100% on first showing
  

60% on first showing, 30% on second showing, 10%

residual value

or

   80% on first showing, 4% on second showing, 16%
Programs with unlimited broadcasting right which are expected to have reasonably long useful life, including documentary series, fiction series and movies   

on third and next showings in total (including 10% residual value)

or

50% on first showing, 30% on second showing, 20% on third and next showings in total (including 10% residual value)

 

95% on first showing, 3% on second showing, 2% on third showing

or

60% on first showing, 40% on second showing

or

   25% on first showing, 50% on second showing, 25%
Other programs, including documentary series, fiction series and entertainment shows   

on third and next showings in total

or

75% on first showing, 25% on second showing

or

50% on first showing, 50% on second showing

or

90% on first showing, 10% on second showing

Residual value is amortized on a straight line basis over the period of ten years.

Capitalised production costs are allocated between current and non-current assets based on estimated date of broadcast. Amortization of capitalised production costs is included in cost of revenue.

Co-production

Programs co-produced by the N-Vision Group for cinematic release are stated at the lower of cost or estimated recoverable amount. Program costs are amortized using the individual-film-forecast-computation method, which amortizes film costs in the same ratio that current gross revenues bears to anticipated total gross revenues.

News archive

News archives were recognized on business combination and are amortized based on their average usage in minutes per year.

 

These notes are an integral part of these consolidated financial statements.

F- 17 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.14. Impairment of non-financial assets and investments in associates

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization and investments in associates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill and brands are allocated to groups of cash-generating units as identified by the N-Vision Group. Investments in associates are separate cash generating units.

Non-financial assets other than goodwill and investments in associates that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

2.15. Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable.

 

2.16. Financial assets

The N-Vision Group classifies its financial assets into the following categories: financial assets at fair value through income statement, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the financial assets are acquired. Management of the N-Vision Group determines the classification of its financial assets at initial recognition and re-evaluates the designation at every reporting date.

Financial assets at fair value through income statement

Financial assets that are acquired principally for the purpose of selling them in the short-term or if so designated by management are classified as financial assets at fair value through the income statement. This category has two sub-categories: financial assets held for trading, and those designated at fair value through income statement at inception. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within twelve months of the balance sheet date.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date. These are classified as non-current assets. Category ‘loans and receivables’ includes amounts classified as trade receivables in the balance sheet (see Note 2.19).

 

These notes are an integral part of these consolidated financial statements.

F- 18 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. These are included in non-current available-for-sale investments unless management has the express intention of holding the investment for less than twelve months from the balance sheet date or unless they will be sold to raise operating capital, in which case they are included in current assets as current available-for-sale investments.

Purchases and sales of investments are recognized on trade-date – the date on which the N-Vision Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through income statement. Financial assets carried at fair value through income statement are initially recognized at fair value and transaction costs are expensed in the income statement.

Investments are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the N-Vision Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through income statement are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest rate method. Realised and unrealized gains and losses arising from changes in the fair value of the ‘financial assets at fair value through income statement’ category, including interest and dividend income, are included in the income statement in the period in which they arise.

Changes in the fair value of monetary and non-monetary securities that are classified as available-for-sale are recognized in other comprehensive income.

When securities classified as available-for-sale are sold or impaired the accumulated fair value adjustments recognized in other comprehensive income are included in the income statement.

Interest on available-for-sale securities calculated using the effective interest method is recognized in the income statement as part of interest income. Dividends on available-for-sale equity instruments are recognized in the income statement as part of other income when the N-Vision Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the N-Vision Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the N-Vision Group’s specific circumstances. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

The N-Vision Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the income statement – is removed from other comprehensive income and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade receivables is described in Note 2.19.

 

These notes are an integral part of these consolidated financial statements.

F- 19 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.17. Derivative financial instruments and hedging activities

Derivative financial instruments are carried in the balance sheet at fair value. The method of recognizing the resulting gain or loss is dependent on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The N-Vision Group designates certain derivatives as either (1) a hedge of the fair value of a recognized asset or liability or a firm commitment (fair value hedge), or (2) a hedge of a foreign exchange risk of a firm commitment (cash flow hedge) on the date a derivative contract is entered into.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges, are recorded in the income statement, along with any changes in the fair value of the hedged asset, liability or firm commitment that is attributable to the hedged risk. The N-Vision Group applies fair value hedge accounting for hedging foreign exchange risk on borrowings. The gain or loss relating to effective portion of derivatives used for hedging is recognized in the income statement along with any changes in the fair value of the hedged asset, liability or firm commitment that is attributable to the hedged risk. The gain or loss relating to ineffective portion of derivatives used for hedging is recognized in the income statement within finance expense.

The N-Vision Group applies cash flow hedge accounting for hedging foreign exchange risk on subscription revenue from DTH and cable operators, firm commitments relating to acquisition of programming rights and payments of interest on 7.375% Senior Notes due 2020 (“7.375% Senior Notes due 2020”) and 7.875% Senior Notes due 2018 (“7.875% Senior Notes due 2018). The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement within finance expense. Where the forecast transaction results in the recognition of a non-financial asset or of a liability, the gains and losses previously recognized in other comprehensive income are transferred from other comprehensive income and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts recognized in other comprehensive income are transferred to the income statement and classified as revenue or expense in the same periods during which the hedged forecast transaction affects the income statement (for example, when the forecast sale takes place).

Certain derivative transactions, while providing effective economic hedges under the N-Vision Group’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognized immediately in the income statement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss existing in other comprehensive income at that time remains in equity and is recognized in the income statement when the forecast transaction ultimately is recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.

The N-Vision Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The N-Vision Group also documents its assessment,

 

These notes are an integral part of these consolidated financial statements.

F- 20 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The N-Vision Group separates embedded derivatives from the host contracts and accounts for these as derivatives if the economic characteristics and risks of the embedded derivative and host contract are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the combined instrument is not measured at fair value with changes in fair value recognized in income statement.

 

2.18. Inventory

Inventory is stated at the lower of cost or net realisable value. In general, cost is determined on a first-in-first-out basis and includes transport and handling costs. Net realisable value is the estimated selling price less estimated costs of sale. Where necessary, provision is made for obsolete, slow moving and defective inventory. Inventories sold in promotional offers are stated at the lower of cost or estimated net realisable value.

 

2.19. Trade receivables

Trade receivables are carried initially at fair value and subsequently measured at amortized cost using the effective interest rate method less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the N-Vision Group will not be able to collect all amounts due according to the original terms of settlement. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or failure in payments (more than 60 days overdue) are considered as indicators that a trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the recoverable amount, calculated as the present value of expected future cash flows, discounted at the effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement within selling expenses. When a trade receivable is uncollectible, it is written off against the trade receivable allowance account. Amounts charged to the allowance account are generally written off when the N-Vision Group does not expect to recover additional cash after attempting all relevant formal recovery procedures. Subsequent recoveries of amounts previously written off are credited against selling expenses in the income statement.

 

2.20. Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, call deposits with banks and highly liquid non-equity investments with a maturity of less than three months from the date of acquisition. Bank overdrafts are shown in current liabilities on the balance sheet.

 

2.21. Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares that otherwise would have been avoided are shown in equity as a deduction (net of any related income tax benefit) from the proceeds. Equity transaction costs include legal and financial services and printing costs.

 

2.22. Share premium

Share premium represents the fair value of amounts paid to the Company by shareholders over and above the nominal value of shares issued to them.

 

These notes are an integral part of these consolidated financial statements.

F- 21 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.23. Treasury shares

Where any N-Vision Group company purchases the Company’s equity share capital (treasury shares), the consideration paid is deducted from shareholders equity until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders’ equity.

 

2.24. 8% obligatory reserve

In accordance with the Polish Commercial Companies Code, a joint-stock company (such as the TVN S.A. subsidiary) is required to transfer at least 8% of its annual net profit to a non-distributable reserve until this reserve reaches one third of its share capital. The 8% obligatory reserve is not available for distribution to shareholders but may be proportionally reduced to the extent that share capital is reduced. The 8% obligatory reserve can be used to cover net losses incurred.

 

2.25. Borrowings

The N-Vision Group recognizes its borrowings initially at fair value net of transaction costs incurred. In subsequent periods, borrowings are stated at amortized cost using the effective interest method.

Borrowings are classified as current liabilities unless the N-Vision Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

 

2.26. Income tax

Deferred income tax is provided in full using the liability method for all temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is determined using tax rates (and laws) that have been enacted by the balance sheet date and are expected to apply when the related income tax asset is realized or liability settled.

Deferred income tax assets and liabilities are recognized for all taxable temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the N-Vision Group and it is probable that the temporary difference will not reverse in the foreseeable future or the asset cannot be utilized.

Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences and tax losses carried forward can be utilized.

In the N-Vision Group’s consolidated financial statements tax assets (both current and deferred) and tax liabilities (both current and deferred) are not offset unless the N-Vision Group has a legally enforceable right to offset tax assets against tax liabilities.

 

2.27. Employee benefits

Retirement benefit costs

The N-Vision Group contributes to state managed defined contribution plans. Contributions to defined contribution pension plans are charged to the income statement in the period to which they relate.

 

These notes are an integral part of these consolidated financial statements.

F- 22 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Share-based plans

The N-Vision Group’s management board and certain key employees and co-workers were granted share options based on the rules of an incentive plan introduced by the N-Vision Group. The options were classified as equity settled share based payments awards, were subject to service vesting conditions, and their fair value was recognized as an employee benefits expense with a corresponding increase in other reserves in equity over the vesting period.

As described in Note 29 management of TVN participates in the Long Term Incentive Plan. The transaction component of the Plan is classified as a cash-settled share based payment. The liability related to the transaction component is measured at each balance sheet date at fair value. The change in fair value of this liability is recognised in the consolidated income statement for the period over the service period.

Bonus plan

The N-Vision Group recognizes a liability and an expense for bonuses. The N-Vision Group recognizes a provision where contractually obliged or where there is past practice that has created a constructive obligation and the reliable estimate of the obligation can be made.

 

2.28. Provisions

Provisions are recognized when the N-Vision Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are measured at present value of the expenditures expected to be required to settle the obligation.

 

2.29. Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of services and goods in the ordinary course of the N-Vision Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the N-Vision Group.

The N-Vision Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the N-Vision Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The N-Vision Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

 

(i) Sales of services

Revenue primarily results from the sale of television advertising and is recognized in the period in which the advertising is broadcast. Other revenues primarily result from DTH and cable operators subscription fees, sponsoring, brokerage services, rental, technical services, call television, text messages and sales of rights to programming content and are recognized generally upon the performance of the service.

In an agency relationship, when the N-Vision Group acts as an agent and sells on behalf of third parties their airtime and online advertising services, only the commission earned is recognized as brokerage revenue.

 

These notes are an integral part of these consolidated financial statements.

F- 23 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(ii) Sales of goods

The N-Vision Group operates a teleshopping business selling goods to individual customers. Sales of goods are recognized when the goods are sent to the customer. It is the N-Vision Group’s policy to sell the goods to the individual customers with a right to return within ten days. Historical experience is used to estimate and provide for such returns at the time of sale.

 

2.30. Government grants

Government grants related to income are recognized in the income statement so as to match them with the expenditure towards which they are intended to contribute in the period they become receivable. Government grants reduce the related expense if the expense would not have been incurred if the grant had not been available.

 

2.31. Barter transactions

Revenue from barter transactions (advertising time provided in exchange for goods and services) is recognized when commercials are broadcast. Programming, merchandise or services received as part of barter transactions are expensed or capitalised as appropriate when received or utilised. The N-Vision Group records barter transactions at the estimated fair value of the programming, merchandise or services received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast first, a receivable is recorded.

When the N-Vision Group provides advertising services in exchange for advertising services, revenue is recognized only if the services exchanged are dissimilar and the amount of revenue can be measured reliably. Barter revenue is measured at the fair value of the consideration received or receivable. When the fair value of the services received cannot be measured reliably, the revenue is measured at the fair value of the services provided, adjusted by the amount of any cash equivalents transferred.

 

2.32. Leases

Leases of assets under which substantially all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

Leases of property, plant and equipment where the N-Vision Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. The lease payments are apportioned between a reduction of the outstanding capital liability and interest in such a way as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The interest element of the finance charge is charged to the income statement over the lease period. Property, plant and equipment held under finance leasing contracts are depreciated over the shorter of the lease term or the useful life of the asset.

 

2.33. Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the N-Vision Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

 

These notes are an integral part of these consolidated financial statements.

F- 24 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Incremental costs directly attributable to dividend distributions that otherwise would have been avoided are accounted for as a deduction from equity. They comprise mainly financial services.

 

2.34. New standards and amendments to standards

Certain new standards and amendments to standards have been published by IASB since the publication of the previous annual consolidated financial statements that are mandatory for accounting periods beginning on or after January 1, 2015 and were not early adopted by the N-Vision Group. The N-Vision Group’s assessment of the impact of these new standards and amendments to standards on the N-Vision Group’s consolidated financial statements is set out below.

 

(i) IFRS 9 Financial Instruments

The final version of the standard was published in July 2014 and it replaces IAS 39 Financial Instruments: Recognition and Measurement. The standard specifies how an entity should classify and measure financial assets, including some hybrid contracts, and financial liabilities. It requires all financial assets to be:

 

  classified on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset,

 

  initially measured at fair value plus, in the case of a financial asset not at fair value through income statement, particular transaction costs,

 

  subsequently measured at amortized cost or fair value.

These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. They apply a consistent approach to classifying financial assets and replace the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. They also result in one impairment method, replacing the numerous impairment methods in IAS 39 that arise from the different classification categories.

The new requirements maintain the existing amortized cost measurement for most liabilities and address the problem of volatility in income statement arising from an issuer choosing to measure its own debt at fair value. With the new requirements, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income, rather than within income statement.

The new requirements on hedge accounting included in the standard put in place a new model that introduces significant improvements as compared with previous requirements contained in IAS 39. The new requirements align the accounting more closely with risk management and improve the disclosures about hedge accounting and risk management.

The standard applies for annual periods beginning on or after January 1, 2018. The N-Vision Group is currently assessing the impact of IFRS 9 on the N-Vision Group’s consolidated financial statements.

 

These notes are an integral part of these consolidated financial statements.

F- 25 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(ii) IFRS 15 Revenue from Contracts with Customers

The standard was published in May 2014 and it supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services. The standard provides a comprehensive framework for reporting on the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard applies for annual periods beginning on or after January 1, 2017. The N-Vision Group is currently assessing the impact of IFRS 15 on the N-Vision Group’s consolidated financial statements.

All other new standards and amendments to standards not listed above either are not relevant for the N-Vision Group or will not have a significant impact on the N-Vision Group’s consolidated financial statements.

 

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events, that are believed to be reasonable under the circumstances.

The N-Vision Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

(i) Estimated impairment of investments in associates

Investments in associates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. Investments in associates are separate cash generating units.

As of December 31, 2014 the N-Vision Group did not identify any indicators for impairment of its investment in associate nC+.

As of December 31, 2014, as a result of a less than expected economic performance of Onet, the N-Vision Group performed an impairment tests of its investment in associate Onet. In the impairment tests performed by the N-Vision Group the recoverable amount of the investment was determined based on fair value less cost to sell. The calculation of fair value was based both on valuation of the company as a whole and the put and call options included in the shareholders’ agreement (see Note 25).

The key financial assumptions used for discounting free cash flows as at December 31, 2014 were as follows:

 

     December 31, 2014  

Terminal growth

     2.5

Discount rate

     7.0

 

These notes are an integral part of these consolidated financial statements.

F- 26 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

 

The test performed as of December 31, 2014 indicated that the investment did not suffer an impairment. The N-Vision Group believes that the key assumptions made in testing for impairment of the investment in associate Onet as at December 31, 2014 were reasonable and were based on our experience and market forecasts that are from time to time published by the industry experts. In Management’s view any reasonably possible change in the key assumptions on which the investment’s recoverable amount was based would not cause an impairment to be recognized.

 

(ii) Estimated impairment of brand allocated to teleshopping unit

The N-Vision Group classifies the acquired Mango brand as an intangible asset with indefinite useful life and allocates the brand to the teleshopping cash-generating unit. The N-Vision Group tests annually whether the teleshopping cash-generating unit, including the brand, has suffered any impairment. The N-Vision Group tests the total carrying amount of the cash-generating unit and in case of impairment write-offs are allocated pro-rata to the carrying value of the brand and other assets allocated to the teleshopping cash-generating unit.

In the annual impairment tests performed by the N-Vision Group as at December 31, 2014 the recoverable amount of the cash-generating unit was determined based on value-in-use calculations. These calculations require the use of estimates related to cash flow projections based on financial business plans approved by management covering a five year period.

The key financial assumptions used for discounting free cash flows as at December 31, 2014 were as follows:

 

     December 31, 2014  

Terminal growth

     2.5

Discount rate

     6.71

The tests performed as at December 31, 2014 indicated, that the teleshopping cash-generating unit, including the brand, did not suffer an impairment.

The N-Vision Group believes that the key assumptions made in testing for impairment of the teleshopping cash-generating unit as at December 31, 2014 were reasonable and were based on our experience and market forecasts that are from time to time published by the industry experts. Management believes that any reasonably possible change in the key assumptions on which the teleshopping cash-generating unit’s recoverable amount was based would not cause an impairment charge to be recognized.

 

(iii) Estimated useful life of Mango brand

The N-Vision Group reviewed factors that need to be considered when assessing the useful life of the Mango brand such as:

 

  the expected usage of the brand and whether the brand could be managed efficiently,

 

  technical, technological, commercial or other types of obsolescence,

 

  the stability of the industry in which the brand operates and changes in the market demand for teleshopping services,

 

These notes are an integral part of these consolidated financial statements.

F- 27 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

 

  expected actions by competitors or potential competitions in the teleshopping industry,

 

  the level of maintenance expenditure required to obtain the expected future economic benefits from the brand,

 

  whether the useful life of the brand is dependent on the useful life of other assets.

