<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
FILE NO. 333-05017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UIH AUSTRALIA/PACIFIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 4841 84-1341958
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BERNARD G. DVORAK
CHIEF FINANCIAL OFFICER
UIH AUSTRALIA/PACIFIC, INC.
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GARTH B. JENSEN, ESQ.
HOLME ROBERTS & OWEN LLC
1700 LINCOLN, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
FORM S-4
REGISTRATION STATEMENT
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION
NUMBER DESIGNATION IN FORM S-1 IN PROSPECTUS
------ ----------------------- -------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSAC-
TION
1. Forepart of the Registration
Statement Outside Front Cover
Page of Prospectus............ Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover
Pages
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................... Prospectus Summary; Risk Factors
4. Terms of the Transaction....... The Exchange Offer
5. Pro Forma Financial
Information................... Not Applicable
6. Material Contracts with Company
being Acquired................ Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. Not Applicable
8. Interests of Named Experts and
Counsel....................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
B. INFORMATION ABOUT THE REGIS-
TRANT
10. Information with Respect to S-3
Registrants................... Not Applicable
11. Incorporation of Certain
Information by Reference...... Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............ Not Applicable
13. Incorporation of Certain
Information by Reference...... Not Applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants............... Outside Front Cover Page; Prospectus
Summary; Risk Factors;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Regulation; Corporate
Organizational Structure; Management;
Certain Relationships; Australis
Transaction; Security Ownership;
Description of Other Debt;
Description of Senior Notes
15. Information with Respect to S-3
Companies..................... Not Applicable
16. Information with Respect to S-2
or S-3 Companies.............. Not Applicable
17. Information with Respect to
Companies Other than S-3 or S-
2 Companies................... Not Applicable
D. VOTING AND MANAGEMENT INFORMA-
TION
18. Information if Proxies,
Consents or Authorizations are
to be Solicited............... Not Applicable
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................ Management; Certain Relationships;
Security Ownership
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 8, 1996
PROSPECTUS
, 1996
OFFER FOR ALL OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES A IN EXCHANGE FOR
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES B OF
UIH AUSTRALIA/PACIFIC, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
[LOGO OF UIH
AUSTRALIA/
PACIFIC, INC.
APPEARS HERE]
NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED
UIH Australia/Pacific, Inc., a Colorado corporation (the "Issuer"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount at
maturity of up to $443,000,000 of 14% Senior Discount Notes due 2006, Series B
(the "New Notes") of the Issuer for a like principal amount at maturity of the
issued and outstanding 14% Senior Discount Notes due 2006, Series A (the "Old
Notes" and, together with the New Notes, the "Notes") of the Issuer from the
holders (the "Holders") thereof. The terms of the New Notes are identical in
all material respects to the Old Notes, except (i) for certain transfer
restrictions and registration rights relating to the Old Notes and (ii) that,
if the Exchange Offer is not consummated by , 1996, or the Company
fails to comply with certain other registration obligations with respect to the
Old Notes, the Company is required to pay liquidated damages to the Holders of
the Notes in an amount equal to the rate per annum of up to 2.50% of the
Accreted Value (as defined) of the Old Notes (the "Liquidated Damages") from
and including August 13, 1996, until but not including the date of the
consummation of the Exchange Offer or, as the case may be, compliance by the
Company with such other registration obligations. Any Liquidated Damages will
be payable in cash semiannually in arrears each May 15 and November 15,
commencing November 15, 1996.
If the Issuer does not consummate on or prior to May 15, 1997, an issuance of
capital stock resulting in gross proceeds to the Issuer of at least $70.0
million (an "Equity Sale"), then from such date the principal amount of the
Notes will accrete, and from and after May 15, 2001, cash interest will accrue
on the Notes, at an additional 0.75% per annum, until such time as the Issuer
effects an Equity Sale. In addition, if the Issuer does not consummate an
Equity Sale on or prior to November 15, 1997, the then holders of the Notes
will be entitled to receive warrants (the "Warrants") to purchase common stock
of the Issuer or, in certain circumstances, of the immediate parent of the
Issuer ("Parent"). The Notes and Warrants are collectively referred to herein
as the "Securities." See "Description of the Securities" and "Certain U.S.
Income Tax Considerations."
The Notes will mature on May 15, 2006 and will be redeemable at the option of
the Issuer on or after May 15, 2001 at the redemption prices set forth herein,
plus accrued and unpaid interest to the redemption date. In addition, at any
time prior to May 15, 1999, the Issuer may redeem up to 33% of the aggregate
principal amount at maturity of the Notes with the net proceeds of certain
public or private sales of equity interests of the Issuer at a redemption price
equal to 113% of the Accreted Value thereof on the redemption date; provided
that not less than 67% of the principal amount at maturity of the Notes
originally issued are outstanding immediately after giving effect to such
redemption. Upon a Change of Control, each holder of the Notes will have the
right to require the Issuer to purchase such holder's Notes at 101% of the
Accreted Value thereof in the case of any such purchase prior to May 15, 2001
or 101% of the principal amount at maturity thereof, plus accrued and unpaid
interest in the case of any such purchase on or after May 15, 2001. There can
be no assurance that the Issuer will have available funds sufficient to pay for
all of the Notes that might be delivered by holders of the Notes upon a Change
of Control.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR HAS ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR HAS ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. HAS ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
The Old Notes were issued at a substantial discount from their principal
amount at maturity. Except for any Special Interest, cash interest will not
accrue on the Notes prior to May 15, 2001. Commencing November 15, 2001, cash
interest on the Notes will be payable on May 15 and November 15 of each years
at a rate of 14% per annum. For each Old Note accepted for exchange, the
Holder of such Old Note will receive a New Note having a principal amount at
maturity equal to that of the surrendered Old Note. Original Issue Discount on
the New Notes will accrue from the date of original issuance of the Old Notes.
Holders whose Old Notes are accepted for exchange may, in the limited
circumstances referred to above, have the right to receive, in cash, Special
Interest (if any) thereon.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Rights Agreements (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
third parties, the Issuer believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder which is
an "affiliate" of the Issuer within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")), without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
such New Notes. The Issuer acknowledges and each Holder, other than a broker-
dealer, must acknowledge that it is not engaged in, does not intend to engage
in, and has no arrangement or understanding with any person to participate in,
a distribution of the New Notes. If any Holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement with any person
to participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date (as defined) and ending at the close of
business on the 180th day following the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Notes will be senior unsecured obligations of the Issuer and will rank
pari passu in right and priority of payment with all existing and future
indebtedness of the Issuer, other than indebtedness that by its terms is
expressly subordinated in right and priority of payment to the Notes. As of
the date hereof, the Issuer has no significant outstanding indebtedness other
than the Notes. The Issuer conducts all of its business through its
subsidiaries and the Notes will be effectively subordinated to the claims of
creditors of such subsidiaries. As of March 31, 1996, on a pro forma basis
after giving effect to the Offering and the estimated use of proceeds
therefrom, the consolidated liabilities of the Issuer and its subsidiaries
(including trade payables of subsidiaries) would have been approximately
$243.7 million (including $225.1 million with respect to the Notes), all of
which, except for the Notes, would have been obligations of the Issuer's
subsidiaries and structurally senior to the Notes. See "Use of Proceeds."
If issued, each Warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price per share equal to the fair market
value thereof, assuming an equity valuation of the Issuer of $150.0 million.
Upon exercise, the holders of Warrants would be entitled, in the aggregate, to
purchase Common Stock which would represent 3.0% of the Common Stock
determined on a fully diluted basis after giving effect to the exercise of the
Warrants. The Warrants will expire on May 15, 2006. See "Description of the
Securities--Description of the Warrants."
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Issuer terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Issuer will promptly return
the Old Notes to the Holders thereof. See "The Exchange Offer." The Notes have
been approved for trading in the Private Offering, Resale and trading through
Automated Linkages ("PORTAL") market upon issuance.
2
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-4 under the Securities Act, with respect to the securities offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby reference is made to the Registration Statement,
including the exhibits and schedules thereto, which may be inspected at, and
copies thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048.
* * *
The Company intends to furnish holders of the Senior Notes with annual
reports containing audited financial statements and quarterly reports for the
first three quarters of each fiscal year containing unaudited interim
financial information.