Having considered the above factors, the N-Vision Group concluded that there is no foreseeable limit to the period over which the Mango brand is expected to generate net cash flows for the N-Vision Group, therefore the useful life of the Mango brand was assessed as indefinite.

Each reporting period the N-Vision Group reviews whether events and circumstances continue to support an indefinite useful life assessment of the Mango brand. If the reviews result in a change in the useful life assessment from indefinite to finite, this change is accounted for as a change in an accounting estimate.

 

(iv) Deferred tax assets

On November 28, 2011 the brands owned previously by TVN S.A. (including internally generated brands which were not recognized on the consolidated balance sheet) were contributed in kind to its new subsidiary TVN Media. As a result a temporary difference arose on the difference between the brands’ book carrying value (of zero) and its new tax base. As at December 31, 2014 the N-Vision Group recognized the deferred tax asset on this temporary difference to the extent that, based on the N-Vision Group’s judgment, the realization of the tax benefit is probable i.e., in the amount of 27,514 representing the tax amortization of brands to be realized within the next twelve months. The N-Vision Group assessed that the realization of the tax benefit resulting from the remaining amount of the temporary difference was not probable and therefore no deferred tax asset was recognized for subsequent years. As at December 31, 2014 the N-Vision Group did not recognize a deferred tax asset in the amount of 162,793 related to the tax value of brands recognized by TVN Media.

As at December 31, 2014 the N-Vision Group also did not recognize a deferred tax asset on tax loss carry-forwards of TVN Group of 414,267 and of the Company and PTH of 200,170, the equivalent of EUR 46,963. These tax loss carry-forwards expire within five tax years for TVN Group starting from January 1, 2013 and within nine years for the Company and PTH starting from January 1, 2007. The related deferred tax asset in TVN Group in the amount of 78,711 and of the Company and PTH in the amount of 50,043, the equivalent of EUR 11,741 was not recognized as the N-Vision Group concluded that as at December 31, 2014 the realization of the related tax benefit is not probable.

 

(v) Long Term Incentive Plan

As described in Note 29 management of TVN participates in the Long Term Incentive Plan. Certain payments under the Plan are triggered in an event of a change of control over the TVN. As outlined in Note 32, in March 2015 ITI Group and Canal+ Group jointly entered into agreement to sale their investment in the Company. The transaction is subject to customary conditions precedent including regulatory approvals. Once the transaction is finalized the payments due under the Plan will be accelerated and as a result of the above the N-Vision Group has recognized Long Term Incentive Plan charge related to the transaction based on the accelerated timing of the payment, details of the charge are disclosed in Note 29.

 

These notes are an integral part of these consolidated financial statements.

F- 28 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

4. SEGMENT REPORTING

The N-Vision Group’s principal activities are television broadcasting and production and teleshopping.

An operating segment is a distinguishable component of an enterprise that is engaged in business activities from which it may earn revenues and incur expenses and whose operating results are regularly reviewed by the Management to make decisions about resources to be allocated and assess its performance.

The committee created at the TVN level, which is composed of the Vice-President of the Management Board responsible, inter alia, for the TVN Group’s financial reporting and heads of the teams within the TVN Group’s financial department, reviews regularly the TVN Group’s internal reporting. Management has determined the operating segments based on these reports. The committee considers the business from a product and service perspective. The committee assesses the performance of TV channels and TV content sales and technical services business units aggregated into single television broadcasting and production segment and teleshopping segment.

The committee assesses the performance of the operating segments based on revenue and earnings before interest, tax, depreciation and amortization (EBITDA). For the N-Vision Group’s definition of EBITDA please refer to Note 31.1. Other information provided to the committee is measured in a manner consistent with that in the financial statements.

Operating segments are aggregated into a single reportable segment if the segments have similar economic characteristics and have in particular a similar nature of products and services, type of customers, distribution methods and regulatory environment.

The television broadcasting and production segment is mainly involved in the production, purchase and broadcasting of news, information and entertainment shows, series and movies and comprises television channels operated in Poland. The television broadcasting and production segment generates revenue mainly from sale of advertising, sponsoring and subscription fees. The teleshopping segment generates revenue mainly from sale of goods offered on Telezakupy Mango 24, a dedicated teleshopping channel, on other television channels and on the Mango Media Internet site.

Sales between segments are carried out at arm’s length. The revenue from external customers reported to the committee is measured in a manner consistent with that in the income statement.

The majority of the N-Vision Group’s operations and assets are based in Poland. Assets and revenues from outside Poland constitute less than 10% of the total assets and revenues of all segments. Therefore, no geographic information has been included.

 

These notes are an integral part of these consolidated financial statements.

F- 29 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

4. SEGMENT REPORTING (CONTINUED)

 

Reconciliation of EBITDA to profit/ (loss) before income tax:

 

     Year ended  
     December 31, 2014  

EBITDA

     515,942   

Depreciation of property, plant and equipment

     (56,929

Amortization of intangible assets

     (14,578
  

 

 

 

Operating profit

  444,435   

Interest income (see Note 7)

  9,747   

Finance expense (see Note 7)

  (357,937

Foreign exchange losses, net (see Note 7)

  (74,951
  

 

 

 

Profit/ (loss) before income tax

  21,294   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 30 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

4. SEGMENT REPORTING (CONTINUED)

 

Year ended    Television broadcasting     Teleshopping     Other reconciling items     Total  
December 31, 2014    and production        

Revenue from external customers

     1,556,658        37,146        —          1,593,804   

Inter-segment revenue

     4,611        —          (4,611     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

  1,561,269      37,146      (4,611   1,593,804   

EBITDA

  528,484      (5,902   (6,640 ) *    515,942   

Depreciation of property, plant and equipment

  (56,659   (273   3      (56,929

Amortization of intangible assets

  (14,534   (44   —        (14,578
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/ (loss)

  457,291      (6,219   (6,637   444,435   

Additions to property, plant and equipment and other intangible assets

  47,607      545      (5   48,147   

As at December 31, 2014

Segment assets including:

  1,702,079      39,205      2,172,008  **    3,913,292   

Investments in associates and joint ventures

  14      1,762,443      1,762,457   

 

* Other reconciling items on EBITDA level include mainly share of profits of associates (31,652), incremental costs related to the potential change of control transaction (37,263) and other costs
** Other reconciling items to segment assets include: investments in associates (1,762,443), deferred tax assets (311,461) and other assets and consolidation adjustments (5,687), cash and restricted cash held by PTH and the Company (92,141) and other assets of PTH and the Company (276).

 

These notes are an integral part of these consolidated financial statements.

F- 31 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

5. REVENUE

 

     Year ended  
     December 31, 2014  

Advertising revenue

     1,142,914   

Sponsoring revenue

     160,652   
  

 

 

 

Advertising related revenue

  1,303,566   

Subscription fees

  207,518   

Revenue from sale of goods

  32,264   

Other revenue

  50,456   
  

 

 

 
  1,593,804   
  

 

 

 

Subscription fees include mainly subscriptions receivable from DTH and cable operators.

Other revenue includes mainly revenue generated from production and technical services, rental revenue, sales of rights to programming content and revenue generated from call television and text messages.

 

6. OPERATING EXPENSES

 

     Year ended  
     December 31, 2014  

Amortization of locally produced content

     436,591   

Staff expenses

     170,440   

Amortization of acquired programming rights and co-productions

     146,301   

Depreciation and amortization

     71,507   

Broadcasting expenses

     59,837   

Royalties

     49,316   

Marketing and research

     46,352   

Cost of services and goods sold

     37,307   

Rental

     23,330   

Impaired accounts receivable

     (628

Other

     100,342   
  

 

 

 
  1,140,695   
  

 

 

 

Included in the above operating expenses for the year ended December 31, 2014 are operating lease expenses of 87,045.

Included in the above staff expenses for the year ended December 31, 2014 is a Long Term Incentive Plan expense of 8,915 related to the retention and performance components (see Note 29).

Incremental costs related to the potential change of control transaction

 

     Year ended  
     December 31, 2014  

Incremental Long Term Incentive Plan charge (see Note 29)

     32,149   

Advisory costs (see Note 1)

     5,114   
  

 

 

 
  37,263   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 32 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

6. OPERATING EXPENSES (CONTINUED)

 

Incremental costs related to the potential change of control transaction for the year ended December 31, 2014 include costs already incurred, being due diligence advisory costs only.

 

7. INTEREST INCOME, FINANCE EXPENSE AND FOREIGN EXCHANGE GAINS/ (LOSSES), NET

 

     Year ended
December 31, 2014
 

Interest income

  

Interest income on foreign exchange forward contracts and foreign exchange swap contracts – cash flow hedges

     1,012   

Guarantee fees from a related party (see Note 28 (v))

     258   

Other interest income

     8,477   
  

 

 

 
  9,747   
  

 

 

 

Finance expense

Interest expense on the Notes (see Note 19)

  (325,626

Interest expense on the Cash Loan (see Note 19)

  (3,196

Interest expense on the Mortgage Loan

  —     

Interest expense on foreign exchange forward contracts and foreign exchange swap contracts – cash flow hedges (see Note 13)

  (2,327

Premium on early repayment of the Notes and other costs related to the repayment of the Notes (see Note 19)

  (11,891

Unamortized debt issuance costs of the Notes written off on early repayment (see Note 19)

  (4,473

Guarantee fees to a related party (see Note 28 (v))

  (263

Bank and other charges

  (10,161
  

 

 

 
  (357,937
  

 

 

 

Foreign exchange losses, net

Foreign exchange losses on the Notes, including:

  (64,271

- unrealized foreign exchange (losses)/ gains on the Notes

  (49,880

- realized foreign exchange losses on the Notes

  (14,391

- hedge impact

  —     

Other foreign exchange (losses)/ gains, net

  (10,680
  

 

 

 
  (74,951
  

 

 

 

Finance expense and foreign exchange losses, net for the year ended December 31, 2014 include costs of early repayment of the 7.875% Senior Notes due 2018 being premium on early repayment of 11,891, write-off of the unamortized balance of debt issuance costs of 4,473 and realized foreign exchange losses of 14,391.

 

These notes are an integral part of these consolidated financial statements.

F- 33 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

8. PROPERTY, PLANT AND EQUIPMENT

 

                        Television,                          
                        broadcasting and           Furniture              
                  Leasehold     other technical           and     Assets under        
     Freehold land      Buildings     improvements     equipment     Vehicles     fixtures     construction     Total  

Gross value

                 

January 1, 2014

     40,180         195,767        75,570        430,227        58,276        22,463        16,771        839,254   

Additions

     —           —          5        17,584        7,613        1,664        4,028        30,894   

Transfers

     —           1,969        1,325        (67     43        (84     (3,186     —     

Disposals

     —           (26     (64     (27,908     (6,494     (3,063     —          (37,555
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2014

  40,180      197,710      76,836      419,836      59,438      20,980      17,613      832,593   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

January 1, 2014

  —        5,697      61,764      318,389      28,331      16,098      15,928      446,207   

Charge for the period

  —        4,931      2,041      40,055      8,399      1,503      —        56,929   

Transfers

  —        (142   143      (1   —        —        —        —     

Disposals

  —        (2   (64   (27,483   (5,077   (2,860   —        (35,486
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2014

  —        10,484      63,884      330,960      31,653      14,741      15,928      467,650   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value as at January 1, 2014

  40,180      190,070      13,806      111,838      29,945      6,365      843      393,047   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value as at December 31, 2014

  40,180      187,226      12,952      88,876      27,785      6,239      1,685      364,943   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 34 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

 

Depreciation expense of 40,092 has been charged in cost of revenue, 1,973 in selling expenses and 14,864 in general and administration expenses.

 

9. GOODWILL

 

     Year ended  
     December 31, 2014  

As at January 1

     144,127   
  

 

 

 

As at December 31

  144,127   
  

 

 

 

The carrying amount of goodwill is allocated to the following cash generating units identified by the N-Vision Group:

 

     December 31, 2014  

Thematic television channels

     131,704   

Television production unit

     12,423   
  

 

 

 
  144,127   
  

 

 

 

As of December 31, 2014 the goodwill was not impaired.

 

10. BRANDS

 

     Year ended  
     December 31, 2014  

Net book value as at January 1

     30,612   

Additions (see Note 28 (v))

     2,250   
  

 

 

 

Net book value as at December 31

  32,862   
  

 

 

 

The carrying amount of brands is allocated to the following cash generating units identified by the N-Vision Group:

 

     December 31, 2014  

Mango (teleshopping cash generating unit)

     30,612   

Religia.tv (television broadcasting and production cash generating unit)

     2,250   
  

 

 

 
  32,862   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 35 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

11. OTHER INTANGIBLE ASSETS

 

     Broadcasting      Software         
     licenses      and other      Total  

Gross value

        

January 1, 2014

     51,806         123,382         175,188   

Additions

     10         17,243         17,253   

Disposals

     —           (1,231      (1,231
  

 

 

    

 

 

    

 

 

 

December 31, 2014

  51,816      139,394      191,210   
  

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

January 1, 2014

  18,693      89,367      108,060   

Charge for the period

  4,226      10,352      14,578   

Disposals

  —        (1,231   (1,231
  

 

 

    

 

 

    

 

 

 

December 31, 2014

  22,919      98,488      121,407   
  

 

 

    

 

 

    

 

 

 

Net book value as at January 1, 2014

  33,113      34,015      67,128   
  

 

 

    

 

 

    

 

 

 

Net book value as at December 31, 2014

  28,897      40,906      69,803   
  

 

 

    

 

 

    

 

 

 

Amortization of 8,294 has been charged in cost of revenue, 586 in selling expenses and 5,698 in general and administration expenses.

 

These notes are an integral part of these consolidated financial statements.

F- 36 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

12. PROGRAMMING RIGHTS

 

     December 31, 2014  

Acquired programming rights

     231,060   

Productions

     126,509   

News archive

     9,734   

Co-productions

     7,579   
  

 

 

 
  374,882   

Less current portion of programming rights

  (222,610
  

 

 

 

Non-current portion of programming rights

  152,272   
  

 

 

 

Changes in acquired programming rights

 

     Year ended December 31,  
     2014  

Net book value as at January 1

     249,412   

Additions

     127,944   

Amortization

     (146,296
  

 

 

 

Net book value as at December 31

  231,060   
  

 

 

 

 

13. DERIVATIVE FINANCIAL INSTRUMENTS

 

     December 31, 2014  

Derivative financial assets

  

Foreign exchange forward contracts

     1,202   
  

 

 

 
  1,202   
  

 

 

 

Derivative financial liabilities

Foreign exchange forward contracts

  214   
  

 

 

 
  214   
  

 

 

 

The fair value of foreign exchange forward contracts as at December 31, 2014 was based on valuations performed by the N-Vision Group’s banks.

As at December 31, 2014 the N-Vision Group had EUR foreign exchange forward contracts entered into in order to limit the impact of exchange rate movements on the interest expense on the 7.875% Senior Notes due 2018 and the 7.375% Senior Notes due 2020 and on subscription revenue from DTH and cable operators.

On November 26, 2014 the N-Vision Group entered into PLN foreign exchange forward contract in order to limit the impact of exchange rate movements on the proceeds from the share buyback program, received by PTH from TVN on December 5, 2014. The N-Vision Group recognized a loss on this PLN foreign exchange forward contract in the amount of 661.

 

These notes are an integral part of these consolidated financial statements.

F- 37 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

13. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

The N-Vision Group has designated these foreign exchange forward contracts for cash flow hedge accounting. When designating the hedging relationship the interest elements and the spot prices of the forwards were split. The interest element is recognized in the income statement in the period until maturity date of each foreign exchange forward contract (see Note 7).

 

14. TRADE RECEIVABLES

 

     December 31, 2014  

Trade receivables

     346,895   

Less: provision for impairment of receivables

     (3,982
  

 

 

 

Trade receivables – net

  342,913   

Receivables from related parties (Note 28 (iii))

  7,330   
  

 

 

 
  350,243   
  

 

 

 

The fair values of trade receivables, because of their short-term nature, are estimated to approximate their carrying values.

The carrying amounts of the N-Vision Group’s trade receivables are denominated in the following currencies (these balances are of TVN Group entities with the functional currency PLN):

 

     December 31, 2014  

PLN

     343,254   

USD

     5,041   

EUR

     1,787   

Other

     161   
  

 

 

 
  350,243   
  

 

 

 

Provision for impairment of receivables was created individually for non-related party trade receivables that were in general overdue more than 60 days or in relation to individual customers who are in unexpectedly difficult financial situations.

Movements on the provision for impairment of receivables are as follows:

 

     Year ended  
     December 31, 2014  

As at January 1

     5,859   

Provision for impairment of receivables, net change

     (628

Receivables written off as uncollectible

     (1,249
  

 

 

 

As at December 31

  3,982   
  

 

 

 

The creation and release of provision for impairment of receivables have been included in selling expenses in the income statement.

As of December 31, 2014 trade receivables of 142,146 were past due but not impaired. The balance relates to a number of customers with no recent history of default. The ageing analysis of these trade receivables is as follows:

 

These notes are an integral part of these consolidated financial statements.

F- 38 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

14. TRADE RECEIVABLES (CONTINUED)

 

     December 31, 2014  

Up to 30 days

     119,011   

31-60 days

     19,646   

Over 60 days

     3,489   
  

 

 

 
  142,146   
  

 

 

 

The N-Vision Group defines credit exposure as total outstanding receivables. Maximum exposure to credit risk is the total balance of trade receivables. Maximum exposure to credit risk as of December 31, 2014 was 350,243.

 

15. PREPAYMENTS AND OTHER ASSETS

 

     December 31, 2014  

VAT and other non-CIT taxes receivables

     28,662   

Employee settlements

     7,386   

Corporate income tax receivable

     5,885   

Inventory, net of impairment provision

     4,237   

Prepayments for programming

     3,511   

Technical support

     1,830   

Other

     42,667   
  

 

 

 
  94,178   
  

 

 

 

Less: current portion of prepayments and other assets

  (93,107
  

 

 

 

Non-current portion of prepayments and other assets

  1,071   
  

 

 

 

 

16. CASH AND CASH EQUIVALENTS, BANK DEPOSITS WITH MATURITY OVER THREE MONTHS AND RESTRICTED CASH

 

     December 31, 2014  

Cash and cash equivalents

     270,763   
  

 

 

 
  270,763   
  

 

 

 

Bank deposits with maturity over three months

  45,000   
  

 

 

 
  45,000   
  

 

 

 

Restricted cash

  91,371   
  

 

 

 
  91,371   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 39 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

16. CASH AND CASH EQUIVALENTS, BANK DEPOSITS WITH MATURITY OVER THREE MONTHS AND RESTRICTED CASH (CONTINUED)

 

Cash and cash equivalents (credit rating – Standard and Poor’s):

 

     December 31, 2014  

Bank rated BBB+

     205,071   

Bank rated A+

     50,372   

Bank rated A-1

     770   

Bank rated AA-

     —     

Other banks and cash in hand

     14,550   
  

 

 

 
  270,763   
  

 

 

 

Bank deposits with maturity over three months (credit rating – Standard and Poor’s):

 

     December 31, 2014  

Bank rated A+

     45,000   
  

 

 

 
  45,000   
  

 

 

 

Restricted cash (credit rating – Standard and Poor’s):

 

     December 31, 2014  

Bank rated A-1+ *

     91,371   
  

 

 

 
  91,371   
  

 

 

 

 

* Restricted cash of the Company held for the settlement of interest relating to the Indenture governing 11%/12% Senior PIK Toggle Notes due 2021 (“Senior PIK Toggle Notes due 2021”) (see Note 19).

The carrying amounts of the N-Vision Group’s restricted cash was denominated in the following currencies (these balances relate to PTH B.V. with the functional currency EUR):

 

     December 31, 2014  

EUR

     91,371   

PLN

     —     
  

 

 

 
  91,371   
  

 

 

 

 

17. SHARE CAPITAL (NOT IN THOUSANDS)

The total number of ordinary shares in issue as at December 31, 2014 was 58,818,806 with a par value of EUR 1 (not in thousands) per share. All issued shares are fully paid.

On December 18, 2011, ITI Media Group (“ITI Media Group”) as a seller, Canal+ Group as a purchaser and ITI Holdings as the guarantor of ITI Media Group’s obligations concluded the share purchase agreement relating to a 40% stake in the Company.

On November 30, 2012 all the conditions precedent required to execute the agreement have been fulfilled and the Canal+ Group became a shareholder of the Company.

 

These notes are an integral part of these consolidated financial statements.

F- 40 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

17. SHARE CAPITAL (NOT IN THOUSANDS) (CONTINUED)

 

On February 4, 2014 ITI Media Group and Canal+ Group settled the 9% put option and transferred 9% of the issued share capital of the Company to Canal+ Group. As a result the ITI Group’s percentage ownership interest decreased to an indirect 51% interest in the Company, with the remaining 49% interest held by Canal+ Group. Canal+ Group has two call options regarding the ITI Group’s remaining stake in N-Vision exercisable during a three month period starting on February 18, 2016 and February 18, 2017 respectively. The price for the option shares will be based on fair market value. In the case Canal+ Group does not exercise its option the parties have drag rights on the other parties’ interest in N-Vision.

On October 16, 2014 ITI Group and Canal+ Group, who together control 51% of TVN Group, announced their intent to jointly review their strategic options in connection with the possible disposal of their joint investment in TVN Group. In connection with this announcement, TVN Group has appointed financial and legal advisors to support TVN Group during this process, and has also agreed to manage and finance the conducting of various due diligence processes.

The N-Vision Group is ultimately, jointly controlled by the members of the Wejchert, Walter, Valsangiacomo and Kostrzewa families.

The shareholders structure as at December 31, 2014 is presented below:

 

     Number of             Number of         
     shares (not in      % of share      votes (not in         
Shareholder    thousands)      capital      thousands)      % of votes  

ITI Media Group Ltd (1)

     29,997,591         51.00         29,997,591         51.00   

Groupe Canal+ S.A.

     28,821,215         49.00         28,821,215         49.00   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  58,818,806      100.00      58,818,806      100.00   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Entity controlled by the ITI Group

 

18. SHARE BUYBACK OF TVNS EQUITY INSTRUMENTS AND REDEMPTIONTRANSACTION WITH NCI

On April 11, 2014 the Annual General Shareholders’ Meeting of TVN approved a share buyback program up to the amount of 500,000. Under the program TVN may acquire up to 34,000,000 (not in thousands) of TVN’s shares constituting no more than 10% of the TVN’s share capital, the shares may be acquired up to December 31, 2015 and the minimum and maximum share acquisition price set in the program is 0.01 (not in thousands) and 30 (not in thousands) respectively. All shares acquired under the program will be redeemed and cancelled.

On June 11, 2014 the N-Vision Group completed the first tranche of the program under which the N-Vision Group acquired from non-controlling interest 2,445,500 (not in thousands) TVN shares for a total amount of 48,910.

As the result of the first tranche of the share buyback program, the carrying amount of the non-controlling interest has decreased by 49,004 including costs.

On December 5, 2014 the N-Vision Group completed the second tranche of the program under which the N-Vision Group acquired from non-controlling interest 3,668,250 (not in thousands) TVN shares for a total amount of 73,365.

 

These notes are an integral part of these consolidated financial statements.

F- 41 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

18. SHARE BUYBACK OF TVNS EQUITY INSTRUMENTS AND REDEMPTIONTRANSACTION WITH NCI (CONTINUED)

 

As the result of the second tranche of the share buyback program, the carrying amount of the non-controlling interest has decreased by 73,419 including costs.

As the result of these two transactions, the carrying amount of the non-controlling interest has decreased by 122,423; the difference between the consideration paid of 122,275 and the carrying amount of the acquired NCI was recognised in equity in the amount of 154, including transaction costs.

 

19. BORROWINGS

 

     December 31, 2014  

The Notes

     3,504,556   

Interest accrued on the Notes

     74,727   

The Cash Loan

     78,946   

Interest accrued on the Cash Loan

     366   
  

 

 

 
  3,658,595   
  

 

 

 

Less: current portion of borrowings

  (96,405
  

 

 

 

Non-current portion of borrowings

  3,562,190   
  

 

 

 

7.875% Senior Notes due 2018 and 7.375% Senior Notes due 2020

In 2010 TVN issued EUR 175,000 Senior Notes with an annual interest rate of 7.875%. The 7.875% Senior Notes due 2018 are carried at amortized cost using an effective interest rate of 8.6%, they pay interest semi-annually (on May 15 and November 15) beginning May 15, 2011 and mature on November 15, 2018.

During the year ended December 31, 2013 TVN repurchased 7.875% Senior Notes due 2018 with a nominal value of EUR 9,552 for an amount of EUR 10,334 (including accrued interest). The N-Vision Group has accounted for the repurchases as a de-recognition of the corresponding part of the Notes liability.

On March 20, 2014 TVN exercised the early repayment option and redeemed and cancelled 7.875% Senior Notes due 2018 with a nominal value of EUR 33,020 for an amount of EUR 35,873 (including accrued interest). On December 8, 2014 TVN again exercised the early repayment option and redeemed and cancelled 7.875% Senior Notes due 2018 with a nominal value of EUR 22,116 for an amount of EUR 23,098 (including accrued interest). The difference between the consideration paid and the carrying amount corresponding to the Notes repurchased (“Premium on early repayment of the Notes”) was recognized in the income statement within finance expense (see Note 7). After the redemptions the nominal value of the remaining 7.875% Senior Notes due 2018 is EUR 110,312.

On September 16, 2013 TVN issued EUR 430,000 Senior Notes with an annual interest rate of 7.375% (“7.375% Senior Notes due 2020”). The 7.375% Senior Notes due 2020 are carried at amortized cost using an effective interest rate of 8.0%, they pay interest semi-annually (on June 15 and December 15) beginning December 15, 2013 and mature on December 15, 2020. The proceeds from the issuance of 7.375% Senior Notes due 2020, together with the cash from the disposal of Onet Group (transaction finalized on November 6, 2012), were used to repay the remaining balance of 10.75% Senior Notes due 2017 (including accrued interest and premium for early repayment) and to pay fees and expenses associated with the issuance of 7.375% Senior Notes due 2020.

 

These notes are an integral part of these consolidated financial statements.

F- 42 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

19. BORROWINGS (CONTINUED)

 

7.375% Senior Notes due 2020 and 7.875% Senior Notes due 2018 are senior obligations and are governed by a number of covenants including, but not limited to, restrictions on the level of additional indebtedness, payment of dividends, sale of assets and transactions with affiliated companies.

The following early repayment options are included in 7.875% Senior Notes due 2018 and 7.375% Senior Notes due 2020:

 

  the N-Vision Group may redeem all or part of 7.875% Senior Notes due 2018 on or after November 15, 2013 at a redemption price ranging from 105.906% to 100.000% and all or part of 7.375% Senior Notes due 2020 on or after December 15, 2016 at a redemption price ranging from 103.688% to 100.000%;

 

  the Notes may be redeemed, at the option of the N-Vision Group, in whole but not in part, at any time, at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest, if any, up to the redemption date as a result of certain defined changes in tax laws or official interpretations regarding such laws;

 

  if both a change of control over TVN S.A. and a rating decline occur, each registered holder of the Notes will have the right to require the N-Vision Group to repurchase all or any part of such holder’s Notes at a purchase price in cash equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase;

 

  prior to December 15, 2016 the N-Vision Group may on any one or more occasions redeem up to 40% of the original principal amount of 7.375% Senior Notes due 2020 with the net cash proceeds of one or more equity offerings at a redemption price of 107.375% of the principal amount plus accrued and unpaid interest, if any, to the redemption date;

 

  prior to December 15, 2016, the N-Vision Group may at any time and from time to time during each 12-month period commencing with September 16, 2013 redeem up to 10% of the original principal amount of 7.375% Senior Notes due 2020 at a redemption price equal to 103% of the aggregate principal amount plus accrued and unpaid interest, if any, to the redemption date;

 

  at any time prior to December 16, 2016 the N-Vision Group may redeem 7.375% Senior Notes due 2020, in whole but not in part, at a price equal to 100% of the principal amount plus the applicable ‘make-whole’ premium and accrued and unpaid interest, if any, up to the redemption date.

7.875% Senior Notes due 2018 and 7.375% Senior Notes due 2020 are guaranteed by TVN, TVN Media, Mango Media, TVN Online Investments Holding and TVN DTH Holdings.

Senior PIK Toggle Notes due 2021

On September 19, 2013 PTH issued EUR 300,000 11%/12% Senior PIK Toggle Notes due 2021 with an annual interest rate of 11.00% with respect to any payments of interest as cash and 12.00% with respect to any payments of interest as PIK interest. The Senior PIK Toggle Notes due 2021 are carried at amortized cost using an effective interest rate of 11.90%, they pay interest semi-annually (on January 15 and July 15) beginning January 15, 2014 and mature on January 15, 2021. The total transaction costs of the issue amounted to EUR 8,181 and mainly related to dealers commission, legal services, auditor fees and printing. Senior PIK Toggle Notes due 2021 were issued at a price equal to 100% of their principal amount for a total consideration of EUR 300,000.

The first two, and the last, scheduled interest payments on the Senior PIK Toggle Notes due 2021 are to be made in cash.

 

These notes are an integral part of these consolidated financial statements.

F- 43 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

19. BORROWINGS (CONTINUED)

 

For each other interest payment, PTH will be required to pay interest on the Senior PIK Toggle Notes due 2021 entirely in cash (“Cash Interest”), unless the conditions of governing Indenture are satisfied, in which case PTH will be entitled to pay, to the extent described herein, interest for such interest period by increasing the principal amount of the Senior PIK Toggle Notes due 2021 or by issuing Senior PIK Toggle Notes due 2021 in a principal amount equal to such interest (in each case, “PIK Interest”) or by a combination of the two. Cash Interest will accrue on the Senior PIK Toggle Notes due 2021 at the rate of 11.00% per annum, and PIK Interest will accrue at the rate of 12.00% per annum.

The proceeds from the issuance of Senior PIK Toggle Notes due 2021 were used to redeem the entire amount outstanding under 11.25% Senior Secured Notes due 2017 including accrued interest, to pay the applicable “make whole” premium and to cover fees and expenses associated with the issuance of Senior PIK Toggle Notes due 2021.

The Senior PIK Toggle Notes due 2021 are collateralized with 170,593,112 (not in thousands) registered shares representing a 50.14% controlling stake in TVN S.A., excluding treasury shares held by TVN S.A., which are not admitted to trading on the Warsaw Stock Exchange and cash held in cash collateral account.

The following early repayment options are included in Senior PIK Toggle Notes due 2021:

 

  the N-Vision Group may redeem all or, from time to time, part of Senior PIK Toggle Notes due 2021 on or after January 15, 2017 at a redemption price ranging from 105.500% to 100.000%;

 

  Senior PIK Toggle Notes due 2021 may be redeemed, at the option of the N-Vision Group, in whole but not in part, at any time, at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest, if any, up to the redemption date as a result of certain defined changes in tax laws or official interpretations regarding such laws;

 

  if a change of control (not including where Canal+ Group would directly or indirectly acquire more than 50% of the TVN S.A. share capital) over TVN S.A. occurs, each registered holder of Senior PIK Toggle Notes due 2021 will have the right to require the N-Vision Group to repurchase all or any part of such Senior PIK Toggle Notes due 2021 at a purchase price in cash equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase;

 

  at any time prior to January 15, 2017 the N-Vision Group may redeem Senior PIK Toggle Notes due 2021, in whole but not in part, at a price equal to 100% of the principal amount plus the applicable ‘make-whole’ premium and accrued and unpaid interest, if any, up to the redemption date.

 

     December 31, 2014  
Fair value of the Notes    PLN      EUR  

7.375% Senior Notes due 2020

     2,025,232         475,150   

7.875% Senior Notes due 2018

     487,227         114,311   

Senior PIK Toggle Notes due 2021

     1,516,309         355,749   
  

 

 

    

 

 

 
  4,028,768      945,210   
  

 

 

    

 

 

 

Fair value of the Notes reflect their market price quoted by Reuters based on the last value date on December 31, 2014. The Notes are quoted on the Luxembourg Stock Exchange (Level 1 of the fair value hierarchy).

The N-Vision Group does not account for early repayment options embedded in the Notes because they are either closely related to the economic characteristics of the host contract or their fair value was assessed at a level close to nil.

 

These notes are an integral part of these consolidated financial statements.

F- 44 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

19. BORROWINGS (CONTINUED)

 

The Revolving Credit Facility and the Cash Loan

On June 10, 2013 the N-Vision Group entered into an agreement with Bank Pekao S.A. pursuant to which the bank provided the N-Vision Group with a Revolving Credit Facility in the amount of 300,000 and granted a Cash Loan in the amount of EUR 25,000.

The Revolving Credit Facility can be used in form of a revolving credit line, overdraft or for bank guarantees and letters of credit. As of December 31, 2014 the Revolving Credit Facility was used only for the bank guarantees issued at 8,194.

The Cash Loan was utilized on August 5, 2013, it bears interest at a floating rate EURIBOR for the relevant interest period plus the bank’s margin and is carried at amortized cost using an effective interest rate of 3.8%. The Cash Loan and interest are repaid in quarterly instalments starting from November 5, 2013. The final repayment date is June 10, 2017. The carrying value of the Cash Loan is assumed to approximate its fair value.

The Revolving Credit Facility and the Cash Loan are secured by a mortgage on MBC Building and on the set of all receivables of TVN and TVN Media with registered and financial pledge and with assignment on collateral. The Revolving Credit Facility and the Cash Loan are also secured by the assignment of insurance policies of MBC Building and of insurance of receivables of TVN and TVN Media. The Revolving Credit Facility and the Cash Loan are also fully guaranteed by N-Vision Group’s subsidiaries, being TVN Finance Corporation III, Mango Media, TVN Online Investments Holding and TVN DTH Holdings.

The Revolving Credit Facility and the Cash Loan mature within four years starting from the date of conclusion of the agreement.

 

These notes are an integral part of these consolidated financial statements.

F- 45 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

20. TRADE PAYABLES

 

     December 31, 2014  

Acquired programming rights payables

     89,879   

Related party payables (see Note 28 (iii))

     35,243   

Property, plant, equipment and intangible assets payables

     9,972   

Other trade payables

     38,236   
  

 

 

 
  173,330   

Less: current portion of trade payables

  (161,895
  

 

 

 

Non-current portion of trade payables

  11,435   
  

 

 

 

 

21. OTHER LIABILITIES AND ACCRUALS

 

     December 31, 2014  

Sales and marketing related costs

     61,725   

VAT and other taxes payable

     54,810   

Employee benefits*

     75,884   

Accrued production and programming costs

     15,113   

Deferred income

     11,314   

Satellites

     8,811   

Other liabilities and accrued costs

     109,355   
  

 

 

 
  337,012   
  

 

 

 

 

* Accrued employee benefits include an accrual for Long Term Incentive Plan expense, see Note 29

 

These notes are an integral part of these consolidated financial statements.

F- 46 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

22. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

 

          Year ended  
     Note    December 31, 2014  

Profit/ (loss) for the period

        19,702   

Income tax charge/ (credit)

   23      1,592   

Depreciation and amortization

   6      71,507   

Amortization of acquired programming rights and co-productions

   6      146,301   

Gain on accounts receivable

   6      (628

Loss on sale of property, plant and equipment

        288   

Interest income, finance expense and foreign exchange gains and losses, net

   7      423,141   

Share of (profits)/ losses of associates and joint ventures

   25      (31,651

Guarantee fee paid

        (242

Payments to acquire programming rights

        (84,518

Change in local production balance

        6,533   

Changes in working capital:

     

Trade receivables

        (7,743

Prepayments and other assets

        (12,201

Trade payables

        7,527   

Other short term liabilities and accruals

        70,571   
     

 

 

 
  58,154   
     

 

 

 

Cash generated from operations

  610,179   
     

 

 

 

Non-cash transactions

Barter revenue, net

  1,334   

 

These notes are an integral part of these consolidated financial statements.