* * *
Until (90 days after the date of this Prospectus) all dealers
effecting transactions in the New Notes, whether or not participating in the
Exchange Offer, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context requires, the "Issuer" refers to UIH Australia/Pacific, Inc,
a majority owned subsidiary of United Australasian Communications, Inc.
("UAC"), which is an indirect wholly-owned subsidiary of United International
Holdings, Inc. ("UIH"), and the "Company" refers collectively to the Issuer,
its subsidiaries and non-majority owned affiliates and their respective
predecessors. The Issuer owns, through directly and indirectly held interests,
a combined 94% economic interest in two Australian companies, CTV Pty Ltd.
("CTV") and STV Pty Ltd. ("STV"), which are collectively referred to herein as
"Communications and Entertainment Television" or "CEtv." The "Operating
Companies" refer to CEtv and XYZ, Saturn, Telefenua and United Wireless (each
as defined below). Unless the context requires otherwise, "UIH" includes UIH
and all of its subsidiaries other than the Issuer and its subsidiaries. All
references to "$" or "dollars" are to U.S. dollars. For information regarding
foreign currency amounts translated to U.S. dollars, see "Exchange Rate Data."
THE COMPANY
OVERVIEW
The Company, a leading provider of multi-channel television services in the
Australia and Pacific region, is currently constructing and operating multi-
channel television systems in three markets: (i) Australia, in which the
Company is constructing and operating wireless cable ("MMDS") systems and
marketing a direct-to-home ("DTH") service in its regional franchise areas
which encompass approximately 1.5 million serviceable television homes; (ii)
New Zealand, in which the Company is constructing a wireline cable and
telephony system intended to pass approximately 135,000 homes; and (iii)
Tahiti, in which the Company has completed the initial phase of construction
and is operating an MMDS system which, upon completion, will pass approximately
31,000 homes. In addition, the Company's other assets include a 25% interest in
XYZ Entertainment Pty Ltd. ("XYZ"), a programming company which provides four
channels to the Australian multi-channel television market as part of the eight
channel "Galaxy" package. To date, UIH, the Company's parent, and its partners
have invested significant capital and have devoted substantial management
resources and expertise to establish the infrastructure necessary to implement
a rapid roll-out of the Company's operating systems. As of May 31, 1996, the
Company's multi-channel television systems and operations were capable of
serving over 1.1 million homes of which 170,596 had been marketed and 29,145
were subscribers.
CETV (AUSTRALIA)
The Company believes that Australia, the largest undeveloped English speaking
multi-channel television market in the world, represents an attractive market
for multi-channel television providers. Prior to 1995, subscription television
services were not available on a wide scale basis and, as a result, current
market penetration for such services is less than 3%. However, there exists
strong demand for television programming, as evidenced by high average daily
television viewing, high television and videocassette recorder ("VCR")
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
The Company owns, directly and indirectly, a combined 94% economic interest
(and has agreed to acquire the remaining 6% economic interest, subject to
certain conditions) in CEtv, which has acquired virtually all of the available
MMDS licenses in an area encompassing approximately 1.5 million serviceable
television homes in Australia. CEtv's franchise areas represent approximately
25% of the Australian market. CEtv has strategically focused on regional areas
located outside of Australia's largest capital cities. CEtv is currently the
only multi-channel television provider in markets representing over 90% of
these serviceable homes and believes
4
<PAGE>
that it has several competitive advantages over any potential competitor in its
markets. Of the serviceable homes in its franchise areas, CEtv believes that
approximately 800,000 homes are in markets which CEtv will serve primarily by
MMDS. CEtv is servicing homes in its MMDS markets that are not reachable by its
MMDS signals with a DTH service which CEtv is marketing in its franchise areas
on an exclusive basis. CEtv launched MMDS service in August 1995 and as of May
31, 1996 had completed construction and launched service in markets that
contained an aggregate of approximately 422,000 homes. As of such date, CEtv
had completed its initial direct marketing program to approximately 148,600 of
these homes, and had 21,412 metropolitan subscribers, representing a 14%
penetration rate of marketed homes. In addition, in March 1996, CEtv began
marketing its programming services via DTH in less densely populated areas
outside its MMDS markets that are more efficiently served by DTH technology.
These DTH service areas contain approximately 700,000 homes, the majority of
which are located within a fifty-kilometer radius of its MMDS markets. As of
May 31, 1996, CEtv has 2,212 DTH subscribers in these markets. CEtv also plans
to construct wireline cable networks in two small regions in its franchise
areas containing an aggregate of approximately 25,700 serviceable homes. CEtv
expects to complete construction and launch service to all of its 1.5 million
potential customers by the end of 1996.
The Company believes that programming is a critical component in building
successful multi-channel television systems. CEtv has entered into franchise
agreements providing it with the right through 2004 (which is extendable at
CEtv's option through 2014) to distribute the eight-channel Galaxy package over
all transmission technologies (MMDS, DTH and wireline cable) in its franchise
areas. See "Business--CEtv (Australia)--Australis Franchise Agreements" and
"Risk Factors--Reliance on Australis and Other Principal Suppliers." The Galaxy
package, the most widely distributed programming package in Australia, was
developed exclusively for the Australian market by several of the world's
leading programming companies including Paramount Pictures Corporation
("Paramount"), Sony Pictures Entertainment Inc. ("Sony"), Universal City
Studios, Inc. ("Universal"), Twentieth Century Fox ("Fox") and Viacom
International, Inc. ("Viacom"). The Galaxy package includes two movie services
(Showtime and Encore), Fox Sports, two general entertainment services (TV-1 and
Arena), Australia's only 24-hour music video service (Red) and two family
programming services (Nickelodeon/Nick at Nite and The Discovery Channel). To
supplement the Galaxy package, CEtv has also secured additional programming on
a non-exclusive basis from providers of both locally-originated and satellite-
delivered programming services including CNN International, Turner Network
Television (TNT), Cartoon Network, Country Music Television (CMT), Asia
Business News (ABN), BBC World News and World Movies, a premium channel which
is currently only available to its MMDS subscribers.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four of the eight
channels offered in the Galaxy package. XYZ's channels consist of
Nickelodeon/Nick at Nite, The Discovery Channel, Arena and Red. XYZ has entered
into an agreement that provides for carriage of its four channels by virtually
all existing Australian MMDS and DTH providers, including CEtv, Australis Media
Limited ("Australis") and East Coast Television Pty Limited ("ECT"), as well as
by the largest cable television operator in Australia, Foxtel Management Pty
Limited ("Foxtel"). The Company believes that this agreement, which extends
through 2010 for MMDS and DTH subscribers and 2020 for Foxtel subscribers and
provides for fixed per subscriber prices (and in the case of Foxtel,
substantial minimum subscriber guarantees), will cause XYZ's programming
package to be available to virtually all of Australia's 6.0 million television
households through at least 2010. Foxtel, which owns 50% of XYZ, is a joint
venture between News Corporation Limited and Telstra Corporation Limited
("Telstra"), the Australian government-owned telephone company. The Company's
other partner in XYZ is Century Communications Corp. ("Century"), a large U.S.
multiple system cable operator and the parent of ECT. XYZ launched its channels
in April 1995 and as of May 31, 1996, XYZ provided its channels to
approximately 200,000 subscribers in Australia.
5
<PAGE>
SATURN (NEW ZEALAND)
The Company believes that New Zealand is an attractive market for multi-
channel television providers. New Zealand has a demographic profile similar to
Australia, including high per capita income and strong television and VCR
penetration. In addition, New Zealand permits operators to offer combined
multi-channel television and telephony services over one network. The New
Zealand multi-channel television market is also relatively undeveloped with
only one competitor currently offering a five-channel UHF subscription service.
The Company owns a 100% of Saturn Communications Limited ("Saturn"), which
has begun constructing an integrated wireline cable network that will allow it
to provide multi-channel television services to approximately 135,000 homes in
the Wellington area as well as business and residential telecommunications
services. Wellington is New Zealand's capital and its second largest city.
Saturn expects construction of its Wellington network to be completed in 1997.
In addition, Saturn owns a wireline cable television system on the Kapiti
Coast, north of Wellington, that as of May 31, 1996, passed approximately 6,000
homes, of which approximately 4,500 had been marketed, and serviced
approximately 1,150 subscribers.
TELEFENUA (TAHITI)
The Company believes Tahiti is an attractive multi-channel television market
due to the favorable competitive environment, Tahiti's relatively high income
levels and the Tahitian consumers' high propensity to spend on entertainment.
The Company holds an indirect 90% economic interest in Telefenua S.A.
("Telefenua"), a Tahitian MMDS operator that holds 30-year local franchises,
many of which are exclusive, to provide multi-channel television services to
approximately 31,000 serviceable homes on the islands of Tahiti and Moorea.
Telefenua has completed the initial phase of construction of its MMDS system
and is currently marketing its 14-channel service to approximately 17,500
homes. As of May 31, 1996, Telefenua had approximately 4,400 subscribers
(representing a 25% penetration rate) paying an average monthly rate of
approximately $65. Telefenua is currently expanding its network to reach all
31,000 serviceable homes in its franchise areas. Telefenua's only subscription
television competitor offers a single-channel UHF-delivered service for
approximately the same price as Telefenua's service. See "Regulation--Tahiti."
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
In September 1995, the Company acquired a 100% interest in BellSouth Mobile
Data Australia Pty Limited ("BellSouth Mobile Data"), which was renamed United
Wireless Pty Limited ("United Wireless"), a provider of two-way wireless mobile
data services in Australia. United Wireless is providing wireless data services
on a limited basis in Sydney, Melbourne and Brisbane. The wireless mobile and
fixed data industry is in an early stage of development; services were first
introduced on a limited basis in 1992. In order to meet growing demand for its
services, United Wireless is in the process of expanding and upgrading its
existing networks and deploying additional networks in other capital cities.
6
<PAGE>
COMPANY STRENGTHS
The Company believes that it is well positioned to capitalize on its progress
to date and to establish itself as a leading provider of multi-channel
television and related services in each of its markets. The Company benefits
from the following:
. ATTRACTIVE DEMOGRAPHICS OF TARGET POPULATIONS. Each of the countries in
which the Company operates has demographics and other characteristics
that are favorable to multi-channel television operators. Australia, New
Zealand and Tahiti are all characterized by high per capita incomes and
high television and VCR penetration rates. Television viewers in those
countries, however, have limited over-the-air television options. In
addition, consumers in each of these markets are generally receptive to
new technologies and services, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of the Company's markets, compared to the
comparable statistic for the more mature multi-channel television markets
of the United States and the United Kingdom:
<TABLE>
<CAPTION>
GDP PER YEARS OF TELEVISION SUBSCRIPTION CELLULAR
CAPITA HOMES WITH SUBSCRIPTION HOMES TELEVISION TELEPHONE
IN 1994 TELEVISION TELEVISION WITH VCR PENETRATION PENETRATION
------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $25,900 99% 40+ 80% 66% 13%
Australia............... 19,544 99 1 85 3 17
New Zealand............. 16,484 99 6 78 17 10
Tahiti.................. 14,340 99 2 66 21 N/A
United Kingdom.......... 15,800 97 12 72 23 10
</TABLE>
. LICENSE RIGHTS/LIMITED COMPETITION. CEtv believes that its exclusive MMDS
licenses, franchise agreements and status as the first entrant in its
markets provide significant competitive advantages in its franchise
areas. CEtv owns virtually all of the available MMDS licenses exclusive
in its franchise areas and is aggressively constructing its systems and
marketing its services. CEtv believes that its early entrance into and
rapid construction throughout its markets will enable it to continue to
build customer loyalty and establish a meaningful subscriber base within
the next twelve months. CEtv believes that the relatively low housing
densities and relatively small size of the individual markets in the
substantial majority of its franchise areas generally do not support the
higher cost of wireline cable construction. In addition, CEtv has entered
into franchise agreements providing it with the exclusive right through
2004 (which is extendable at CEtv's option through 2014) to offer the
Galaxy programming package over all technologies (MMDS, DTH and wireline
cable) in its franchise areas. These franchise agreements provide that
the franchisor will not grant the right to any other person to transmit
the Galaxy package over any transmission technology in CEtv's franchise
areas. See "Business--CEtv (Australia)--Australis Franchise Agreements."
Similarly, Telefenua has secured exclusive MMDS spectrum and 30-year local
franchise rights, the majority of which are exclusive, on the islands of
Tahiti and Moorea. Tahitians have limited television viewing options with
only two free-to-air broadcast channels and one subscription television
service offering a single channel of movies and sports programming at
approximately the same price as Telefenua's 14-channel service.
. SECURED PROGRAMMING RIGHTS. The Company has secured attractive and
diverse programming for each of its markets. In Australia, CEtv has
entered into franchise agreements providing it with the exclusive right
through 2004 (which is extendable at CEtv's option through 2014) to offer
the Galaxy programming package over all technologies (MMDS, DTH and
wireline cable) in all of its franchise areas. See "Business--
CEtv(Australia)--Australis Franchise Agreements." Management believes
that the Galaxy channels represent the premier programming package
available in Australia and that CEtv's right to broadcast the Galaxy
package provides a significant competitive advantage in substantially all
of its franchise areas. CEtv has secured additional satellite-delivered
programming services, including CNBC, TNT, BBC World Service and CMT, to
supplement the Galaxy package to its MMDS customers.
7
<PAGE>
Saturn offers a basic package of 22 channels and is actively seeking to
expand its channel line-up, including the introduction of pay-per-view
services. There are currently only four national broadcast networks in New
Zealand and one multi-channel television provider which offers a five-
channel UHF delivered subscription service. Telefenua provides a basic and
premium package consisting of nine and fourteen channels, all of which,
except for CNN International and ESPN International, are in French (the
primary language spoken in Tahiti). There are currently two national
networks in Tahiti and one competing subscription television operator
which provides a single-channel service for approximately the same price
as Telefenua's 14-channel service.
. SUCCESSFUL SERVICE LAUNCH. CEtv and Telefenua have successfully launched
their respective services and have achieved high penetration rates
through aggressive and focused marketing. As of May 31, 1996, CEtv had
launched MMDS service in markets containing approximately 422,000 homes.
CEtv believes that its operating results to date demonstrate that there
is strong demand for its services. As of May 31, 1996, CEtv had achieved
a penetration rate of 14% of those homes in its franchise areas for which
CEtv had completed its initial direct marketing program. CEtv plans to
complete construction of its MMDS systems and initiate the marketing of
rural DTH services in all of its franchise areas (encompassing
approximately 1.5 million serviceable homes) by the end of 1996.
Telefenua has completed construction of its MMDS system in areas
containing approximately 17,500 homes and expects to complete the
construction of its systems by the end of 1996. As of May 31, 1996,
Telefenua completed its initial marketing to these homes and had already
achieved a 25% penetration rate. XYZ began offering its programming
service in April 1995, and as of May 31, 1996, XYZ's channels were
distributed to approximately 200,000 subscribers.
. ABSENCE OF PRICING REGULATION. The Company's systems are generally not
subject to pricing or tiering restrictions and have limited content
requirements. See "Regulation." These regulatory environments will enable
the Company to pursue optimal multi-channel television pricing and
programming structures, including attractive basic rates to maximize
penetration with incremental charges for additional services such as
expanded tiers and premium channels.
. STRONG LOCAL MANAGEMENT. Each of the Company's operating systems are
managed by a team of experienced professionals selected by UIH. These
management teams consist of senior professionals who have participated in
the successful launch and management of multi-channel television
operations in the U.S. and international markets. In addition, UIH
provides management and technical support to each of the Company's multi-
channel television systems under the terms of technical service
agreements (each, a "Technical Service Agreement"). See "Certain
Relationships."
SPONSORSHIP BY UNITED INTERNATIONAL HOLDINGS, INC.
The Issuer is an indirect majority owned subsidiary of UIH, a leading
provider of multi-channel television services outside the United States. UIH
together with its strategic and financial partners, have ownership interests in
multi-channel television systems in operation or under construction in 24
countries in Europe, Latin America, Asia and the Pacific. As of December 31,
1995, UIH's multi-channel television systems had approximately 8.5 million
television homes in their respective service areas, passed approximately 4.7
million homes and had approximately 2.5 million subscribers. Many of these
multi-channel television systems were built by, or are currently in
construction under the direction and management of, UIH. Through May 31, 1996,
UIH and its partners had invested total debt and equity capital of
approximately $142.0 million to fund the initial construction and marketing of
the Operating Companies. In addition, UIH also invested a total of
approximately $50.7 million in cash and preferred stock to acquire an
additional 40% interest in CEtv.