F- 47 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

23. TAXATION

 

     Year ended  
     December 31, 2014  

Current tax credit

     5,789   

Deferred tax (charge)

     (7,381
  

 

 

 
  (1,592
  

 

 

 

Reconciliation of accounting profit/ (loss) to income tax (charge)/ credit

Profit/ (loss) before income tax

  21,294   

Income tax (charge)/credit at the enacted statutory rates

  (26,969

Impact of deferred tax asset recognized on tax value of brands recognized by TVN Media (see Note 3 (iv))

  27,514   

Impact of share of profits/ (losses) of associates and joint ventures

  6,014   

Impact of previous year’s tax returns corrections

  4,766   

Net tax impact of expenses and losses not deductible for tax purposes, revenue not taxable and other adjustments

  (12,917
  

 

 

 

Income tax (charge)/ credit

  (1,592
  

 

 

 

“Income tax (charge)/credit at the enacted statutory rates” was calculated based on the profit/ (loss) before intercompany transactions eliminations.

 

     Year ended  
     December 31, 2014  

Movements in deferred tax asset

  

As at January 1

     319,130   

(Charge)/ credit to the income statement

     (7,384

(Charge)/ credit to other comprehensive income

     (285
  

 

 

 

As at December 31

  311,461   
  

 

 

 

Movements in deferred tax liability

As at January 1

  (5,822

Credit to the income statement

  3   
  

 

 

 

As at December 31

  (5,819
  

 

 

 

The deferred tax asset is expected to be recovered:

 

     December 31, 2014  

Deferred tax asset, net

  

- Deferred tax asset, net to be realized after more than 12 months

     176,102   

- Deferred tax asset, net to be recovered within 12 months

     129,540   
  

 

 

 
  305,642   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 48 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

23. TAXATION (CONTINUED)

 

The Company (N-Vision B.V.) is subject to taxation in Netherlands whereas all operating subsidiaries are subject to taxation in Poland.

The Dutch Tax authorities must impose a final tax CIT assessment within three years after the final date of which the tax return should have been filed. After the final tax assessment has been issued, the Dutch Tax authorities are allowed to impose an additional CIT assessment within five years after the date on which the tax return should have been filed. However, the Dutch Tax authorities may only impose an additional assessment when, for the Dutch Tax authorities, a new fact has occurred. In the situation that a taxpayer is mala fide, the Dutch Tax authorities are authorized to impose an additional assessment even if a new fact is absent.

In case the Dutch tax authorities make a mistake when they impose the CIT assessment and the mistake is knowable to the taxpayer or his advisor, the Dutch tax authorities could impose an additional assessment in case the amount of tax levied differs with more than 30%.

The term of five years will be extended to twelve years in situations that income emerges from (properties) abroad.

Moreover, when an additional tax assessment has been imposed, the Dutch Tax authorities may impose interest and penalties. The Company’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

In respect of the subsidiaries that are subject to taxation in Poland, the tax authorities may at any time inspect the books and records within five years from the end of the year when a tax declaration was submitted and may impose additional tax assessments with penalty interest and penalties. The N-Vision Group’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

Deferred income tax assets are recognized for tax loss carry-forwards and deductible temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable.

Management believes that it is probable that taxable profit will be available in the future against which the deductible temporary differences and tax loss carry-forwards can be utilized, and consequently has recognized deferred tax assets in the amount that reflects the assumed utilization of deductible temporary differences and tax losses. The deferred tax amounts were calculated using the enacted tax rate of 19% as at December 31, 2014.

Deferred tax assets not recognized are disclosed in Note 3 (iv).

 

These notes are an integral part of these consolidated financial statements.

F- 49 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

23. TAXATION (CONTINUED)

 

     Differences in                                                     
     depreciation                                                     
     and                                                     
     amortization                   Unrealised     Derivative     Unpaid            Tax        
     rates for tax             Debt     foreign     financial     interest            losses        
     and accounting      Provisions      issuance     exchange     assets/     accrued,            carry        
     policies      and accruals      costs     differences     liabilities     net     Brands      forward     Total  

Deferred tax asset/ (liability) as at January 1, 2014

     13,178         56,755         (10,085     (2,841     231        1,202        21,698         233,170        313,308   

Credited/ (charged) to the income statement

     8,732         11,296         1,605        11,866        (85     (1,574     —           (39,221     (7,381

Charged to other comprehensive income

     —           —           —          —          (285     —          —           —          (285
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Deferred tax asset/ (liability) as at December 31, 2014

  21,910      68,051      (8,480   9,025      (139   (372   21,698      193,949      305,642   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 50 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

24. COMMITMENTS

The N-Vision Group has entered into a number of operating lease and other agreements. The commitments derived from these agreements are presented below.

 

(i) Commitments to acquire programming

The N-Vision Group has outstanding contractual payment commitments in relation to programming. These commitments are scheduled to be paid as follows:

 

     December 31, 2014  

Due in 2014

     —     

Due in 2015

     51,015   

Due in 2016

     88,551   

Due in 2017

     52,402   

Due in 2018

     14,078   

Due in 2019

     1,189   
  

 

 

 
  207,235   
  

 

 

 

 

(ii) Total future minimum payments relating to operating lease agreements

Total future minimum payments relating to operating lease agreements signed as at December 31, 2014 were scheduled to be paid as follows:

 

     Related      Non-related         
     parties      parties      Total  

Due in 2015

     814         12,273         13,087   

Due in 2016

     21         8,996         9,017   

Due in 2017

     —           3,900         3,900   

Due in 2018

     —           3,900         3,900   

Due in 2019

     —           2,600         2,600   
  

 

 

    

 

 

    

 

 

 
  835      31,669      32,504   
  

 

 

    

 

 

    

 

 

 

Contracts signed with related parties relate to lease of office space and television studios from ITI Group and Onet.

Commitments in foreign currencies were calculated using exchange rates as at December 31, 2014.

Contracts signed with non-related parties relate to the lease of office space and television studios.

 

These notes are an integral part of these consolidated financial statements.

F- 51 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

24. COMMITMENTS (CONTINUED)

 

In addition to the lease agreements disclosed above, the N-Vision Group has agreements with third parties for the use of satellite capacity. Under these agreements the N-Vision Group is obliged to pay annual fees as follows:

 

     December 31, 2014  

Due in 2014

     —     

Due in 2015

     38,678   

Due in 2016

     41,153   

Due in 2017

     40,735   

Due in 2018

     18,888   

Due in 2019

     6,381   

Due in 2020 and thereafter

     7,444   
  

 

 

 
  153,279   
  

 

 

 

Additionally, the N-Vision Group leases transmission sites and related services for an annual amount of 12,843.

 

25. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

 

                   Polski         
                   Operator         
     nC+      Onet      Telewizyjny      Total  

Balance as at January 1, 2014

     1,479,929         250,563         —           1,730,492   

Share of profits/ (losses)

     17,487         14,165         (1      31,651   

Share of other comprehensive income

     3,928         —           —           3,928   

Distribution received *

     —           (8,133      —           (8,133

Other

     4,504         —           15         4,519   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at December 31, 2014

  1,505,848      256,595      14      1,762,457   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* Redemption of Onet Holding’s shares

nC+

The N-Vision Group holds a 32% interest in ITI Neovision Group (“nC+”, ITI Neovision S.A. and its subsidiaries, previously Canal+ Cyfrowy S.A. and its subsidiaries, on June 2, 2014 Canal+ Cyfrowy S.A. merged with its subsidiary ITI Neovision S.A. with ITI Neovision S.A. as a surviving entity), Canal+ Group holds the 51% interest in nC+ and LGI Ventures B.V. (“UPC”) holds the remaining 17% interest in nC+. The N-Vision Group treats the investment in nC+ as a long-term investment. As the N-Vision Group has significant influence on, but not control over, nC+, the investment is classified as investment in associate and accounted for using the equity method.

 

These notes are an integral part of these consolidated financial statements.

F- 52 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

25. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

 

The N-Vision Group’s investment in nC+ is held subject to the terms of a shareholders’ agreement, which includes provisions regarding the composition of the management and supervisory boards and the appointment of their members, an exit strategy and a list of matters which require the consent of TVN. According to the shareholders’ agreement nC+ shall distribute 75% of its distributable consolidated profits to shareholders in proportion to their pro rata share.

Canal+ Group has a call option to acquire TVN’s 32% of nC+ at market value, which is exercisable during the three month periods beginning November 30, 2015 and November 30, 2016. Additionally, TVN and Canal+ Group each has the right following the call option periods to sell its interest in nC+ (with Canal+ Group having the right to require TVN to sell its shares in nC+ on the same terms) and if not exercised, TVN has the right to require nC+ to undertake an initial public offering.

The tables below provide summarised financial information of nC+. The information disclosed reflects the amounts presented in the accounts of nC+ and not the N-Vision Group’s share of those amounts. They have been amended to reflect adjustments made by the N-Vision Group when using the equity method, being mainly fair value adjustments.

Summarised Balance Sheet

 

     December 31, 2014  

Assets

  

Non-current assets

     1,494,483   

Current assets, including:

     774,968   

- cash and cash equivalents

     305,248   
     2,269,451   
  

 

 

 

Liabilities

Non-current liabilities, including:

  448   

- non-current financial liabilities

  447   

Current liabilities, including:

  909,755   

- current financial liabilities

  6,673   
  910,203   
  

 

 

 

Reconciliation of the Summarised Balance Sheet to the carrying amount of the investment

 

     December 31, 2014  

Net assets

     1,359,248   

TVN Group share

     32
     434,959   

Goodwill

     1,070,889   
  

 

 

 

Carrying amount of the investment

  1,505,848   

During the year ended December 31, 2014 the N-Vision Group adjusted the calculation of implied goodwill related to the investment in associate nC+ by recognising an additional provision of 20,972 and decreasing deferred tax asset by 663, therefore the N-Vision Group’s share in net assets of nC+ decreased by 6,923 and implied goodwill increased by 6,923. Adjustment did not impact consolidated balance sheet and consolidated income statement of the N-Vision Group.

 

These notes are an integral part of these consolidated financial statements.

F- 53 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

25. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

 

Summarised Statement of Comprehensive Income

 

     Year ended  
     December 31, 2014  

Revenue

     2,147,971   

Depreciation and amortization

     (206,964

Interest income

     8,889   

Interest expense

     (305

Income tax (charge)/ credit

     (17,778

Profit/ (loss) for the period

     54,647   

Other comprehensive income/ (loss)

     12,275   
  

 

 

 

Total comprehensive income/ (loss) for the period

  66,922   
  

 

 

 

Onet

The N-Vision Group, through TVN Online Investments Holding, holds a 25% interest in Onet Holding Group (Onet Holding Sp. z o.o. and its subsidiaries, “Onet”), RAS holds the remaining 75% interest in Onet. The N-Vision Group treats the investment in Onet as a long-term investment. As the N-Vision Group has significant influence on, but not control over, Onet, the investment is classified as investment in associate and accounted for using the equity method.

The shareholders’ agreement, which regulates the cooperation between TVN and RAS with respect to Onet Holding and, indirectly, Onet Group (Grupa Onet.pl S.A. and its subsidiaries), contains in particular a swap option for TVN to exchange a number of TVN’s (its subsidiaries’) shares in the Onet Holding for the shares in RAS (option valid if RAS conducts an initial public offering).

Furthermore, under the shareholders’ agreement the following options are granted:

 

  the first put option for TVN (or its subsidiary) to sell all its shares in Onet Holding to RAS at any time during (i) the 90-day period commencing on January 1, 2016 or (ii) the 20 business day period commencing after Onet Holding’s shareholders meeting has approved its financial statements for the most recently concluded financial year, whichever period ends later; and

 

  the call option for RAS to acquire the shares in Onet Holding’s share capital from TVN (or its subsidiary) at any time during (i) the 90-day period commencing on January 1, 2017 or (ii) the 20 business day period commencing after Onet Holding’s shareholders meeting has approved its financial statements for the most recently concluded financial year, whichever period ends later; and

 

  the second put option for TVN (or its subsidiary) to sell all its shares in Onet Holding to RAS at any time within 60 days following the expiry date of the call option period.

The shareholders’ agreement contains also the standard “joint-exit” clauses allowing TVN and RAS to sell jointly all their shares in Grupa Onet.pl held directly or indirectly (drag-along and tag-along rights). The shareholders’ agreement contains also a call option for RAS in the event that TVN no longer controls, directly or indirectly, its stake in Onet Holding.

According to the shareholders’ agreement Onet shall distribute at least 70% of its distributable consolidated profits to shareholders in proportion to their pro rata share.

 

These notes are an integral part of these consolidated financial statements.

F- 54 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

25. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

 

The tables below provide summarised financial information of Onet. The information disclosed reflects the amounts presented in the accounts of Onet and not the N-Vision Group’s share of those amounts. They have been amended to reflect adjustments made by the N-Vision Group when using the equity method, being mainly fair value adjustments.

Summarised Balance Sheet

 

     December 31, 2014  

Assets

  

Non-current assets

     426,188   

Current assets, including:

     83,128   

- cash and cash equivalents

     51,565   
     509,316   
  

 

 

 

Liabilities

Non-current liabilities

  38,504   

Current liabilities, including:

  77,544   

- current financial liabilities

  6,841   
  116,048   
  

 

 

 

Reconciliation of the Summarised Balance Sheet to the carrying amount of the investment

 

     December 31, 2014  

Net assets

     393,268   

TVN Group share

     25
     98,317   

Goodwill

     238,278   

Impairment recognized in prior year

     (80,000
  

 

 

 

Carrying amount of the investment

  256,595   

Summarised Statement of Comprehensive Income

 

     Year ended  
     December 31, 2014  

Revenue

     228,568   

Depreciation and amortization

     (46,931

Interest income

     1,426   

Interest expense

     (11

Income tax credit/ (charge)

     28,994   

Profit for the period

     56,660   
  

 

 

 

Total comprehensive income for the period

  56,660   
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 55 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

 

26. NON-CONTROLLING INTERESTS

N-Vision Group hold indirectly (through its 100% owned subsidiary – PTH) 51,13% interest in TVN Group (and its subsidiaries) (see Note 27); apart from TVN Group there are no other subsidiaries in N-Vision Group with material NCI. Set out below is the summarized financial information for the TVN Group – as none of the subsidiary in TVN Group is material and that has non-controlling interests (“NCI”) that is material to the N-Vision Group. The amounts disclosed below are before inter-company eliminations between TVN Group and the Company.

Summarised Balance Sheet of TVN Group

 

     December 31, 2014  

Assets

  

Non-current assets

     2,838,996   

Current assets

     981,879   
  

 

 

 
  3,820,875   
  

 

 

 

Liabilities

Non-current liabilities

  2,348,667   

Current liabilities

  530,198   
  

 

 

 
  2,878,865   
  

 

 

 

Net assets

  942,010   
  

 

 

 

Accumulated NCI on TVN Group

  458,867   
  

 

 

 

Summarised Statement of Comprehensive Income/ (loss) of TVN Group

 

     Year ended  
     December 31, 2014  

Revenue

     1,593,804   

Profit/ (loss) for the period

     163,309   

Other comprehensive income/ (loss)

     5,198   
  

 

 

 

Total comprehensive income/ (loss) for the period

  168,507   
  

 

 

 

Total comprehensive income/ (loss) allocated to NCI

  79,614   
  

 

 

 

Dividends paid to NCI

  —     
  

 

 

 

Summarised Cash Flows of TVN Group

 

     Year ended  
     December 31, 2014  

Net cash generated from operating activities

     610,461   

Net cash (used in)/ generated by investing activities

     (98,646

Net cash used in financing activities

     (638,748
  

 

 

 

(Decrease)/ increase in cash and cash equivalents

  (126,933
  

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 56 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

26. NON-CONTROLLING INTERESTS (CONTINUED)

 

Transactions with non-controlling interests during the year ended December 31, 2014 are presented below:

 

(i) Disposal of 0.92% of TVN shares

During the year ended December 31, 2014 certain key employees of TVN exercised their rights under the C1, C2, C3, E1, E2, E3 and E4 tranches of its share option plan, resulting in conversion of 6,254,158 (not in thousands) options into shares (see Note 29). This exercise effected a 0.92% dilution of the ownership of the N-Vision Group in TVN. The effect of the dilution on the shareholders’ equity is presented below.

 

Proceeds from sale:

- Cash consideration from sale

  69,038   

Share of net assets

  (43,029
  

 

 

 

Effect on transaction with NCI recognised in equity

  26,009   
  

 

 

 

 

(ii) Share buyback program

During the year ended December 31, 2014 the N-Vision Group also completed the first and the second tranche of the share buyback program under which the N-Vision Group acquired from non-controlling interest 2,445,500 (not in thousands) TVN shares and 3,668,250 (not in thousands) TVN shares, respectively. For the details of the program see Note 18.

 

These notes are an integral part of these consolidated financial statements.

F- 57 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

 

27. GROUP COMPANIES, JOINT VENTURES AND ASSOCIATES

These consolidated financial statements as at December 31, 2014 comprised the Company and the following subsidiaries (the N-Vision Group), joint ventures and associates:

 

               N-Vision’s direct ownership interest  
Direct interest   

Country of

incorporation

   Principal activity    Relationship   

December 31, 2014

%

 

Polish Television Holding B.V.

   The Netherlands    Holding company    Subsidiary      100

Indirect interest through PTH*

 

* As of December 31, 2014 TVN holds 12,500,000 its treasury shares, which are yet not redeemed and cancelled, but are excluded from calculations of PTH ownership interest in TVN.

 

               December 31,  
     Country of         2014 Ownership  
     incorporation    Principal activities    %  

Subsidiaries held through PTH (effective)

        

Television broadcasting and production segment

        

TVN S.A.

   Poland    Television broadcasting and production      51.13   

Subsidiaries of TVN (effective)

        

TVN Media Sp. z o.o.

   Poland    Brokerage services related to sale of television and online advertising, licensing of brands and activities of an advertising agency      51.13   

Stavka Sp. z o.o.

   Poland    Operation of TTV channel      51.13   

NTL Radomsko Sp. z o.o.

   Poland    Operation of NTL Radomsko channel      51.13   

Veedo Sp. z o.o.

   Poland    Operation of a video-sharing portal      51.13   

Tivien Sp. z o.o.

   Poland    Technical and broadcasting services      51.13   

El-Trade Sp. z o.o.

   Poland    Customs and transport services      51.13   

Thema Film Sp. z o.o.

   Poland    No operating activities      51.13   

Teleshopping segment

        

Mango Media Sp. z o.o.

   Poland    Teleshopping      51.13   

Other subsidiaries

        

TVN Finance Corporation II AB

   Sweden    No operating activities      51.13   

TVN Finance Corporation III AB

   Sweden    Financing activities      51.13   

TVN Holding S.A.

   Poland    No operating activities      51.13   

TVN Online Investments Holding B.V.

   The Netherlands    Holding company      51.13   

TVN DTH Holdings S.à r.l.

   Luxembourg    Holding company      51.13   

Joint ventures (nominal)

        

Polski Operator Telewizyjny Sp. z o.o.

   Poland    No operating activities      50   

Associates (nominal)

        

ITI Neovision Group (“nC+”) (1)

   Poland    Operation of nC+ DTH platform      32   

Onet Holding Group (“Onet”) (2)

   Poland    Operation of Onet.pl portal      25   

 

These notes are an integral part of these consolidated financial statements.

F- 58 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

27. GROUP COMPANIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)

 

(1) Up to June 2, 2014 Canal+ Cyfrowy Group (see Note 25), ITI Neovision Group includes ITI Neovision S.A. (up to July 12, 2013 ITI Neovision Sp. z o.o.), its subsidiaries (Cyfrowy Dom Sp. z o.o., Neovision UK Ltd) and a joint venture (MGM Chanel Poland Ltd)
(2) Onet Holding Group includes Onet Holding Sp. z o.o. (up to April 2, 2013 Vidalia Investments Sp. z o.o.), its subsidiaries (Grupa Onet.pl S.A., DreamLab Onet.pl Sp. z o.o., OnetM Sp. z o.o., OnetMarketing Sp. z o.o., GoBrands Sp. z o.o., Skąpiec.pl Sp. z o.o., Opineo Sp. z o.o.), a joint venture (Media Impact Polska Sp. z o.o.) and an associate (Polskie Badania Internetu Sp. z o.o.)

The share capital percentage owned by the N-Vision Group equals the percentage of voting rights in each of the above entities.

 

28. RELATED PARTY TRANSACTIONS

 

(i) Revenue:

 

     Year ended  
     December 31, 2014  

nC+

     36,473   

ITI Group

     2,240   

Onet

     809   

Wydawnictwo Pascal

     362   
  

 

 

 
  39,884   
  

 

 

 

Revenue from nC+ includes mainly subscription fees and revenue from technical services rendered, net of commissions.

 

(ii) Operating expenses:

 

     Year ended  
     December 31, 2014  

ITI Group

     29,427   

Onet

     7,118   

nC+

     1,439   

Wydawnictwo Pascal

     5   

Directors of ITI Group

     —     
  

 

 

 
  37,989   
  

 

 

 

Operating expenses from ITI Group comprise the provision of certain management, sales and financial advisory services, real estate maintenance services, rent of office premises and other services.

During the year ended December 31, 2014 total expenses from ITI Group amounted to 29,690 (see Note 19).

Directors of ITI Group provided consulting services to the N-Vision Group. No remuneration was paid by the Company to its Management Board members during the year ended December 31, 2014.

 

These notes are an integral part of these consolidated financial statements.

F- 59 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

28. RELATED PARTY TRANSACTIONS (CONTINUED)

 

(iii) Outstanding balances arising from sale/ purchase of goods and services:

 

     December 31, 2014  

Receivables:

  

nC+

     6,156   

Wydawnictwo Pascal

     880   

ITI Group

     249   

Onet

     45   
  

 

 

 
  7,330   
  

 

 

 
     December 31, 2014  

Payables:

  

ITI Group

     23,744   

nC+

     10,573   

Onet

     910   

Wydawnictwo Pascal

     16   
  

 

 

 
  35,243   
  

 

 

 

 

(iv) Lease commitments with related parties

See Note 24 for further details.

 

(v) Other

As of December 31, 2013 the N-Vision Group issued guarantees in the total amount of 215,207 on the N-Vision Group’s behalf relating to the liabilities of nC+, all these guarantees have been cancelled by December 31, 2014. During the year ended December 31, 2014 the N-Vision Group recorded finance income related to these guarantees of 258.

As of December 31, 2014 ITI Holdings has provided guarantees in the total amount of USD 3,559 in respect of programming rights purchased and broadcast by the N-Vision Group. During the year ended December 31, 2014 the N-Vision Group recorded finance costs related to ITI Holdings guarantees of 263.

In October 2014 the N-Vision Group acquired from Telewizja Religia Sp. z o.o. rights to programming content for a consideration of 3,000 and Religia.tv brand for a consideration of 2,250 (see Note 10). Telewizja Religia Sp. z o.o. is a subsidiary of the ITI Group.

 

These notes are an integral part of these consolidated financial statements.

F- 60 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

28. RELATED PARTY TRANSACTIONS (CONTINUED)

 

(vi) TVN Management Board compensation

TVN Management Board cash compensation for the year ended December 31, 2014 amounted to 19,418 (the year ended December 31, 2013: 15,380).

 

     Year ended      Year ended  
     December 31, 2014      December 31, 2013  

Markus Tellenbach

     8,058         6,365   

John Driscoll

     3,251         3,212   

Piotr Korycki

     1,601         1,099   

Maciej Maciejowski

     1,127         842   

Edward Miszczak

     2,239         1,599   

Adam Pieczyński

     1,703         1,229   

Piotr Tyborowicz

     1,439         1,034   
  

 

 

    

 

 

 
  19,418      15,380   
  

 

 

    

 

 

 

Please refer to Note 29 for details of the Long Term Incentive Plan for the TVN Management Board members.

 

(vii) TVN Supervisory Board compensation

TVN Supervisory Board cash compensation for the year ended December 31, 2014 amounted to 1,428 (the year ended December 31, 2013: 1,394).

 

     Year ended      Year ended  
     December 31, 2014      December 31, 2013  

Wojciech Kostrzewa

     144         153   

Bertrand Meheut

     96         98   

Arnold Bahlmann

     120         121   

Rodolphe Belmer

     120         118   

Michał Broniatowski

     120         112   

Paweł Gricuk

     156         154   

Sophie Guieysse

     156         148   

Wiesław Rozłucki

     144         142   

Bruno Valsangiacomo

     84         84   

Piotr Walter

     144         132   

Aldona Wejchert

     144         132   
  

 

 

    

 

 

 
  1,428      1,394   
  

 

 

    

 

 

 

 

29. LONG TERM INCENTIVE PLAN

On November 7, 2013 the Supervisory Board of TVN approved a five year management incentive and retention plan effective January 1, 2014 (“Long Term Incentive Plan”, “LTIP”, the “Plan”). The Plan has been designed to incentivize TVN management to create short and mid-term value in excess of the shareholders’ expectations and to enhance the value from any change of control transaction which may occur, and to retain the present management board over the term of the Plan. The Plan is divided into three components:

 

  Retention component,

 

  Performance component and

 

  Transaction component.

 

These notes are an integral part of these consolidated financial statements.

F- 61 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

29. LONG TERM INCENTIVE PLAN (CONTINUED)

 

The TVN management is entitled to a minimum cash payment of 21,000 (18,900 of which has been allotted) up to a theoretical maximum of 63,000 (56,700 of which has been allotted) in total under the first two components of the Plan. The actual amount paid will depend on continuous employment in the period 2014 – 2018, and exceeding certain short and mid-term performance targets as defined by the Supervisory Board of TVN. Any payments under the plan have been limited to the earlier of: i) statutory retirement or death or disability, ii) change of control date, or iii) the end of the Plan term. At the end of each reporting period the liability related to the Plan is estimated based on current expectations towards meeting the performance criteria, with an assumption that the plan is finalised in 2018, and the respective portion attributable to a particular period is expensed. Staff expenses for the year ended December 31, 2014 include an expense related to the first two components of the Plan in the total amount of 8,915 (see Note 6 and 21).

Under the transaction component of the Plan, the TVN management is entitled to an excess transaction value payment in the event of a change of control over TVN within 2014 - 2018. The payment (which is capped at 42,000 for 100% of the component and at 38,700 allotted) will amount to 5% of any excess of the transaction price from the sale of the TVN over the “anticipated TVN value”, which had been established at the inception of the Plan by reference to the fair value of the whole TVN, adjusted upwards in each of the years of the Plan. This component of the Plan is classified as a cash-settled share based payment. The liability related to the transaction component is measured at each balance sheet date at fair value. The change in fair value of this liability is recognised in the consolidated income statement for the period.

As outlined in Note 32, in March 2015 ITI Group and Canal+ Group jointly entered into agreement to sell their investment in TVN. The transaction is subject to customary conditions precedent including regulatory approvals. Once the transaction is finalized the payments due under the Plan will be accelerated, specifically, in the case of a change of control, the performance and transaction components would be measured until the end of the quarter in which a transaction would close, and would be paid within 40 days thereafter. In the case of the retention component, the retention period would be shortened to 18 months after the transaction closing date, with retention payments for the entire retention value occurring within 40 days thereafter.

As a result of the anticipated acceleration of the payments due under the Plan the N-Vision Group recognized an additional incremental charge of 7,653 related to the retention and performance components.

Additionally, taking into account the details of transaction included in the above mentioned agreement, the N-Vision Group as at December 31, 2014 fair valued the liability related to the transaction component at 24,496 The N-Vision Group estimates that entire allotted value of the transaction component of 38,700 will be paid out, the charge recognized for the year ended December 31, 2014 takes into account the potential timing of the transaction and the relevant discount factor. The entire allotted value of the transaction component will be recognised in the consolidated income statement in the period up to the transaction closing date.

The total incremental Long Term Incentive Plan charge related to the transaction recognized during the year ended December 31, 2014 amounts to 32,149 (see Note 6) and is presented in a separate line Incremental costs related to the potential change of control transaction in the consolidated income statement.

 

These notes are an integral part of these consolidated financial statements.

F- 62 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

 

30. SHARE-BASED PAYMENTS

Share options were granted by TVN to certain Management Board members, employees and co-workers who were of key importance to the N-Vision Group. Share options were granted under two share option plans:

 

(i) TVN Incentive Scheme I introduced on December 27, 2005,

 

(ii) TVN Incentive Scheme II introduced on July 31, 2006 as part of the acquisition of Grupa Onet.pl.

All options vested in prior years. The N-Vision Group had no legal or constructive obligation to repurchase or settle the options in cash.

The stock option plan was service related.

The TVN Incentive Schemes expired on December 31, 2014.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows (not in thousands):

 

     Year ended  
     December 31, 2014  
     Weighted         
     average         
     exercise price      Outstanding options  

As at January 1

     PLN 11.00         6,508,873   

Exercised

     PLN 11.04         (6,254,158

Expired

     PLN 9.93         (254,715
     

 

 

 

As at December 31

  —        —     
     

 

 

 

 

31. FINANCIAL RISK MANAGEMENT

 

31.1. Capital risk management

The N-Vision Group’s objectives when managing capital risk are to safeguard the N-Vision Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the N-Vision Group may adjust the amount of dividends paid to shareholders, issue new shares, draw borrowings or sell assets to reduce debt.

The N-Vision Group monitors capital on the basis of the net debt to Adjusted EBITDA ratio of TVN Group. Under the rules of the Senior PIK Toggle Notes due 2021 (see Note 19) no additional indebtedness is allowed at the Company level. Since the Company does not conduct any operating activity, the ongoing monitoring of the net debt to Adjusted EBITDA ratio is conducted at the TVN Group level.

Net debt represents the nominal value of borrowings of the TVN Group (see Note 19) payable at the reporting date including accrued interest less cash and cash equivalents and bank deposits with maturity over three months. Adjusted EBITDA is calculated for the last twelve months. The TVN Group defines EBITDA as profit/ (loss) for the period, as determined in accordance with IFRS, before depreciation and amortization (other than for programming rights), impairment charges and reversals on property, plant and equipment and intangible assets, interest income, finance expense, foreign exchange gains and losses and income taxes. The reconciling item between EBITDA and reported operating profit is depreciation and amortization expense and impairment charges and reversals on property, plant and equipment and intangible assets. EBITDA is not an IFRS measure and should not

 

These notes are an integral part of these consolidated financial statements.

F- 63 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

be considered as an alternative to IFRS measures of profit/ (loss) for the period, as an indicator of operating performance, as a measure of cash flow from operations under IFRS, or as an indicator of liquidity. EBITDA is not a uniform or standardized measure and the calculation of EBITDA, accordingly, may vary significantly from company to company, and by itself the TVN Group’s presentation and calculation of EBITDA may not be comparable to that of other companies.

The TVN Group defines Adjusted EBITDA as EBITDA excluding impairment, share of profits/ (losses) of associates and joint ventures and one-off transactions but including dividends and other distributions received from associates and joint ventures.

 

     Year ended  
TVN Group    December 31, 2014  

Net debt

     2,078,523   

EBITDA

     516,695   

Share of profits of associates and joint ventures

     (31,651

Dividends and other distributions received from associates

     8,133   

Incremental costs related to the potential change of control transaction

     37,263   
  

 

 

 

Adjusted EBITDA

  530,440   

Net debt to Adjusted EBITDA ratio

  3.9   

This reported net debt to Adjusted EBITDA ratio is a key financial management ratio, irrespective of whether existing or future contractual leverage ratios vary. This ratio is used as a benchmark for external comparative purposes, and is an important criteria, factored in by management, when taking almost any decision related to both present and future investing and financing decisions, in particular when assessing the N-Vision Group’s ability to acquire, dispose or exchange assets, and when raising, repaying or refinancing external debt.

Subject to changes in EUR/ PLN foreign exchange rate and the impact of any possible strategic investment or financing opportunities, the N-Vision Group’s goal is to lower both its gross and net debt to Adjusted EBITDA ratios.

 

31.2. Financial risk factors

Within the N-Vision Group’s organizational and functional structure, the Company plays the role of an investment holding company and the N-Vision Group’s operating activity is conducted through the TVN Group. As a result, financial risks existing at the level of the Company and its subsidiary PTH are handled by the Management Board of the Company, while the risks existing at the level of the TVN Group are handled by relevant management bodies of the TVN Group.

The N-Vision Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The N-Vision Group’s overall risk management process focuses on the unpredictability of financial markets and aims to minimize potential adverse effects on the N-Vision Group’s financial performance. The N-Vision Group uses derivative financial instruments to hedge certain risk exposures when hedging instruments are assessed to be effective from cost and cash flow perspective.

 

These notes are an integral part of these consolidated financial statements.

F- 64 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

Financial risk management is carried out by the N-Vision Group under policies approved by the Management Board and Supervisory Board. The N-Vision Group Treasury Policy lays down the guidelines to manage financial risk and liquidity, through determination of the financial risk factors to which the N-Vision Group is exposed and their sources. Details of the duties, activities and methodologies used to identify, measure, monitor and report risks as well as forecast cash flows, finance maturity gaps and invest free cash resources are contained in approved supplementary written instructions.

The following organizational units within the N-Vision Group’s financial department participate in the risk management process: risk committee, liquidity management team, risk management team, financial planning and analyzing team and accounting and reporting team. The risk committee is composed of the Vice-President of the Management Board responsible, inter alia, for the N-Vision Group’s financial reporting and heads of the teams within the N-Vision Group’s operational control and financial department. The risk committee meets monthly and based on an analysis of financial risks recommends financial risk management strategy, which is approved by the Management Board. The Supervisory Board approves risk exposure limits and is consulted prior to the execution of significant hedging transactions. The financial planning and analyzing team measures and identifies financial risk exposure based on information reported by operating units generating exposure. The liquidity management team performs analysis of the N-Vision Group’s risk factors, forecasts the N-Vision Group’s cash flows and market and macroeconomic conditions and proposes cost-effective hedging strategies. The accounting and reporting team monitors the accounting implications of hedging strategies and verifies settlement of the transactions.

 

(i) Market risk

Market risk related to the Notes

The Notes are listed on the Luxembourg Stock Exchange. The price of the Notes depends on the N-Vision Group’s creditworthiness and on the relative performance of the bond market as a whole. The N-Vision Group does not account for early repayment options embedded in the Notes because they are either closely related to the economic characteristics of the host contract or their fair value was assessed at a level close to nil. The Notes are carried at amortized cost. The N-Vision Group is therefore not exposed to changes in the market price of the Notes.

Foreign currency risk

The foreign currency risk arises only from transactions and balances listed below denominated in EUR and USD carried at the TVN Group level which has the functional currency PLN.

The N-Vision Group’s revenue is primarily denominated in Polish zloty (“PLN”) which is the functional currency of all operational subsidiaries (TVN and TVN’s subsidiaries). Foreign exchange risk of the N-Vision Group arises mainly from the assets and liabilities of TVN Group denominated in the currency other than PLN which is the functional currency of TVN Group i.e. TVN Group’s liabilities in respect of the 7.375% Senior Notes due 2020, the 7.875% Senior Notes due 2018, the Cash Loan and cash and cash equivalents of TVN Group all denominated in EUR and liabilities to suppliers of foreign programming rights, satellite costs and rental costs denominated in USD or EUR.

 

These notes are an integral part of these consolidated financial statements.

F- 65 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

Other assets, liabilities and costs of TVN Group are predominantly denominated in PLN therefore not exposed to the foreign currency risk.