8
<PAGE>
UIH and each of CEtv, Saturn and Telefenua are parties to Technical Service
Agreements, pursuant to which UIH provides its expertise in system design and
engineering, construction, marketing, programming acquisition, subscriber
management and other areas critical for the success of each Operating Company
for a fee based, in part, upon the revenues of such Operating Companies. In
addition, UIH and the Company are parties to a management agreement (the "UIH
Management Agreement"), pursuant to which UIH performs certain administrative,
accounting, financial reporting and other services for the Company for a fee.
See "Certain Relationships."
AUSTRALIS TRANSACTION AND AUSTRALIS SETTLEMENT
On April 19, 1996, a group consisting of Publishing and Broadcasting Limited
("PBL"), Lenfest Communications Inc. ("Lenfest"), UIH, and Guiness Peat Group
PLC ("Guiness Peat") (the "Guarantors") committed (the "Australis Transaction")
to make or procure guarantees for a total of $125.0 million of obligations of
Australis, a principal supplier of CEtv's programming, under a new Australis
bank facility (the "Australis Bank Facility"). The Company understands that
approximately $105 million of the available credit and other cash on hand had
been drawn as of June 15, 1996. Pursuant to the Australis Transaction, UIH
formed a subsidiary ("UIH AML") that guaranteed $10.0 million of the Australis
Bank Facility (the "Australis Guarantee"). UIH contributed $10.0 million in
cash to UIH AML, which cash was used to collateralize the guarantee. The Issuer
acquired UIH AML on May 14, 1996 for $10.0 million in cash. In connection with
the Australis Transaction, UIH AML received warrants to purchase approximately
4.2 million ordinary shares or convertible notes of Australis at an exercise
price of A$0.20 per share (the "Australis Warrants"). UIH AML has agreed to
acquire $4.0 million of ordinary shares or convertible notes of Australis by
converting a portion of the Australis Guarantee (at a conversion price of
A$0.545 per share) or exercising the Australis Warrants, subject to certain
conditions described below. See "Australis Transaction."
Pursuant to the terms of its franchise agreements with Australis, CEtv was
granted the exclusive license and right to distribute the Galaxy programming
package in its franchise areas. In March 1995, Australis granted Foxtel a
license to distribute the Galaxy package over cable television systems
throughout Australia, including CEtv's franchise areas. The Company believes
that because of such action Australis was in breach of its franchise
agreements. Foxtel is currently distributing Galaxy programming on its cable
television system in the Gold Coast. On June 19, 1996, CEtv and the Company
agreed, subject to certain conditions described below, to settle their dispute
with Australis with respect to this matter (the "Australis Settlement"). As
part of the Australis Settlement, the parties agreed that Australis is entitled
to grant Foxtel the non-exclusive right to distribute Galaxy programming by
cable, but that Foxtel may not sublicense or assign this right without CEtv's
consent. Australis agreed to pay to CEtv an amount equal to the amount
Australis received from Foxtel for programming service for the period from
March 1995 through June 30, 1996, less the amount Australis paid to third party
programming suppliers for such programming with respect to Foxtel subscribers
located in CEtv's franchise areas during such period. In addition, from June
30, 1996 though the term of the franchise agreements, CEtv has the right to in
its sole discretion, to either: (i) sublicense to Foxtel the right to transmit
the services provided to it by Australis (and any other services) by cable
transmission in its franchise areas or (ii) require Australis to pay to it an
amount each month equal to the sum of (a) the greater of A$4.50 per subscriber
and all revenues (less programming costs) per subscriber during such month
received under the agreement between Foxtel and Australis with respect to
Foxtel subscribers located in CEtv's franchise areas and (b) an additional
amount (if any) to put CEtv in the position that it would have been in had it
sublicensed the services provided to it by Australis directly to Foxtel. The
Company believes that, because its programming costs are less than the revenue
to be generated by sublicensing such programming to Foxtel, the benefits to be
gained from this portion of the Australis Settlement will be substantial over
the years. As part of the Australis Settlement, Australis agreed to extend the
term of the franchise agreements by five years to an initial 15-year term and
amended favorably certain financial and strategic terms of the franchise
agreements. As part of the Australis Settlement, the Company has agreed to
waive and release any claim that it has or may have against Australis with
respect to Australis' actions with respect to Foxtel as such actions relate to
CEtv's franchise agreements, and the Company has also agreed not to make any
objection or claim against Australis or Foxtel in connection with Australis'
license agreement with Foxtel. Effectiveness of the Australis Settlement is
subject to completion of anticipated financing to Australis of at least $250
million, including at least $50 million of equity (the "Australis Financing"),
which conditions may be waived by the Company and CEtv. See "Business--CEtv
(Australia)--Competition" and "Risk Factors--Reliance on Australis and Other
Principal Suppliers." In connection with the Australis Settlement, the Company
and Australis have agreed for the Company to purchase Australis' 6% interest in
CEtv for approximately $8.0 million.
9
<PAGE>
OTHER
The Issuer was incorporated in 1994 as a Colorado corporation. The principal
executive office of the Company is located at 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, and its telephone number is (303) 770-4001.
THE EXCHANGE OFFER
Securities Offered.......... Up to $443.0 million principal amount at maturity
of New Notes. The terms of the New Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and reg-
istration rights relating to the Old Notes and
except for certain special interest provisions
relating to the Old Notes summarized below under
"--The New Notes."
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount at maturity of Old Notes.
The issuance of the New Notes is intended to sat-
isfy obligations of the Company contained in the
Registration Rights Agreement (the "Registration
Rights Agreement") dated May 14, 1996, by and
among the Issuer, Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated as the initial purchasers with respect to
the initial sale of the Old Notes (the "Initial
Purchasers"). For procedures for tendering, see
"The Exchange Offer."
Expiration Date; The Exchange Offer will expire at 5:00 p.m., New
Withdrawal................. York City time, on , 1996, or such later
date and time to which it is extended (the "Expi-
ration Date"). Each holder tendering Old Notes
must acknowledge that it is not engaging in, nor
intends to engage in, a distribution of the New
Notes. The tender of the Old Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be re-
turned without expense to the tendering holder
thereof as promptly as practicable after the ex-
piration or termination of the Exchange Offer.
Federal Income Tax In the opinion of counsel, the exchange of Notes
Consequences............... pursuant to the Exchange Offer should not consti-
tute a taxable exchange for federal income tax
purposes. See the discussion under "Certain U.S.
Federal Income Tax Considerations."
Use of Proceeds............. There will be no proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Exchange Agent.............. American Bank National Association is serving as
Exchange Agent in connection with the Exchange
Offer.
Shelf Registration Under certain circumstances, certain holders of
Statement.................. Notes (including holders who may not participate
in the Exchange Offer, or who may not freely re-
sell New Notes received in the Exchange Offer)
may require the Issuer to file, and cause to be-
come effective, a shelf registration statement
under the Securities Act, which would cover re-
sales of Notes by such holders. See "Description
of Notes--Registration Rights."
10
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, Holders of Old Notes (other than any Holder who is an "affiliate"
of the Issuer within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, that such New Notes are acquired in
the ordinary course of the Holders' business and such Holders, other than
brokers-dealers, are not engaged in do not intend to engage in and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register thereunder the New Notes prior to offering or selling such New
Notes. The Issuer has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
New Notes held by broker-dealers for offer or sale under the securities or blue
sky laws of such jurisdictions as any such holder of such New Notes reasonably
requests in writing. Unless the Issuer is so requested the Issuer does not
intend to register or qualify the sale of the New Notes in any such
jurisdictions. If a Holder of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old Notes will continue to be
subject to provisions of the Indenture regarding transfer and exchange of the
Old Notes and the restrictions on transfer contained in the legend on the Old
Notes. In general, Old Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "The Exchange Offer--Consequences of Failure to Exchange" and
"Registration Rights--The Notes."
THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except (i) for certain transfer restrictions and registration rights
relating to the Old Notes and (ii) that, if the Exchange Offer is not
consummated by , 1996, or if the Company fails to comply with certain
other registration obligations with respect to the Old Notes, Liquidated
Damages shall accrue on the Old Notes at a rate of up to 2.50% per annum of the
Accreted Value of the Old Notes. Any Liquidated Damages on the Old Notes will
be payable in cash semiannually in arrears each May 15 and November 15,
commencing November 15, 1996. See "Registration Rights--The Notes."