All assets and liabilities of the Company and its subsidiary PTH are denominated in EUR which is the functional currency of these entities therefore do not expose the Group to the foreign currency risk.

The N-Vision Group’s policy in respect of management of foreign currency risks is to cover known risks in an efficient manner, both from a cost and cash flow perspective, and that no trading in financial instruments is undertaken. Following evaluation of its exposures the N-Vision Group enters into derivative financial instruments to manage these exposures. Call options, swaps and forward exchange agreements may be entered into to manage currency exposures. Regular and frequent reporting to management is required for all transactions and exposures.

The estimated profit/ loss for the period (post-tax) impact on balances as of December 31, 2014 of a reasonably possible EUR appreciation of 5% against PLN, with all other variables held constant and without taking into account any derivative financial instruments entered into to mitigate EUR fluctuations, on the major EUR denominated items in the balance sheet amounts to a loss of 97,582 and is presented below:

 

     Year ended  
     December 31, 2014  

Assumed EUR appreciation against PLN:

     5

Liabilities:

  

7.375% Senior Notes due 2020 and 7.875% Senior Notes due 2018 including accrued interest

     (93,686

The Cash Loan

     (3,252

Trade payables

     (308

Other

     (1,317

Assets:

  

Cash and cash equivalents

     900   

Trade receivables

     81   
  

 

 

 
  (97,582
  

 

 

 

The estimated profit/ loss for the period (post-tax) impact on balances as of December 31, 2014 of a reasonably possible USD appreciation of 5% against PLN, with all other variables held constant and without taking into account any derivative financial instruments entered into to mitigate USD fluctuations, on the major USD denominated items in the balance sheet amounts to a loss of 2,681.

The profit/ loss for the period impact of possible foreign currency fluctuations is partially limited by derivative instruments entered into by the N-Vision Group (see Note 13).

Cash flow and fair value interest rate risk

The N-Vision Group’s exposure to interest rate risk arises on interest bearing assets and liabilities. The main interest bearing items are the Notes and the Cash Loan (see Note 19).

As the Notes are at a fixed interest rate, the N-Vision Group is exposed to fair value interest rate risk in this respect if interest rates decline. Since the Notes are carried at amortized cost, the changes in fair values of these instruments do not have a direct impact on valuation of the Notes in the balance sheet.

 

These notes are an integral part of these consolidated financial statements.

F- 66 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

The Cash Loan bears interest at a variable rate linked to EURIBOR and therefore exposes the N-Vision Group to interest rate risk if interest rates increase. As at December 31, 2014, if EURIBOR interest rates had been 50 b.p. higher/ lower with all other variables held constant, the post-tax profit for the period would have been 50 lower/higher.

The N-Vision Group did not consider it cost effective to hedge or otherwise seek to reduce interest rate risk as of December 31, 2014.

 

(ii) Credit risk

Financial assets, which potentially expose the N-Vision Group to concentration of credit risk, consist principally of trade receivables and related party receivables. The N-Vision Group places its cash and cash equivalents, restricted cash and bank deposits with maturity over three months with financial institutions that the N-Vision Group believes are credit worthy based on current credit ratings (see Note 16). The N-Vision Group does not consider its current concentration of credit risk as significant.

The N-Vision Group defines credit exposure as total outstanding receivables (including overdue balances) and monitors the exposure regularly on an individual basis by paying counterparty.

The N-Vision Group performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. Customers with poor or no history of payments with the N-Vision Group, with low value committed spending or assessed by the N-Vision Group as not credit worthy are required to pay before the service is rendered. Credit is granted to customers with a good history of payments and significant spending who are assessed credit worthy based on internal or external ratings. The N-Vision Group performs ongoing evaluations of the market segments focusing on their liquidity and creditworthiness and the N-Vision Group’s credit policy is appropriately adjusted to reflect current and expected economic conditions.

The majority of the N-Vision Group’s sales are made through advertising agencies (84% of the total trade receivables as of December 31, 2014) who manage advertising campaigns for advertisers and pay the N-Vision Group once payment has been received from the customer.

The N-Vision Group’s top ten advertisers accounted for 15% and the single largest advertiser accounted for 2% of sales for the year ended December 31, 2014. Generally advertising agencies in Poland are limited liability companies with little recoverable net assets in case of insolvency.

The major players amongst the advertising agencies in Poland with whom the N-Vision Group co-operates are subsidiaries and branches of large international companies of good reputation. To the extent that it is cost-efficient the N-Vision Group mitigates credit exposure by use of a trade receivable insurance facility from a leading insurance company.

The table below analyses the N-Vision Group’s trade receivables by category of customers:

 

Trade receivables (net)    December 31, 2014  

Receivables from advertising agencies

     84

Receivables from individual customers

     14

Receivables from related parties

     2
  

 

 

 
  100
  

 

 

 

 

 

These notes are an integral part of these consolidated financial statements.

F- 67 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

Credit concentration of the five largest counterparties measured as a percentage of the N-Vision Group’s total trade receivables:

 

Trade receivables (net)    December 31, 2014  

Agency A

     14

Agency B

     10

Agency C

     8

Agency D

     6

Agency E

     5
  

 

 

 

Sub-total

  43 % 

Total other counterparties

  57
  

 

 

 
  100 % 
  

 

 

 

Certain advertising agencies operating in Poland as separate entities are part of international financial groups controlled by the same ultimate shareholders. Credit concentration of the N-Vision Group aggregated by international agency groups, measured as a percentage of the N-Vision Group’s total trade receivables is presented below:

 

Trade receivables (net)    December 31, 2014  

Agency Group F

     30

Agency Group G

     14

Agency Group H

     14

Agency Group I

     12

Agency Group J

     6
  

 

 

 

Sub-total

  76 % 

Total other counterparties

  24
  

 

 

 
  100
  

 

 

 

Management does not expect any significant losses with respect to amounts included in the trade receivables from non-performance by the N-Vision Group’s customers as at December 31, 2014.

 

(iii) Liquidity risk

The N-Vision Group maintains sufficient cash to meet its obligations as they become due. Management monitors regularly expected cash flows. The N-Vision Group expects that its principal future cash needs will be capital and financing expenditures relating to dividends and share buyback, capital investment in television and broadcasting facilities and equipment, debt service on the Notes and the Cash Loan and the launch of new thematic channels and internet services. The N-Vision Group believes that its cash balances and cash generated from operations will be sufficient to fund these needs.

However, if the operating cash flows of the N-Vision Group are negatively affected by a prolonged economic slow-down or clients’ financial difficulties the N-Vision Group will review its cash needs to ensure that its existing obligations can be met for the foreseeable future. As at December 31, 2014 the N-Vision Group had cash and cash equivalents and bank deposits with maturity over three months totalling 315,763 at its disposal. As at December 31, 2014 the N-Vision Group had also restricted cash in the amount of 91,371.

 

These notes are an integral part of these consolidated financial statements.

F- 68 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

On a standalone basis PTH is reliant on TVN distribution to its shareholders to finance the coupon payments of the Senior PIK Toggle Notes due 2021. The ability of TVN to distribute funds to its shareholders is dependent on TVN Group’s ability to generate sufficient operating cash flows, which may be negatively affected by the circumstances described above as well as by the adverse movements in foreign exchange rates or by the change in TVN’s dividend policy or ability to distribute dividends or make other distributions under the indentures relating to their 7.375% Senior Notes due 2020 and 7.875% Senior Notes due 2018. PTH may not have sufficient cash to pay the entire interest due on the Senior PIK Toggle Notes due 2021 in cash and may have to elect to increase the principal amount of the Senior PIK Toggle Notes due 2021 (see note 19), this option will significantly improve the PTH’s liquidity position.

The table below analyses the N-Vision Group’s non-derivative* financial liabilities that will be settled into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The balances in the table are the contractual undiscounted cash flows including interest and excluding the impact of early repayment options. Balances due within 12 months equal their carrying balances.

 

     Within      Between      Above  
     1 year      1-2 years      2 years  

At December 31, 2014

        

The Notes

     312,850         312,850         4,829,338   

The Cash Loan

     23,459         22,827         37,887   

Trade payables

     161,895         11,435         —     

Other liabilities and accruals

     227,137         3,243         17,419   
  

 

 

    

 

 

    

 

 

 
  725,341      350,355      4,884,644   
  

 

 

    

 

 

    

 

 

 

 

* The N-Vision Group’s derivative financial instruments are in hedge relationships and are due to settle within one year of the balance sheet date. These contracts require undiscounted contractual cash outflows of 113,432 and undiscounted contractual cash inflows of 114,165.

 

31.3. Fair value estimation

The fair value of foreign exchange forward contracts is determined based on valuations performed by the banks that hold the instruments.

The carrying value less impairment provision of trade receivables and trade payables is assumed to approximate their fair value due to the short-term nature of trade receivables and trade payables.

The fair value of the borrowings is disclosed in the Note 19.

 

These notes are an integral part of these consolidated financial statements.

F- 69 -


N-Vision Group

Notes to the Consolidated Financial Statements

(Expressed in PLN, all amounts in thousands, except as otherwise stated)

 

 

31. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

31.4. Consideration of the current economic environment

Macroeconomic risks in both western and eastern Europe remain elevated due to the on-going issues in respect of the common currency and sovereign debt, as well as the recent geopolitical risk in neighbouring countries. Management is unable to reliably estimate the effects on the N-Vision Group’s financial position of the above issues and believes it is taking all the necessary measures to support the sustainability and growth of the N-Vision Group’s businesses under the current circumstances.

 

32. EVENTS AFTER THE REPORTING PERIOD

On March 14, 2015 the ITI Group and Canal+ Group acting as Sellers entered into a share purchase agreement (“SPA”) with Southbank Media Ltd., London, a member of the Scripps Networks Interactive Inc. Group, a U.S. domiciled corporation.

Under the terms of the SPA, N-Vision B.V., Amsterdam, which at completion will directly and indirectly hold a 52.7% controlling stake in TVN, will be acquired by Southbank Media Ltd, London, for cash consideration of EUR 584 million. Southbank Media Ltd., London, will assume the EUR 300 million 11%/12% Senior PIK Toggle Notes issued by Polish Television Holdings B.V. The transaction remains subject to regulatory approval.

 

These notes are an integral part of these consolidated financial statements.

F- 70 -



Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet of the Company as of March 31, 2015 gives effect to (i) the Company Financing, (ii) the N-Vision Acquisition, (iii) the N-Vision Debt Refinancing and (iv) the TVN Tender Offer, each as more fully described below, as if they each occurred as of March 31, 2015. The following unaudited pro forma condensed combined statements of operations of the Company for the three-month period ended March 31, 2015 and the year ended December 31, 2014 similarly give effect to the Company Financing, the N-Vision Acquisition, the N-Vision Debt Refinancing and the TVN Tender Offer, as if they each occurred at the beginning of the period on January 1, 2014. The Company Financing, the N-Vision Acquisition, the N-Vision Debt Refinancing and the TVN Tender Offer are collectively referred to as the “Transactions.”

The unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the Company’s historical audited and interim unaudited consolidated financial statements, including the notes thereto, and N-Vision’s historical audited consolidated financial statements, including the notes thereto. The financial statements of the Company are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. The annual financial statements of N-Vision, which were prepared under International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) are included in the Company’s Current Report on Form 8-K dated May 18, 2015. The historical interim financial information of N-Vision was derived from N-Vision’s unaudited interim consolidated financial statements which are not included or incorporated by reference herein.

The unaudited pro forma condensed combined financial information includes unaudited pro forma adjustments that are factually supportable and directly attributed to the Transactions. In addition, with respect to the unaudited pro forma condensed combined statements of operations, the unaudited pro forma adjustments are expected to have a continuing impact on the consolidated results. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.

The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company’s management believe are reasonable. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the Company’s financial position or results of operations that would have occurred had the events been consummated as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information is not necessarily indicative of the Company’s future financial condition or operating results.

The Company Financing

In order to fund the cost of the N-Vision Acquisition, the N-Vision Debt Refinancing and the TVN Tender Offer, as well as to increase the Company’s financial capacity for general corporate and working capital purposes, the Company expects to enter into a series of financing transactions.

The Company expects to issue approximately $1.5 billion of long-term debt, with an assumed weighted-average interest rate of approximately 3.22% and an assumed weighted-average maturity of 7 years (the “Public Debt Financing”). Aggregate net proceeds expected to be raised under the Public Debt Financing are approximately $1.481 billion.

In addition, in May 2015, the Company amended its existing Revolving Credit Facility (the “Old Revolving Credit Facility”) with a group of banks to provide, among other things, for increased borrowing availability and an extended term (the “Amended Revolving Credit Facility” and collectively, the “Bank Financing”). The Amended Revolving Credit Facility now permits borrowings of up to $900 million from the


former $650 million limit, with the option to increase the borrowing availability by an additional $250 million. The maturity date for a portion of the commitments under the Amended Revolving Credit Facility has been extended by one year to March 2020. Borrowings under the Amended Revolving Credit Facility bear interest based on the Company’s credit ratings, with drawn amounts bearing interest at Libor plus 125 basis points and undrawn amounts bearing interest at 15 basis points. The Amended Revolving Credit Facility continues to contain certain affirmative and negative covenants, including a restriction on the incurrence of additional indebtedness and maintenance of a maximum leverage ratio. There are no mandatory reductions in borrowing availability throughout the term.

The Public Debt Financing, together with the Bank Financing, are referred to herein as the “Company Financing.”

The N-Vision Acquisition

The N-Vision Acquisition reflects the Company’s planned purchase of all the outstanding shares of N-Vision (the “N-Vision Acquisition”) for a purchase price of approximately €584 million in cash, which equates to approximately $634 million using foreign currency exchange rates in effect as of March 31, 2015. The purchase price to be paid in connection with the N-Vision Acquisition is expected to be funded with available cash and cash equivalents raised in the Company Financing. The Company also will assume up to €865 million principal amount of debt as part of the N-Vision Acquisition, which equates to approximately $940 million of debt using foreign currency exchange rates in effect as of March 31, 2015.

The N-Vision Debt Refinancing

The N-Vision Debt Refinancing reflects the Company’s planned redemption of over half of the outstanding indebtedness of N-Vision and its subsidiaries to be assumed in the N-Vision Acquisition (the “N-Vision Debt Refinancing”). In particular, the Company intends to redeem approximately $491 million principal amount of debt, based on foreign currency exchange rates in effect as of March 31, 2015, consisting of: (i) €110 million principal amount of Senior Notes due 2018, (ii) €43 million principal amount of Senior Notes due 2020, and (iii) €300 million principal amount of Senior PIK Toggle Notes due 2021 (collectively, the “N-Vision Assumed Debt Securities”). The aggregate redemption cost of the N-Vision Assumed Debt Securities is expected to be approximately $567 million excluding accrued interest, based on foreign currency exchange rates in effect as of March 31, 2015. The aggregate redemption cost of the N-Vision Assumed Debt Securities is expected to be funded with available cash and cash equivalents to be raised in the Company Financing, and the Company intends to fund the aggregate redemption cost by N-Vision with related intercompany loans. After the N-Vision Debt Refinancing, approximately €412 million principal amount of indebtedness will be outstanding, consisting of €387 million principal amount of Senior Notes due 2020 and a €25 million revolving credit facility.

The TVN Tender Offer

TVN is owned 52.7% by N-Vision and 47.3% through a public common-stock equity interest listed on the Warsaw Stock Exchange. Pursuant to Polish takeover law, the Company is required to commence a tender offer to the public shareholders to acquire additional TVN common shares owned by the public within three months from the closing date of the N-Vision Acquisition (the “TVN Tender Offer”), increasing the Company’s ownership in TVN to a minimum of up to 66%. The Company also has the option of increasing the TVN Tender Offer to acquire 100% of the remaining public ownership in TVN.

The Company’s Board of Directors has authorized management, in its discretion, to offer to purchase up to 100% of the outstanding public shares of TVN. At this time, management has not made a determination whether to pursue any additional shares of TVN above the 66% required under Polish takeover law. Such a decision will be made at a later date based on a variety of factors, including market conditions and strategic considerations.

 

2


Given the uncertainty as to whether the Company will actually elect to purchase the full 100% of the remaining public ownership in TVN, the accompanying unaudited pro forma condensed combined financial information reflects the minimum required offer to acquire up to a minimum of 66%. The expected purchase price for the minimum-required TVN Tender Offer is approximately $240 million, based on an estimated 45.3 million shares to be acquired at an assumed purchase price of 20.00 Zloty (“PLN”) per share, translated using foreign currency exchange rates in effect as of March 31, 2015. TVN’s shares closed at 17.50 PLN on the Warsaw Stock Exchange on May 15, 2015. The Company intends to fund the TVN Tender Offer with available cash and cash equivalents raised in the Company Financing.

However, if the Company elects to acquire 100% of the remaining public ownership in TVN, it is expected that the purchase price would increase by approximately $612 million to an aggregate $852 million, based on an estimated 160.9 million shares to be acquired at an assumed purchase price of 20.00 PLN per share, translated using foreign currency exchange rates in effect as of March 31, 2015. The Company would intend to fund the incremental purchase price with new borrowings under its Amended Revolving Credit Facility (or other sources of financing) of approximately $612 million. This would increase long-term debt and reduce the non-controlling interest classified within equity by an equal amount of $612 million in the accompanying unaudited pro forma condensed combined balance sheet as of March 31, 2015. In addition, for the three months ended March 31, 2015 and the year ended December 31, 2014, this would have the effect of (i) increasing interest expense on a pro forma basis by $2.7 million and $10.1 million, respectively; (ii) decreasing net income on a pro forma basis by $1.7 million and $6.6 million, respectively; (iii) decreasing net income attributable to the non-controlling interest on a pro forma basis by $9.7 million and $16.9 million, due to no portion of the public ownership remaining outstanding; and (iv) increasing net income attributable to the Company on a pro forma basis by $8.0 million and $10.3 million, respectively.