Securities Offered.......... Up to $443.0 million principal amount at maturity
of 14% Senior Discount Notes Due 2006, Series B.
Maturity.................... May 15, 2006.
Yield and Interest.......... 14% per annum (computed on a semiannual bond
equivalent basis) calculated from May 14, 1996.
Cash interest on the Notes will not accrue prior
to May 15, 2001. Thereafter, cash interest on the
Notes will accrue at a rate of 14% per annum, and
will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. If the
Issuer does not consummate, subsequent to the Is-
sue Date and on or prior to May 15, 1997, an Eq-
uity Sale, then from such date through May 15,
2001 the principal amount of the Notes will
accrete, and, from and after May 15, 2001, cash
interest will accrue on the Notes, at an addi-
tional 0.75% per annum, until such time as the
Issuer effects an Equity Sale.
11
<PAGE>
Contingent Warrants......... If the Issuer does not effect an Equity Sale sub-
sequent to the Issue Date and on or prior to No-
vember 15, 1997, the holders of the Notes will be
entitled to receive Warrants exercisable for 3.0%
of the Common Stock of the Issuer or, in certain
circumstances, of Parent, on a fully diluted ba-
sis as of the date of such issuance after giving
affect to the exercise of such Warrants. See "De-
scription of the Securities--Description of the
Warrants" and "Description of Capital Stock." The
Issuer currently intends to complete an Equity
Sale before May 15, 1997 so that no Warrants
would be issued pursuant to the terms of the
Notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation--
Liquidity and Capital Resources."
Federal Income Tax
Matters.................... The Old Notes were issued on May 14, 1996, at an
issue price of $508.16 per $1,000 principal
amount at maturity. The New Notes will have sub-
stantial "original issue discount" for United
States federal income tax purposes. Thus, al-
though cash interest will not be payable on the
Notes prior to November 15, 2001, original issue
discount will accrue from the issue date of the
Notes and will generally be included as interest
income periodically in a Noteholder's gross in-
come for United States federal income tax
purposes in advance of receipt of the cash pay-
ments to which the income is attributable. See
"Certain U.S. Income Tax Considerations--Taxation
of Original Issue Discount."
Optional Redemption......... The Notes may be redeemed, in whole or in part,
at the option of the Issuer, at any time on or
after May 15, 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, at any time
prior to May 15, 1999, the Issuer may redeem up
to 33% of the aggregate principal amount at matu-
rity of the Notes with the net proceeds of cer-
tain public or private sales of equity interests
of the Issuer at a redemption price equal to 113%
of the Accreted Value thereof on the redemption
date; provided that not less than 67% of the
principal amount at maturity of the Notes origi-
nally issued are outstanding immediately after
giving effect to such redemption. See "Descrip-
tion of the Securities--Description of the
Notes--Redemption."
Ranking..................... The Notes will be senior unsecured obligations of
the Issuer and will rank pari passu in right and
priority of payment with all existing and future
indebtedness of the Issuer, other than indebted-
ness that by its terms is expressly subordinated
in right and priority of payment to the Notes.
The Issuer conducts all of its business through
its subsidiaries and the Notes will be effec-
tively subordinated to the claims of creditors of
such subsidiaries. As of March 31, 1996, after
giving effect to the sale of the Old Notes and
the use of proceeds therefrom, the Issuer and its
subsidiaries would have had an aggregate of ap-
proximately $243.7 million of consolidated lia-
bilities outstanding (including trade payables of
subsidiaries and the Notes) all of which except
for the Notes, would have been obligations of the
Issuer's
12
<PAGE>
subsidiaries and effectively rank prior in right
of payment to the Notes. See "Capitalization."
Change of Control........... Upon a Change of Control, each holder of the
Notes will have the right to require the Issuer
to purchase such holder's Notes at 101% of the
Accreted Value thereof, in the case of any such
purchase prior to May 15, 2001, or 101% of the
principal amount at maturity thereof, plus ac-
crued and unpaid interest, if any, in the case of
any such purchase on or after May 15, 2001. A
Change of Control includes the sale by the Issuer
of substantially all of its assets. As what con-
stitutes "substantially all of its assets" has
not been quantified under applicable law, it may
not be possible for the Trustee or a holder of
the Notes to readily determine if a sale by the
Issuer of less than all of its assets constitutes
a Change of Control for purposes of this cove-
nant. See "Description of the Securities--De-
scription of the Notes--Certain Covenants--Change
of Control."
Certain Covenants........... The indenture under which the Notes will be is-
sued (the "Indenture") will contain certain cove-
nants which, among other things, will restrict
the ability of the Issuer and/or its Restricted
Subsidiaries (as defined herein) to (i) incur ad-
ditional indebtedness or issue certain preferred
stock, (ii) pay dividends or make distributions
in respect of the capital stock of the Issuer or
make certain other Restricted Payments, (iii)
conduct a business other than a Related Business
(as defined herein) or transfer certain assets to
certain subsidiaries, (iv) create certain liens,
(v) enter into certain transactions with affili-
ates or other interested persons and (vi) consum-
mate certain asset sales. In addition, the Inden-
ture will limit the ability of the Issuer to con-
solidate, merge or sell all or substantially all
of its assets. These covenants are subject to im-
portant exceptions and qualifications. See "De-
scription of the Notes."
THE WARRANTS
Issuance of Warrants........
If the Issuer does not consummate an Equity Sale
subsequent to the Issue Date and on or prior to
November 15, 1997, the Issuer will be obligated
to issue Warrants to the holders of the Notes. At
the Issuer's option, this obligation may be sat-
isfied by the issuance of Warrants by the Is-
suer's Parent. See "Description of Securities--
Description of Warrants." The Issuer currently
intends to complete an Equity Sale before May 15,
1997 so that no Warrants would be issued pursuant
to the terms of the Notes. See "Management's Dis-
cussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Re-
sources."
Total Number of Warrants.... The Warrants will, if issued, entitle the holders
thereof to acquire initially such number of
shares of Common Stock (the "Warrant Shares")
collectively representing 3.0% of the outstanding
Common Stock of the Issuer or the Parent, as the
case may be, on a fully-diluted basis as of the
date of such issuance after giving effect to
13
<PAGE>
the issuance of such Warrant Shares. See "De-
scription of Securities--Description of the War-
rants." The Warrants will be issued pursuant to
the Warrant Agreement (as defined).
Expiration Date............. May 15, 2006.
Exercise.................... Each Warrant will entitle the holder thereof to
purchase one share of Common Stock of the Issuer
or the Parent, as the case may be, at an exercise
price equal to (i) $4.5 million, divided by (ii)
the aggregate number of Warrant Shares issuable
upon exercise of all of the Warrants as of the
date the Warrants are issued. The number of
shares of Common Stock for which a Warrant is ex-
ercisable is subject to adjustment upon the oc-
currence of certain events as provided in the
Warrant Agreement.
Registration Rights......... If the Warrants are issued, the Issuer will agree
pursuant to the Warrant Agreement to cause a
shelf registration statement (the "Warrant Shelf
Registration Statement") to be filed under the
Securities Act covering the Warrant Shares and,
if required under applicable law, the Warrants
and to use its best efforts to cause the Warrant
Shelf Registration Statement to be declared ef-
fective by the Commission on or prior to the date
the Warrants are issued. If the Issuer does not
comply with its registration obligations under
the Warrant Agreement, it will be required to pay
liquidated damages to holders of the Warrants un-
der certain circumstances. See "Exchange Offer;
Registration Rights."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Securities that should be considered by Holders who tender
their Old Notes in the Exchange Offer.
14
<PAGE>
SUMMARY OPERATING DATA
The following table sets forth certain unaudited financial and operating data
of certain of the Operating Companies. The table reflects aggregate statistics
of the multi-channel television systems and programming venture in which the
Issuer has an ownership interest rather than the Issuer's proportionate
interest in such statistics. See "Business" for a full description of the
Operating Companies and the Issuer's ownership interest therein.