Purchase Price Allocation

The N-Vision Acquisition and the TVN Tender Offer will be accounted for as business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained. Accordingly, the cost to acquire such interests will be allocated to the underlying net assets in proportion to their respective fair values, including to the non-controlling interest in the equity of TVN held by the public and to be acquired, in whole or in part, in the TVN Tender Offer. Any excess of the purchase price over the estimated fair value of the net assets acquired will be recorded as goodwill. As more fully described in the notes to the unaudited pro forma condensed combined financial statements, a preliminary allocation of the excess of cost over the fair value of net tangible assets acquired has been made to identifiable intangible assets in the amounts of approximately $70 million to finite-lived customer relationships; $300 million to indefinite-lived brands and trademarks; $55 million to finite-lived brands and trademarks; $150 million to finite-lived acquired network distribution rights; $250 million to finite-lived broadcast licenses; and $1.152 billion to goodwill. In addition, approximately $852 million was allocated to the non-controlling interest in the equity of TVN held by the public. The allocation of purchase price is preliminary at this time, and will remain as such until the Company finalizes the valuation of the net assets acquired, which is not expected to be substantially completed until the Fall of 2015. The final allocation of the purchase price is dependent on a number of factors, including the final valuation of the fair value of all tangible and intangible assets acquired and liabilities assumed as of the closing dates of the N-Vision Acquisition and the TVN Tender Offer when additional information will be available. Such final adjustments, including changes to amortizable tangible and intangible assets, may be material.

Acquisition-related transaction costs are expensed as incurred and generally include costs for legal, tax, accounting, banking, consulting and other services that are direct, incremental costs of the acquisition. The Company estimates acquisition-related transaction costs to be approximately $35 million for the N-Vision Acquisition and the TVN Tender Offer. Approximately $12 million of those transaction costs were included cumulatively in the Company’s and N-Vision’s historical financial statements for the three-month period ended March 31, 2015 and the year ended December 31, 2014. The remaining $23 million of those estimated costs will

 

3


be recorded in subsequent periods when the closing of the N-Vision acquisition and the TVN Tender Offer occur. As acquisition-related transaction costs are not expected to have a continuing impact on the combined entity, such costs have been eliminated from the unaudited pro forma condensed combined statements of operations for all periods. However, pro forma effect has been given to the incurrence of all acquisition-related transaction costs in the unaudited pro forma condensed combined balance sheet as of March 31, 2015.

The consummation of the N-Vision Acquisition and TVN Tender Offer remains subject to the satisfaction of customary closing conditions, including the absence of any material adverse change in the TVN business and the receipt of regulatory approvals.

Sources and Uses of Proceeds

The following table presents a summary of the expected sources and uses of proceeds from the Company Financing (in millions):

 

Sources:

Gross borrowings

$ 1,500   

Issuance discounts and costs

  (19
  

 

 

 

Net proceeds available

$ 1,481   
  

 

 

 

Uses:

N-Vision Acquisition

$ (634

N-Vision Debt Refinancing, including $12 million of accrued interest

  (579

N-Vision Tender Offer

  (240

Estimated transaction-related costs

  (23
  

 

 

 

Net uses of proceeds

$ (1,476
  

 

 

 

Net cash available for general corporate and working capital purposes

$ 5   
  

 

 

 

Interest Rate Sensitivity

As of March 31, 2015, on a pro forma basis after giving effect to the Company Financing, the N-Vision Acquisition, the N-Vision Debt Refinancing and the TVN Tender Offer, the Company would have had approximately $369 million in principal of variable-rate indebtedness and $1.5 billion in principal of fixed-rate indebtedness relating to the Company Financing. As such, the Company’s financing costs are sensitive to changes in interest rates. For each 0.125% increase or decrease in actual or assumed interest rates, the Company’s annual interest expense would increase or decrease by approximately $2.3 million, and net income would decrease or increase, respectively, by approximately $1.5 million.

 

4


Scripps Networks Interactive, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2015

 

         

Pro Forma
Adjustments

          Pro Forma Adjustments        
   

Company
Historical(1)

   

Company
Financing(2)

   

Company
Subtotal

   

N-Vision
Historical(3)

   

N-Vision
Acquisition(4)

   

N-Vision Purchase
Price Allocation(5)

   

N-Vision Debt
Refinancing(6)

   

TVN
Tender Offer(7)

   

Total
Pro Forma

 
    (thousands)  

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

  $ 154,785      $ 1,481,000      $ 1,635,785      $ 81,245      $ (633,655   $ —        $ (578,693   $ (241,660   $ 263,022   

Short-term investments

    —            —          13,998                13,998   

Accounts receivable, net of allowances

    630,322          630,322        98,469                728,791   

Programs and program licenses

    490,391          490,391        54,431                544,822   

Deferred income taxes

    55,994          55,994        37,923                93,917   

Other current assets

    74,575        1,871        76,446        46,562          (19,539         103,469   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

  1,406,067      1,482,871      2,888,938      332,628      (633,655   (19,539   (578,693   (241,660   1,748,019   

Investments

  439,240      439,240      470,871      633,655      (633,655   910,111   

Property and equipment, net of accumulated depreciation

  214,779      214,779      104,813      —        319,592   

Goodwill

  572,047      572,047      38,165      1,113,874      1,724,086   

Other intangible assets, net

  582,360      582,360      16,096      808,904      1,407,360   

Programs and program licenses (less current portion)

  488,947      488,947      45,092      534,039   

Deferred income taxes

  50,045      50,045      40,723      90,768   

Other non-current assets

  182,139      11,129      193,268      99      —        193,367   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

$ 3,935,624    $ 1,494,000    $ 5,429,624    $ 1,048,487    $ —      $ 1,269,584    $ (578,693 $ (241,660 $ 6,927,342   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$ 20,075    $ —      $ 20,075    $ 42,880    $ —      $ —      $ —      $ —      $ 62,955   

Current portion of debt

  —        —        5,414      5,414   

Program rights payable

  32,269      32,269      —        32,269   

Customer deposits and unearned revenue

  56,146      56,146      2,217      —        58,363   

Other accrued liabilities

  218,765      218,765      97,038      17,618      (11,693   321,728   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

  327,255      —        327,255      147,549      17,618      —        (11,693   —        480,729   

Debt (less current portion)

  1,844,622      1,494,000      3,338,622      923,397      127,000      (567,000   —        3,822,019   

Other liabilities (less current portion)

  239,693      239,693      9,985      257,815      507,493   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  2,411,570      1,494,000      3,905,570      1,080,931      17,618      384,815      (578,693   —        4,810,241   

Redeemable Non-Controlling Interest

  98,268      98,268      98,268   

Total Equity

  1,425,786      1,425,786      (32,444   (17,618   884,769      —        (241,660   2,018,833   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities, Redeemable Non-Controlling Interest and Equity

$ 3,935,624    $ 1,494,000    $ 5,429,624    $ 1,048,487    $ —      $ 1,269,584    $ (578,693 $ (241,660 $ 6,927,342   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

5


Scripps Networks Interactive, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

Three Months Ended March 31, 2015

 

         

Pro Forma

Adjustments

          Pro Forma Adjustments        
   

Company
Historical(8)

   

Company

Financing(9)

   

Company
Subtotal

   

N-Vision
Historical(10)

   

N-Vision
Acquisition(11)

   

N-Vision Purchase
Price Allocation(12)

   

N-Vision Debt
Refinancing(13)

   

TVN
Tender Offer(14)

   

Total

Pro Forma

 
    (thousands)  

Operating revenues:

                 

Advertising

  $ 435,268      $ —        $ 435,268      $ 78,655      $ —        $ —        $ —        $ —        $ 513,923   

Network affiliate fees, net

    209,008          209,008        14,065                223,073   

Other

    13,974          13,974        4,873                18,847   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

    658,250        —          658,250        97,593        —          —          —          —          755,843   

Cost of services, excluding depreciation and amortization of intangible assets

    199,147          199,147        56,022                255,169   

Selling, general and administrative

    202,187          202,187        17,478        (10,545         —          209,120   

Depreciation

    16,895          16,895        4,463          —              21,358   

Amortization of intangible assets

    11,695          11,695        274          7,168            19,137   

Losses (gains) on disposal of property and equipment

    2,516          2,516        —                  2,516   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    432,440        —          432,440        78,237        (10,545     7,168        —          —          507,300   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    225,810        —          225,810        19,356        10,545        (7,168     —          —          248,543   

Interest expense, net

    (12,967     (12,927     (25,894     (21,457       2,542        12,860        —          (31,949

Equity in earnings of affiliates

    18,945          18,945        4,274                23,219   

Miscellaneous, net

    5,531          5,531        24,564                30,095   

Loss on retirement of debt

    —            —                    —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

    237,319        (12,927     224,392        26,737        10,545        (4,626     12,860        —          269,908   

Provision for income taxes

    (71,249     4,912        (66,337     (4,818     (1,230     1,758        (2,958     —          (73,585
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    166,070        (8,015     158,055        21,919        9,315        (2,868     9,902        —          196,323   

Less: net income attributable to non-controlling interests

    (42,227       (42,227     (13,865     440            3,775        (51,877
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Company

  $ 123,843      $ (8,015   $ 115,828      $ 8,054      $ 9,755      $ (2,868   $ 9,902      $ 3,775      $ 144,446   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Company common shareholders per share of common stock:

                 

Net income attributable to Company common shareholders per basic share of common stock

  $ 0.94        $ 0.88                $ 1.10   
 

 

 

     

 

 

             

 

 

 

Net income attributable to Company common shareholders per diluted share of common stock

  $ 0.94        $ 0.88                $ 1.09   
 

 

 

     

 

 

             

 

 

 

Weighted average shares outstanding:

                 

Weighted average basic shares outstanding

    131,259          131,259                  131,259   
 

 

 

     

 

 

             

 

 

 

Weighted average diluted shares outstanding

    131,942          131,942                  131,942   
 

 

 

     

 

 

             

 

 

 

 

6


Scripps Networks Interactive, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2014

 

   

 

   

Pro Forma
Adjustments

   

 

    Pro Forma Adjustments    

 

 
    Company
Historical(8)
    Company
Financing(9)
    Company
Subtotal
    N-Vision
Historical(10)
    N-Vision
Acquisition(11)
    N-Vision Purchase
Price Allocation(12)
    N-Vision Debt
Refinancing(13)
    TVN
Tender Offer(14)
    Total
Pro Forma
 
    (thousands)  

Operating revenues:

                 

Advertising

  $ 1,816,388      $ —        $ 1,816,388      $ 409,926      $ —        $ —        $ —        $ —        $ 2,226,314   

Network affiliate fees, net

    799,178          799,178        65,257                864,435   

Other

    49,890          49,890        26,013                75,903   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

    2,665,456        —          2,665,456        501,196        —          —          —          —          3,166,652   

Cost of services, excluding depreciation and amortization of intangible assets

    778,896          778,896        263,458                1,042,354   

Selling, general and administrative

    764,799          764,799        75,335        (1,608         —          838,526   

Depreciation

    72,979          72,979        21,131          —              94,110   

Amortization of intangible assets

    55,603          55,603        1,356          28,414            85,373   

Losses (gains) on disposal of property and equipment

    870          870        —                  870   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    1,673,147        —          1,673,147        361,280        (1,608     28,414        —          —          2,061,233   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    992,309        —          992,309        139,916        1,608        (28,414     —          —          1,105,419   

Interest expense, net

    (52,687     (51,707     (104,394     (104,348       10,166        54,346        —          (144,230

Equity in earnings of affiliates

    85,631          85,631        9,953                95,584   

Miscellaneous, net

    2,598          2,598        (23,569             (20,971

Loss on retirement of debt

    —              (5,146             (5,146
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

    1,027,851        (51,707     976,144        16,806        1,608        (18,248     54,346        —          1,030,656   

Provision for income taxes

    (301,043     19,132        (281,911     (2,421     (306     6,752        (12,500     —          (290,386
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    726,808        (32,575     694,233        14,385        1,302        (11,496     41,846        —          740,270   

Less: net income attributable to non-controlling interests

    (181,533       (181,533     (24,237     769            6,599        (198,402
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Company

  $ 545,275      $ (32,575   $ 512,700      $ (9,852   $ 2,072      $ (11,496   $ 41,846      $ 6,599      $ 541,868   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Company common shareholders per share of common stock:

                 

Net income attributable to Company common shareholders per basic share of common stock

  $ 3.86        $ 3.63                $ 3.83   
 

 

 

     

 

 

             

 

 

 

Net income attributable to Company common shareholders per diluted share of common stock

  $ 3.83        $ 3.61                $ 3.81   
 

 

 

     

 

 

             

 

 

 

Weighted average shares outstanding:

                 

Weighted average basic shares outstanding

    141,297          141,297                  141,297   
 

 

 

     

 

 

             

 

 

 

Weighted average diluted shares outstanding

    142,193          142,193                  142,193   
 

 

 

     

 

 

             

 

 

 

 

7


NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

(1) Reflects the historical financial position of the Company as of March 31, 2015.

 

(2) Pro forma adjustments to record the Company Financing as of March 31, 2015 reflect the following:

 

  (a) An increase in cash and cash equivalents of $1.481 billion to reflect the net proceeds expected to be raised;

 

  (b) An increase in other current assets of $1.871 million and other non-current assets of $11.129 million to reflect the debt issuance costs expected to be incurred; and

 

  (c) An increase in long-term debt of $1.494 billion to reflect the expected issuance of $1.5 billion of debt, net of $6.0 million of original issuance discounts.

 

(3) Reflects the historical financial position of N-Vision as of March 31, 2015, as adjusted for (i) certain reclassifications to conform to the Company’s basis of presentation, (ii) certain adjustments to conform N-Vision’s financial position prepared in accordance with IFRS to U.S. generally accepted accounting principles (“US GAAP”), and (iii) adjustments to translate the historical financial position of N-Vision from local currency PLN to US dollar (“USD”) using the end-of-period foreign exchange rate of approximately 3.776 PLN to 1 USD as of March 31, 2015. In addition, in order to facilitate the alignment of financial statement line items between N-Vision and the Company, certain line items in the N-Vision historical financial statements prepared under IFRS have been combined.

The adjustments to conform financial information from IFRS to US GAAP reflect the de-recognition of certain liabilities and costs and related tax consequences recorded by N-Vision in anticipation of the closing of the N-Vision Acquisition, which would not be recognized under US GAAP until the closing of the N-Vision Acquisition actually occurs.

The reclassifications to conform to the Company’s basis of presentation have no effect on the net equity of N-Vision and primarily relate to (i) reclassifications of non-current deferred tax assets to a current deferred tax asset designation based on the application of US GAAP and when such assets are expected to be realized, (ii) reclassifications of certain assets classified as intangible assets to property and equipment, and (iii) the reclassification of interest payables and debt-issuance costs classified within debt to other current and non-current assets and liability accounts.

 

8


A reconciliation of N-Vision’s financial position as presented in its historical financial statements to its financial position as presented in the unaudited pro forma condensed combined balance sheet is presented below:

N-Vision B.V.

Consolidated Balance Sheet

March 31, 2015

 

    

IFRS
Historical
(in PLN)

   

Reclassification
Adjustments
(in PLN)

   

US GAAP
Adjustments
(in PLN)

   

US GAAP
Historical
Subtotal
(in PLN)

   

US GAAP
Historical

(in USD)

 
     (thousands)  

ASSETS

          

Current Assets:

          

Cash and cash equivalents

     306,816            306,816      $ 81,245   

Short-term investments

     52,863            52,863        13,998   

Accounts receivable, net of allowances

     371,861            371,861        98,469   

Programs and program licenses

     205,554            205,554        54,431   

Deferred income taxes

     —          143,212          143,212        37,923   

Other current assets

     101,174        74,663          175,837        46,562   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

  1,038,268      217,875      —        1,256,143      332,628   

Investments

  1,778,212      1,778,212      470,871   

Property and equipment, net of accumulated depreciation

  355,568      40,251      395,819      104,813   

Goodwill

  144,127      144,127      38,165   

Other intangible assets, net

  101,037      (40,251   60,786      16,096   

Programs and program licenses (less current portion)

  170,286      170,286      45,092   

Deferred income taxes

  305,878      (143,212   (8,879   153,787      40,723   

Other non-current assets

  374      —        374      99   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  3,893,750      74,663      (8,879   3,959,534    $ 1,048,487   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

Current Liabilities:

Accounts payable

  161,933      161,933    $ 42,880   

Current portion of debt

  100,012      (79,567   20,445      5,414   

Program rights payable

  —        —     

Customer deposits and unearned revenue

  8,374      8,374      2,217   

Other accrued liabilities

  341,984      71,193      (46,729   366,448      97,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

  603,929      —        (46,729   557,200      147,549   

Debt (less current portion)

  3,412,486      74,663      3,487,149      923,397   

Other liabilities (less current potion)

  37,708      —        37,708      9,985   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  4,054,123      74,663      (46,729   4,082,057      1,080,931   

Redeemable Non-Controlling Interest

  —        —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

  (160,373   37,850      (122,523   (32,444
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Redeemable Non-Controlling Interest, Liabilities and Equity

  3,893,750      74,663      (8,879   3,959,534    $ 1,048,487   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

9


(4) Pro forma adjustments to record the N-Vision Acquisition as of March 31, 2015 reflect the following:

 

  (a) A decrease in cash and cash equivalents of $633.655 million, representing the purchase price of approximately €584 million at a foreign currency exchange rate of 1.085 Euros to 1 USD in effect as of March 31, 2015;

 

  (b) An increase in non-current investments of $633.655 million, reflecting the investment in a wholly owned subsidiary relating to the N-Vision Acquisition;

 

  (c) A net increase in other current accrued liabilities of $17.618 million relating to the accrual of $21.0 million of acquisition-related transaction costs to be incurred at a future date, partially offset by a decrease of $3.382 million in income taxes payable associated with the deductibility of a portion of the acquisition-related transaction costs; and

 

  (d) A decrease in equity of $17.618 million relating to the after-tax effect of $21.0 million of one-time, acquisition-related transaction costs that are expected to be incurred subsequent to March 31, 2015 and will be charged to expense as incurred, using an effective statutory tax rate of approximately 16%. As the acquisition-related transaction costs have no continuing impact on the combined entity, those costs have not been reflected in the accompanying unaudited pro forma condensed combined statements of operations for all periods presented.

 

(5) Pro forma adjustments to record the purchase price accounting in accordance with ASC 805 for the N-Vision Acquisition reflect the following preliminary allocation:

 

  (a) A decrease in other current assets of $19.539 million to write off the net book value of historical debt issuance costs in connection with the remeasurement of debt to fair value;

 

  (b) A decrease in non-current investments of $633.655 million to eliminate the investment in the wholly owned subsidiary holding the interest in N-Vision as a result of the allocation of the purchase price to the underlying net assets of N-Vision;

 

  (c) A net increase in goodwill of $1.114 billion consisting of:

 

  (i) a decrease relating to the write off of N-Vision’s historical goodwill of approximately $38 million; and

 

  (ii) an increase representing the excess of the purchase price over the fair value of N-Vision’s net assets of $1.152 billion.

 

  (d) A net increase in other intangible assets of $808.904 million consisting of:

 

  (i) a decrease relating to the write off of N-Vision’s historical identifiable intangible assets of $16.096 million;

 

  (ii) an increase relating to finite-lived, customer relationships of $70 million;

 

  (iii) an increase relating to indefinite-lived, brands and trademarks of $300 million;

 

  (iv) an increase relating to finite-lived, brands and trademarks of $55 million;

 

  (v) an increase relating to finite-lived, acquired network distribution rights of $150 million; and

 

  (vi) an increase relating to finite-lived, broadcast licenses of $250 million.

 

  (e) An increase in long-term debt of $127 million to reflect such debt securities at fair value;

 

  (f) An increase in non-current deferred tax liabilities classified as a component of other non-current liabilities of $257.815 million, primarily related to the incremental book-tax basis differences arising from the revaluation of the net assets acquired in the N-Vision Acquisition for book purposes; and

 

10


  (g) An increase in equity of $884.769 million consisting of:

 

  (i) an increase of $32.444 million relating to the elimination of the historical equity of N-Vision, which was in a deficit position; and

 

  (ii) an increase of $852.325 million relating to recording the public, non-controlling interest in TVN at fair value.

 

     The pro forma purchase price allocation presented above has been developed based on preliminary estimates of fair value using the historical financial statements and information of N-Vision as of March 31, 2015. In addition, the allocation of the purchase price to the acquired identifiable assets and assumed liabilities is based on the preliminary valuation of the identifiable intangible assets acquired and debt obligations assumed. The fair value of all other tangible assets acquired and liabilities assumed was presumed by the Company’s management to approximate their respective net book values as of March 31, 2015 in order to prepare the unaudited pro forma condensed combined financial information.

 

     The final allocation of the purchase price will be determined at a later date and is dependent on a number of factors, including the final valuation of the tangible and identifiable intangible assets acquired and liabilities assumed as of the closing date of the N-Vision Acquisition. As such, the purchase price allocation may change upon the receipt of additional and more detailed information, and such changes could result in a material change to the unaudited pro forma condensed combined financial information.

 

(6) Pro forma adjustments to record the N-Vision Debt Refinancing as of March 31, 2015 reflect the following:

 

  (a) A decrease in cash and cash equivalents of $578.693 million relating to the use of cash to fund the aggregate redemption cost of the €453 million principal amount of N-Vision Assumed Debt Securities to be redeemed (including the payment of accrued interest), based on foreign currency exchange rates of 1.085 Euros to 1 USD in effect as of March 31, 2015;

 

  (b) A decrease in other current accrued liabilities of $11.693 million consisting of the payment of accrued interest in connection with the redemption of the N-Vision Assumed Debt Securities; and

 

  (c) A decrease in long-term debt of $567.0 million to reflect the redemption of the N-Vision Assumed Debt Securities.

 

(7) Pro forma adjustments to record the TVN Tender Offer as of March 31, 2015 reflect the following:

 

  (a) A decrease in cash and cash equivalents of $241.660 million consisting of the $239.660 million purchase price expected to be paid in connection with the TVN Tender Offer, based on the acquisition of approximately 45.3 million shares at an assumed purchase price of 20.00 PLN per share translated at a foreign currency exchange rate of 3.776 PLN per 1 USD in effect as of March 31, 2015, plus the payment of $2 million of transaction-related costs; and

 

  (b) A decrease in equity of $241.660 million to reduce the 13.3% non-controlling interest in TVN acquired, including $2 million of transaction-related costs.

 

(8) Reflects the historical operating results of the Company for the three-month period ended March 31, 2015 and the fiscal year ended December 31, 2014.

 

11


(9) Pro forma adjustments to record the Company Financing for the periods presented reflect the following:

For the three-month period ended March 31, 2015

 

  (a) An increase in interest expense of $12.927 million consisting of:

 

  (i) an increase in interest expense of $12.064 million relating to the expected issuance of $1.5 billion principal amount of debt at an assumed weighted-average interest rate of 3.216%;

 

  (ii) a net increase in interest expense of $0.175 million relating to the $1.350 million of annual commitment fees payable on the $900 million of availability under the Amended Revolving Credit Facility at a 0.15% rate, partially offset by the elimination of $0.650 million of annual commitment fees payable on the $650 million of availability under the Old Revolving Credit Facility at a 0.10% rate;

 

  (iii) an increase in interest expense of $0.222 million related to the amortization of the aggregate $6 million original issuance discount expected in connection with the Public Debt Financing over an assumed weighted-average contractual life of approximately 7 years; and

 

  (iv) an increase in interest expense of $0.466 million related to the amortization of an aggregate $13 million of debt issuance costs expected to be incurred over an assumed weighted-average contractual life of approximately 7 years;

 

  (b) A decrease in the provision for income taxes for the three-month period of $4.912 million related to the $12.927 million aggregate effect on pretax income from the aforementioned pro forma adjustments, at an effective statutory tax rate of 38%.

For the year ended December 31, 2014

 

  (a) An increase in interest expense of $51.707 million consisting of:

 

  (i) an increase in interest expense of $48.250 million relating to the expected issuance of $1.5 billion principal amount of debt at an assumed weighted-average interest rate of 3.216%;

 

  (ii) a net increase in interest expense of $0.7 million relating to the $1.350 million of annual commitment fees payable on the $900 million of availability under the Amended Revolving Credit Facility at a 0.15% rate, partially offset by the elimination of $0.650 million of annual commitment fees payable on the $650 million of availability under the Old Revolving Credit Facility at a 0.10% rate;

 

  (iii) an increase in interest expense of $0.886 million related to the amortization of the aggregate $6 million original issuance discount expected in connection with the Public Debt Financing over an assumed weighted-average contractual life of approximately 7 years; and

 

  (iv) an increase in interest expense of $1.871 million related to the amortization of an aggregate $13 million of debt issuance costs expected to be incurred over an assumed weighted-average contractual life of approximately 7 years;

 

  (b) A decrease in the provision for income taxes for the year of $19.132 million related to the $51.707 million aggregate effect on pretax income from the aforementioned pro forma adjustments, at an effective statutory tax rate of 37%.

 

12


(10) Reflects the historical operating results of N-Vision for the three-month period ended March 31, 2015 and the fiscal year ended December 31, 2014, each as adjusted for (i) certain reclassifications to conform to the Company’s basis of presentation, (ii) certain adjustments to conform N-Vision’s operating results prepared in accordance with IFRS to US GAAP, and (iii) adjustments to translate the historical operating results of N-Vision from local currency PLN to USD using the average foreign currency exchange rate for the period of approximately 3.719 PLN to 1 USD for the three-month period ended March 31, 2015 and 3.18 PLN to 1 USD for the year ended December 31, 2014. In addition, in order to facilitate the alignment of financial statement line items between N-Vision and the Company, certain line items in the N-Vision historical financial statements prepared under IFRS have been combined.

The reclassifications to conform to the Company’s basis of presentation have no effect on net income and primarily relate to (i) reclassifications of depreciation and amortization expense to separately presented line items, (ii) reclassifications of income from associates and joint ventures accounted for under the equity method from above operating income to below operating income, and (iii) the reclassification of incremental costs related to the N-Vision Acquisition to a component within selling, general and administrative expenses.

The adjustments to conform financial information from IFRS to US GAAP reflect the de-recognition of certain liabilities, costs and related tax consequences recorded by N-Vision in anticipation of the closing of the N-Vision Acquisition, which would not be recognized under US GAAP until the closing of the N-Vision Acquisition actually occurs.

 

13


A reconciliation of N-Vision’s operating results as presented in its historical financial statements to its operating results as presented in the unaudited pro forma condensed combined statements of operations is presented below:

N-Vision B.V.

Consolidated Statement of Operations

Three Months Ended March 31, 2015

 

   

IFRS

Historical

(in PLN)

   

Reclassification
Adjustments
(in PLN)

   

US GAAP
Adjustments
(in PLN)

   

US GAAP
Historical Subtotal
(in PLN)

   

US GAAP
Historical
(in USD)

 
    (thousands)  

Operating Revenues:

         

Advertising

    292,505            292,505      $ 78,655   

Network affiliate fees, net

    52,306            52,306        14,065   

Other

    18,122            18,122        4,873   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Revenues

  362,933      —        362,933      97,593   

Operating Expenses:

Cost of services

  220,719      (12,381   208,338      56,022   

Selling, general, and administrative expenses

  68,326      11,250      (14,580   64,996      17,478   

Depreciation

  —        16,597      16,597      4,463   

Amortization of intangible assets

  —        1,017      1,017      274   

Share of (profits)/ losses of associates and joint ventures

  (15,895   15,895      —        —     

Losses (gains) on disposal of property and equipment

  —        —        —     

Incremental costs related to the potential change of control transaction

  15,953      (15,953   —        —     

Other operating expenses, net

  531      (531   —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

  289,634      15,894      (14,580   290,948      78,237   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

  73,299      (15,894   14,580      71,985      19,356   

Interest expense, net

  (79,794   —        (79,794   (21,457

Equity in earnings of affiliates

  —        15,894      15,894      4,274   

Miscellaneous, net

  91,350      91,350      24,564   

Loss on retirement of debt

  —        —        —        —     
  —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

  84,855      —        14,580      99,435      26,737   

Provision for income taxes

  (15,147   (2,770   (17,917   (4,818
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  69,708      —        11,810      81,518      21,919   

Less: net income attributable to non-controlling interests

  51,561      51,561      13,865   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to N-Vision

  18,147      —        11,810      29,957    $ 8,054   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

14


N-Vision B.V.

Consolidated Statement of Operations

Year Ended December 31, 2014

 

    

IFRS
Historical
(in PLN)

   

Reclassification
Adjustments
(in PLN)

   

US GAAP
Adjustments
(in PLN)

   

US GAAP
Historical Subtotal
(in PLN)

   

US GAAP
Historical
(in USD)

 
     (thousands)  

Operating Revenues:

          

Advertising

     1,303,566            1,303,566      $ 409,926   

Network affiliate fees, net

     207,518            207,518        65,257   

Other

     82,720            82,720        26,013   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Revenues

  1,593,804      —        1,593,804      501,196   

Operating Expenses:

Cost of services

  886,184      (48,386   837,798      263,458   

Selling, general, and administrative expenses

  254,511      17,204      (32,149   239,566      75,335   

Depreciation

  67,195      67,195      21,131   

Amortization of intangible assets

  4,312      4,312      1,356   

Share of (profits)/ losses of associates and joint ventures

  (31,651   31,651      —        —     

Losses (gains) on disposal of property and equipment

  —        —     

Incremental costs related to the potential change of control transaction

  37,263      (37,263   —        —     

Other operating expenses, net

  3,062      (3,062   —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

  1,149,369      31,651      (32,149   1,148,871      361,280   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

  444,435      (31,651   32,149      444,933      139,916   

Interest expense, net

  (348,190   16,364      (331,826   (104,348

Equity in earnings of affiliates

  31,651      31,651      9,953   

Miscellaneous, net

  (74,951   —        (74,951   (23,569

Loss on retirement of debt

  —        (16,364   (16,364   (5,146
  —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

  21,294      —        32,149      53,443      16,806   

Provision for income taxes

  (1,592   (6,108   (7,700   (2,421
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  19,702      —        26,041      45,743      14,385   

Less: net income attributable to non-controlling interests

  77,074      77,074      24,237   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to N-Vision

  (57,372   —        26,041      (31,331 $ (9,852
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


(11) Pro forma adjustments to record the N-Vision Acquisition for the periods presented reflect the following:

 

  (a) A decrease in selling, general and administrative costs relating to the elimination of acquisition-related transaction costs of $10.545 million for the three-month period ended March 31, 2015 and $1.608 million for the year ended December 31, 2014, as such costs were one-time in nature and did not have a continuing impact on the combined entity;

 

  (b) An increase in the income tax provision relating to the elimination of the tax benefit on acquisition-related transaction costs of $1.230 million for the three-month period ended March 31, 2015 and $0.306 million for the year ended December 31, 2014. Such amounts were calculated using effective statutory tax rates of approximately 12% for the three-month period ended March 31, 2015 and 19% for the year ended December 31, 2014 based on the statutory tax rates in effect in the jurisdictions where such costs were incurred;

 

  (c) A decrease of $0.440 million in net income attributable to non-controlling interests for the three-month period ended March 31, 2015 and $0.769 million for the year ended December 31, 2014, as a portion of such non-controlling interests in TVN held directly by one of the Sellers (and contributed to N-Vision immediately preceding the closing of the N-Vision Acquisition) was purchased by the Company; and

 

  (d) Acquisition-related transaction costs of $21 million expected to be incurred subsequent to March 31, 2015 have not been reflected in the accompanying pro forma condensed combined statements of operations for all periods presented. Those costs are also one-time in nature and are not expected to have any continuing impact on the combined entity.

 

(12) Pro forma adjustments to record the preliminary allocation of purchase price accounting for the N-Vision Acquisition for the periods presented are as follows:

For the three-month period ended March 31, 2015

 

  (a) A net increase in amortization expense of $7.168 million consisting of:

 

  (i) the elimination of $0.274 million of historical amortization expense to write off N-Vision’s historical net book value of identifiable intangible assets, which will be reestablished in the purchase accounting to reflect such identifiable intangible assets at their respective fair values;

 

  (ii) an increase in amortization expense of $2.227 million relating to the $70 million fair value of finite-lived, customer relationships, over a weighted-average useful life of approximately 8 years on a straight-line basis;

 

  (iii) an increase in amortization expense of $0.840 million relating to the $55 million fair value of finite-lived brands and trademarks, over a weighted-average useful life of approximately 16 years on a straight-line basis;

 

  (iv) an increase in amortization expense of $1.875 million relating to the $150 million fair value of finite-lived, acquired network distribution rights, over a weighted-average useful life of 20 years on a straight-line basis; and

 

  (v) an increase in amortization expense of $2.5 million relating to the $250 million fair value of, finite-lived, broadcast licenses over a weighted-average useful life of 25 years on a straight-line basis.

 

  (b) A net decrease in interest expense of $2.542 million relating to the amortization of the $50.831 million adjustment to reflect a portion of the N-Vision Assumed Debt Securities at fair value over a remaining average life of 5 years. This portion of the N-Vision Assumed Debt Securities will remain outstanding after the N-Vision Debt Refinancing; and

 

16


  (c) A decrease in the provision for income taxes of $1.758 million related to the $4.626 million aggregate effect on pretax income from the aforementioned pro forma adjustments, at an effective statutory tax rate of 38%.

For the year ended December 31, 2014

 

  (a) A net increase in amortization expense of $28.414 million consisting of:

 

  (i) the elimination of $1.356 million of historical amortization expense to write off N-Vision’s historical net book value of identifiable intangible assets, which will be reestablished in the purchase accounting to reflect such identifiable intangible assets at their respective fair values;

 

  (ii) an increase in amortization expense of $8.909 million relating to the $70 million fair value of finite-lived, customer relationships, over a weighted-average useful life of approximately 8 years on a straight-line basis;

 

  (iii) an increase in amortization expense of $3.361 million relating to the $55 million fair value of finite-lived, brands and trademarks, over a weighted-average useful life of approximately 16 years on a straight-line basis;

 

  (iv) an increase in amortization expense of $7.500 million relating to the $150 million fair value of finite-lived, acquired network distribution rights, over a weighted-average useful life of 20 years on a straight-line basis; and

 

  (v) an increase in amortization expense of $10 million relating to the $250 million fair value of finite-lived, broadcast licenses over a weighted-average useful life of 25 years on a straight-line basis.

 

  (b) A net decrease in interest expense of $10.166 million relating to the amortization of the $50.831 million adjustment to reflect a portion of the N-Vision Assumed Debt Securities at fair value over a remaining average life of 5 years. This portion of the N-Vision Assumed Debt Securities will remain outstanding after the N-Vision Debt Refinancing; and

 

  (c) A decrease in the provision for income taxes of $6.752 million related to the $18.248 million aggregate effect on pretax income from the aforementioned pro forma adjustments, at an effective statutory tax rate of 37%.

 

(13) Pro forma adjustments to record the N-Vision Debt Refinancing for the periods presented reflect the following:

 

  (a) A decrease in interest expense of $12.860 million for the three-month period ended March 31, 2015 and $54.346 million for the year ended December 31, 2014 to eliminate the historical interest expense relating to the N-Vision Assumed Debt Securities redeemed; and

 

  (b) An increase in the provision for income taxes of $2.958 million for the three-month period ended March 31, 2015 and $12.500 million for the year ended December 31, 2014 related to the aforementioned pro forma reduction in interest expense, at effective statutory tax rates of 23% for both periods.

 

(14) Pro forma adjustments to record the TVN Tender Offer for the periods presented reflect the following:

A decrease of $3.775 million in net income attributable to non-controlling interests for the three-month period ended March 31, 2015 and $6.599 million for the year ended December 31, 2014, as the 13.3% non-controlling interest in TVN is expected to be purchased by the Company.

 

17

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