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
------------------------------------------------------------
TELEVISION CUMULATIVE
HOMES IN PENETRATION SHAREHOLDER ECONOMIC
SERVICE HOMES HOMES TO HOMES FUNDING AS OF OWNERSHIP
OPERATING SYSTEM AREA PASSED MARKETED(1) SUBSCRIBERS MARKETED MAY 31, 1996(2) INTEREST(3)
- ------------------------ ---------- --------- ----------- ----------- ----------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CEtv $81,600(4) 94.0%
MMDS(5)................ 800,000 422,000 148,638 21,412 14%
DTH.................... 700,000 700,000 -- 2,212 -- (6)
Saturn.................. 141,000 6,000 4,500 1,129 25% 12,020(7) 100.0%
Telefenua............... 31,000 17,458 17,458 4,392 25% 14,300 90.0%
XYZ..................... N/A(8) N/A N/A 200,000(9) N/A 31,510 25.0%
--------- --------- ------- --------
Total................. 1,672,000 1,145,458 170,596 $139,430(4)
========= ========= ======= ========
</TABLE>
- --------------------
(1) Homes Marketed represent those homes to which the Company has completed its
initial direct marketing program.
(2) Includes all debt and equity funding contributed to the respective
Operating Companies by the Issuer and its partners. Certain amounts
contributed by the Company's partners were contributed in currencies other
than U.S. dollars. Such amounts have been translated to U.S. dollars using
a convenience translation.
(3) The Company holds, directly and indirectly, a combined 94% economic
interest, through a combination of convertible debentures and ordinary
shares, in the two corporations that comprise CEtv. The Company currently
has the right to designate all six directors of each of these entities. In
connection with the Australis Settlement, the Company and Australis have
agreed, subject to certain conditions, for the Company to acquire
Australis' approximate 6% economic interest in CEtv for approximately $8.0
million. See "Corporate Organizational Structure--CEtv" and "Risk Factors--
Compliance with Australian Foreign Ownership Restrictions." The Company's
interest in Telefenua is held through several intermediate partnerships and
holding companies. Generally, the Company is entitled to receive 90%, and
then 75%, of all economic distributions from Telefenua until such time as
it has received a 20% and 40% rate of return on its invested capital,
respectively. Thereafter, the Company is entitled to receive 64% of all
economic distributions. The Company controls 40% of the voting power of
Telefenua's parent company and has the right to designate three of its six
directors. See "Corporate Organizational Structure--Telefenua." The Company
holds a 50% interest in a company that holds a 50% interest in XYZ. See
"Corporate Organizational Structure--XYZ."
(4) Does not include approximately $50.7 million paid by UIH to acquire
additional ownership interests in CEtv. See "Corporate Organizational
Structure--CEtv."
(5) CEtv intends to construct MMDS systems in markets containing approximately
774,000 television homes. Homes in these markets which are out of the line-
of-sight of the MMDS signals will be offered the DTH service which CEtv is
marketing on an exclusive basis. Also includes a wireline cable system with
25,700 homes in the service area.
(6) CEtv initiated DTH marketing efforts in late March 1996. The Company is in
the early stages of marketing these homes, all of which are capable of
receiving service.
(7) In July 1996, the Company acquired its partner's 50% interest in Saturn
(bringing its ownership interest to 100%) in exchange for a 2.6% common
equity interest in the Issuer. The amount does not include the value of
this 2.6% interest.
(8) The Company expects that XYZ's programming package will be marketed to
virtually all of Australia's 6.0 million television households by
Australian multi-channel television providers, including CEtv, Australis,
Foxtel and ECT.
(9) Total estimated subscribers to the eight channel Galaxy package to which
XYZ supplies four channels.
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summary consolidated financial data for the years ended
December 31, 1994 and 1995, have been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP,
independent public accountants, whose report indicated a reliance on other
auditors relative to certain amounts relating to the Company's interest in
Telefenua and XYZ as of and for the year ended December 31, 1995. The following
summary consolidated financial data for the three months ended March 31, 1995
and 1996, and at March 31, 1996, have been derived from unaudited financial
statements that, in the opinion of the management of the Company, reflect all
adjustments, consisting of normal recurring adjustments, necessary to fairly
present the financial data for such periods and as of such date. The pro forma
statement of operations data for the year ended December 31, 1995 and the three
months ended March 31, 1996 (i) includes the results of operations of CEtv, in
which the Company increased its economic ownership to 90% from 50% in December
1995 (the "CEtv Transaction"), which interest was subsequently increased to 94%
in May 1996, (ii) reflects the sale of a 25% interest in XYZ (reducing the
Issuer's interest to 25% from 50%) in September 1995 (the "XYZ Sale"), (iii)
includes the results of operations of Saturn, in which the Company has
increased its ownership from 50% to 100% in July 1996 (the "Saturn Purchase")
and (iv) includes the eight months of operations of United Wireless (the
"United Wireless Purchase") as if each such transaction had occurred on January
1, 1995. The data set forth below is qualified by reference to and should be
read in conjunction with the audited Consolidated Financial Statements of the
Company and Notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Pro Forma Consolidated Condensed
Financial Information" included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
------- -------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenue......... $ -- $ 1,883 $ 2,507 $ 96 $1,934 1,986
Operating expense....... -- (3,230) (5,573) (191) (5,083) (5,335)
General and administra-
tive expense........... (659) (3,402) (11,926) (389) (2,336) (2,775)
Depreciation and amorti-
zation expense......... -- (1,003) (6,357) (85) (2,748) (3,002)
Equity in losses of af-
filiated companies,
net.................... (1,015) (16,379) (7,597) (1,494) (1,033) (632)
Net loss................ (1,674) (17,233) (26,760) (2,012) (8,664) (9,750)
Ratio of earnings to
fixed charges(1)....... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................ $113,181 $324,982
Long-term debt...................................... 1,685 226,800
Total liabilities................................... 39,701 243,702
Total shareholders' equity.......................... 71,586 79,386
</TABLE>
- --------------------
(1) Earnings were inadequate to cover fixed charges in each of the periods
presented. The amount of the coverage deficiencies for the years ended
December 31, 1994 and 1995 and pro forma 1995 and the three months ended
March 31, 1995 and 1996 and pro forma 1996 were $1.1 million, $12.9, $51.8
million, $1.7 million, $8.0 million and $18.1 million respectively. See
"Risk Factors--Leverage; Debt Service." In calculating the ratio of
earnings to fixed charges, earnings consist of (i) net loss before income
tax expense and fixed charges plus (ii) the pro rata share of the losses
recognized in minority owned affiliates.
(2) As adjusted for the Notes Offering and the application of the net proceeds
thereof and the Saturn Purchase. See "Use of Proceeds." Total assets
includes $10.0 million of restricted cash collateralizing the Australis
Guarantee. Long-term debt does not include the $10.0 million Australis
Guarantee. See "Australis Transaction."
16
<PAGE>
RISK FACTORS
Holders should consider carefully the following Risk Factors, as well as the
other information set forth in this Prospectus, before tendering their Old
Notes in the Exchange Offer.
Holding Company Structure; Limitations on Access to Cash Flow. The Issuer is
a holding company with no business operations of its own. The Issuer's assets
consist primarily of its ownership interests in the Operating Companies. The
Notes will be effectively subordinated to all existing and future indebtedness
and other liabilities of such Operating Companies since the Issuer's right to
receive any distribution from any such Operating Company upon its liquidation
or reorganization will be subject to prior satisfaction of the claims of such
Operating Company's creditors (including trade creditors). As of December 31,
1995, (i) CEtv, in which the Issuer has a 94% economic interest, which is
expected to soon be increased to 100%, had $5.4 million of related party loans,
$890,000 of capital lease obligations and $6.5 million of other liabilities,
(ii) XYZ, in which the Issuer has an indirect 25% interest, had $21.6 million
of related party loans and $16.1 million of other liabilities, (iii) Saturn, in
which the Issuer has a 100% interest, had $2.0 million of related party loans
and $793,000 of liabilities, (iv) Telefenua, in which the Issuer has a 90%
economic interest in distributable profits, had $8.6 million of related party
loans and $1.1 million of liabilities, and (v) United Wireless, which is a
wholly-owned subsidiary of the Issuer, had no debt and $275,000 of liabilities.
Some of these liabilities include fees payable under Technical Service
Agreements. See "Certain Relationships." The Operating Companies are expected
to incur additional indebtedness in connection with the build-out of their
systems, working capital requirements and development costs. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations--
Liquidity and Capital Resources." The Indenture will limit, but not prohibit,
the ability of the Issuer and the Restricted Subsidiaries to incur additional
Indebtedness. As of the date of the Indenture, only CEtv and Telefenua will be
Restricted Subsidiaries under the Indenture. See "Description of the Notes--
Certain Covenants." The indentures governing UIH's Senior Discount Notes Due
1999 (collectively, the "UIH Indenture") place restrictions on Saturn's and
XYZ's ability to incur debt. The Issuer's obligations under the Notes will be
effectively subordinated to any such additional indebtedness of its Operating
Companies.
The Issuer's ability to access the cash flow of its Operating Companies is
limited by certain contractual, legal and practical limitations. The Issuer
does not own a majority interest in XYZ and, therefore, does not have the
ability to cause XYZ to distribute or advance funds to the Issuer. The ability
of the Issuer to access the cash flow of its Operating Companies is currently
subject to corporate, tax and other laws affecting the ability of such
Operating Companies to make dividends or repatriate earnings freely or without
deduction, and may be in the future limited by restrictions in debt instruments
that are not prohibited by the Indenture. Because Saturn, XYZ and United
Wireless do not constitute Restricted Subsidiaries under the Indenture, the
Indenture will not restrict such Operating Companies from incurring debt or
liens or from entering into agreements which limit the ability of such
Operating Companies to make distributions to the Issuer. While the Issuer
currently owns a majority of the outstanding securities of CEtv presently
entitled to vote for the election of directors and has the right to designate
five of six directors of CEtv, such voting rights may, in certain
circumstances, be limited under the Australian Foreign Acquisitions and
Takeovers Act 1975 (the "FATA") and the Company may not be in a position to
control CEtv in the future. See "--Foreign Acquisition and Takeovers
Act/Investment Company Act Considerations."
Leverage; Debt Service. The Company is highly leveraged. In addition, the
Indenture permits the Company to incur substantial additional indebtedness to
finance the build-out of the multi-channel television systems of its Operating
Companies. See "--Need for Additional Financing." The Issuer's consolidated
earnings and the earnings of each of the Operating Companies have been
inadequate to cover their respective fixed charges since formation. On a pro
forma basis, for the year ended December 31, 1995, assuming that the Offering,
the CEtv Transaction, the XYZ Sale, the Saturn Purchase and the United Wireless
Purchase had been consummated as of January 1, 1995, the Issuer's pro forma
consolidated earnings would have been inadequate to cover its pro forma fixed
charges by $51.8 million. The Company expects that its earnings will be
inadequate to cover its fixed charges in the current fiscal year and for the
foreseeable future. While the Company expects that its EBITDA (as defined
below) will cover its fixed charges upon completion of construction and initial
marketing of its multi-
17
<PAGE>
channel television systems, there can be no assurance that the Company will
generate EBITDA sufficient to cover its fixed charges. (As used herein,
"EBITDA" represents net income (loss), plus net interest expense, income tax
expense, depreciation, amortization, minority interest, currency exchange
gains (losses) and other non-operating income (expense) items. The Company
believes industry analysts generally consider EBITDA to be an appropriate
measure of the performance of multi-channel television operators. EBITDA
should not be considered as an alternative to net income or to cash flows or
to any other measure of performance or liquidity as an indicator of an
entity's operating performance.)
The degree to which the Company is leveraged could have important
consequences to Holders who tender their Old Notes in the Exchange Offer,
including (i) the Company's increased vulnerability to adverse general
economic and industry conditions, (ii) the Company's ability to obtain
additional financing to fund future working capital requirements, capital
expenditures, acquisitions or other general corporate purposes, (iii) the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of and interest on indebtedness, thereby reducing
funds available for operations and future business opportunities, (iv) certain
of the Company's borrowings in the future may be at variable rates of interest
which could cause the Company to be vulnerable to increases in interest rates,
(v) the possibility that all or a substantial portion of the indebtedness of
the Operating Companies may mature prior to the maturity of the Notes and (vi)
the possibility that the Company will not have sufficient funds to pay
interest on the Notes and to repay the Notes at maturity or will not be able
to refinance the indebtedness thereunder at maturity. In addition, the
Indenture contains, and it is likely that agreements governing future
indebtedness will contain, covenants limiting the Company's operating and
financial flexibility.
Need for Additional Financing. The Company will require substantial
additional capital to complete the construction and initial marketing of its
Operating Companies' systems. The Issuer is responsible for at least its
proportionate share of the capital requirements of its Operating Companies and
has funded its share to date primarily with capital contributed directly or
indirectly by UIH. The Company anticipates that the proceeds from the sale of
the Old Notes (the "Notes Offering") will not provide sufficient funds to
complete the development of CEtv and Saturn and that, as a result, the Company
will require additional capital in the future. The Company estimates that a
total of approximately $411.3 million will be required to complete the build-
out of its Operating Companies' systems, of which the Company currently
anticipates being required to contribute approximately $391.9 million. The
Company intends to use approximately $174.1 million of the net proceeds of the
Notes Offering, together with the unrestricted cash on hand, to meet a portion
of its commitment, leaving approximately $235.3 million of additional capital
requirements for the Operating Companies, of which the Company would be
required to contribute approximately $216.0 million, assuming the Company
acquires the remaining 6% economic interest in CEtv. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Indenture places limitations
on the Issuer and its Restricted Subsidiaries from incurring debt to finance
the construction of its existing operating systems, and the UIH Indenture
limits the amount of debt that a Restricted Subsidiary or Restricted Affiliate
(as defined in the UIH Indenture) may borrow based upon, among other things,
the greater of (i) 5.0x Consolidated Cash Flow (as defined in the UIH
Indenture) of the particular entity or (ii) 200% of Consolidated Invested
Equity Capital (as defined in the UIH Indenture) of such entity, in both cases
measured at the time of incurrence. The Issuer and Operating Companies are
currently "Restricted" under the UIH Indenture. At May 31, 1996, pro forma for
the Notes Offering and the estimated use of proceeds therefrom, the Issuer
would have been permitted to borrow an additional $106.8 million under such
calculation. In order to meet its total expected remaining commitment of
approximately $216.0 million, the Issuer would have needed to increase its
Consolidated Invested Equity Capital by approximately $36.1 million in order
to increase its borrowing capacity by $72.1 million and provide it with the
total funds necessary to meet its commitments. Consolidated Invested Equity
Capital includes equity commitments by the Issuer's partners in the Operating
Companies which are expected to contribute approximately $19.4 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." As a result, the Issuer does not
expect to be required to raise additional equity capital in order to meet its
current business plan under the UIH Indenture. However, if the funding
requirements for the Operating Companies exceed management's budget or if
shareholders of the Operating Companies other than the Issuer fail to make pro
rata capital contributions, the Issuer may be required
18
<PAGE>
to raise additional capital and would have to raise a portion of such capital
in the form of equity in order to remain in compliance with the UIH Indenture.
See "--Reliance on Australis and Other Principal Suppliers." In any event, it
is the Issuer's current intention to pursue an initial public offering or
private placements of capital stock of its parent corporation in order to
raise additional equity capital to complete the build-out of its systems and
to seek the remainder through capital contributions from its shareholders and
privately negotiated transactions with third parties. The Issuer currently
intends to complete an Equity Sale before May 15, 1997 so that no additional
interest would accrete on the Notes and no Warrants would be issued pursuant
to the terms of the Notes. See "Description of Securities." A potential
investor has executed a term sheet providing for the acquisition of shares of
preferred stock of the Issuer's immediate parent corporation in an amount
sufficient to constitute an "Equity Sale," upon contribution of the net
proceeds of such sale to the Issuer. The proposed preferred stock acquisition
is subject to negotiation and execution of definitive agreements and
completion by the potential investor of its due diligence investigation of the
Company, which is currently underway. There can be no assurances that the
transaction will be completed. If this transaction is not completed, the
Company intends to pursue other alternatives so that an Equity Sale will be
completed on or before May 15, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation--Liquidity and Capital
Resources." The Company also expects to raise additional capital through
borrowings by the Issuer or the Operating Companies. There can be no
assurance, however, that the Company will be able to complete any debt or
equity financing on satisfactory terms on a timely basis. The restrictions
imposed by the UIH Indenture will be eliminated upon the retirement of UIH's
Notes at their maturity in November 1999, although similar restrictions may be
imposed if UIH refinances the retirement of such notes with new indebtedness.
There can be no assurance that the Company will be successful in securing
additional financing or that its estimated remaining commitments will not
substantially exceed anticipated amounts or that new projects requiring
further expenditures, and, accordingly, additional financing, will not be
undertaken.
History of Operating Losses; Negative Cash Flows. The Operating Companies
have experienced net losses since their respective formation. On a pro forma
basis, assuming the CEtv Transaction, the XYZ Sale and the Saturn Purchase had
each occurred as of January 1, 1995, the Company had consolidated net
operating losses of $20.3 million for fiscal 1995. The Issuer and the
Operating Companies expect to incur substantial additional net losses and net
operating losses for the foreseeable future as they pursue the development of
their respective multi-channel television systems and programming ventures and
there can be no assurance that such losses will not continue indefinitely. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, each of the Operating Companies has experienced net
losses, net operating losses and negative cash flows from operations since
formation, as each has been in the early stages of constructing and marketing
its respective operations. In fiscal 1995, net operating losses (translated
using a weighted average rate), for CEtv, Saturn, Telefenua and XYZ were $8.3
million, $2.6 million, $4.2 million and $28.9 million, respectively. From the
Company's acquisition of United Wireless in September 1995 through December
31, 1995, United Wireless had net operating losses of $589,000. Continuing net
losses, net operating losses and negative cash flows could increase the
Company's need for additional capital in the future. See "--Need for
Additional Financing."
Limited Operating History; Uncertainties Associated with a New Industry;
Customer Acceptance and Market Demand. Each of the Operating Companies is in
the initial stages of constructing its multi-channel television and
telecommunication systems and/or marketing its respective services. CEtv's
success will depend largely upon its ability to quickly deploy networks
throughout its franchise areas. The Company expects CEtv to complete the
launch of MMDS and DTH services throughout its franchise areas by the end of
1996. Saturn is in the start-up phase of constructing a full-service network
in its identified markets and its efforts to date have been focused on network
design, equipment procurement, securing pole attachment rights and conducting
market research, as well as servicing a small subscriber base which the
Company acquired from a predecessor company. Saturn does not expect to begin
marketing its services and connecting subscribers beyond its existing base
until late 1996. Telefenua launched its service in March 1995 and is still in
the early stages of marketing its services. The successful implementation of
the Company's operating strategies is subject to factors that may be outside
of
19
<PAGE>
the control of the Company and difficult to predict, due primarily to the
limited history of multi-channel television in Australia and Tahiti and of
integrated multi-channel television and telephony services in New Zealand. No
assurance can be given that such factors will not negatively affect the
implementation of such operating strategies and the Company's financial
results.
Subscription television services were not introduced in Australia and Tahiti
until 1995 and 1994, respectively. There can be no assurances that the Company
will experience and sustain the levels of customer acceptance required for the
Company to be successful. While the subscription television and
telecommunications markets in New Zealand have operating histories, there
currently are no fully operational integrated video and voice networks, such as
Saturn is building. As a result, the size of the New Zealand market for such
services, likely rates of penetration of services in this market, acceptance of
projected monthly rates for combined services, structure of the competitive
environment and long-term attractiveness of the integrated video and voice
business in New Zealand is unclear.
Reliance on Australis and Other Principal Suppliers. Timing of the Operating
Companies' delivery of multi-channel television services and, in New Zealand,
telephony services is, in part, dependent upon ample supply of network and
subscriber equipment for use in MMDS, DTH and wireline cable transmission. The
Operating Companies have entered into agreements with their suppliers which
meet management's launch schedule and projected subscriber requirements. There
can be no assurance that these suppliers' timely delivery of the necessary
equipment will continue or that the necessary equipment could be accessed from
other sources in the event such suppliers were unable to, or chose not to
provide the required equipment.
The Galaxy programming package is delivered via the Optus Satellite either
directly to CEtv's customers in the case of DTH or to CEtv's headends for
transmission to CEtv's MMDS customers. Any disruption in service of the Optus
satellite could adversely affect the Company. In addition, since the Optus
satellite is the only satellite until the end of June 1997 permitted to deliver
DTH programming in Australia, CEtv would not currently be permitted to seek
access to any other satellite as an alternate means of delivery for its DTH
network until that time. See "--Government Regulations; License Renewal."
Australis, CEtv's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. To fund working capital to continue to grow its
operations, in May 1996 Australis arranged guarantees of up to $125.0 million
in obligations under the Australis Bank Facility and sold certain equity
securities for a total of $10.0 million. In connection with the Australis
Transaction, $97.0 million of new capital on a short term basis was made
available to Australis. The Company understands that approximately $105 million
of the available credit and other cash on hand had been drawn as of June 15,
1996. Australis has indicated its intention to refinance the Australis Bank
Facility prior to its maturity through the sale of debt and/or equity
securities and/or the sale of assets to existing shareholders (which include
Lenfest, PBL, News Corp., Century, UIH and Guiness Peat) or third parties and
the Company understands that Australis has commenced a private offering of debt
securities. Australis has announced that its ability to continue as a going
concern is dependent on the success of this proposed offering. There can be no
assurance, however, that Australis will be able to secure adequate long term
financing on satisfactory terms or, if such financing is secured, how long such
financing will satisfy Australis' working capital needs. See "Australis
Transaction." If such financing is not obtained or is not sufficient, Australis
may have difficulty meeting obligations to pay for the four Galaxy channels
distributed directly by Australis, although TCI International Holdings, Inc.
and a significant shareholder of Lenfest have guaranteed the obligations with
respect to the two movie channels. The Company understands the insolvency of
Australis constitutes an event of default under its program supply agreements
for the sports and two movie channels included in the Galaxy package and would
allow the programmers, who are also investors in these channels, to cancel such
agreements. If Australis were to become insolvent and were unable to raise
sufficient financing from shareholders or third parties, certain of its
agreements, including its franchise agreement with CEtv, could be modified or
terminated by a bankruptcy liquidator if determined to be "unprofitable" and
such action is necessary for an orderly liquidation. The Company believes that
if CEtv is no longer able to obtain the four Galaxy channels provided by
Australis on an exclusive basis and it were required to seek replacement
programming, it would have access to the same programming directly from the
suppliers of the four Galaxy channels or sufficient alternative programming on
20
<PAGE>
competitive terms. There can be no assurance however, that this would be the
case and the inability of CEtv to procure the same or suitable alternative
programming at competitive rates and on an exclusive basis in its service
areas could have a material adverse effect on the Company.
Competitive Industry. The subscription television business in all the
countries in which the Company operates is and will remain competitive and is
subject to rapid change due to regulatory and other factors. CEtv currently
competes in one of its franchise areas with another provider of subscription
television services. This competitor also carries the Galaxy package, which
the Company believes is a breach of CEtv's franchise agreement. CEtv may face
competition as it launches service in other franchise areas. CEtv's existing
competitor has substantial financial resources. There is the prospect that
additional licenses in different spectra than the Company's existing MMDS
licenses may be granted in the future and, after July 1997, there will be no
statutory restriction on the issuance of additional licenses for the delivery
of DTH services throughout Australia. A number of satellites have been
launched recently and a number of additional satellites are anticipated to be
launched in the near future with the capability of delivering DTH services to
Australia. See "Business--CEtv (Australia)--Competition." Saturn expects to
compete with existing providers of multi-channel television and telephony
services in New Zealand, certain of which have substantially more resources
and experience than Saturn. See "Business--Saturn (New Zealand)--Competition."
Telefenua also competes with another provider of subscription television
services in its operating area. See "Business--Telefenua (Tahiti)--
Competition."
Deployment of Network; Access to Infrastructure; Construction Risk. The
construction of each of the Company's networks within management's cost
estimates and respective launch schedules is dependent upon factors outside of
its control. CEtv and Saturn require substantial construction of new systems
and additions to the physical plant of existing systems. Since the Australian
and New Zealand pay television markets are in their early development stages,
access to contractors experienced in the necessary deployment of video
networks in Australia and combined cable television and voice networks in New
Zealand is limited. The Company's continued access to and successful training
of contractors is a key element to meeting management's launch schedules, but
there can be no assurances as to such access. The Company's success will
depend upon its ability to quickly deploy networks throughout its service
areas. No assurance can be given that the Company will succeed with its
development schedule or that the Company's financial performance and results
of operations will not be adversely affected by its inability to do so.
Construction projects are subject to cost overruns and delays not within the
control of the Company or its subcontractors, such as those caused by acts of
governmental entities, financing delays and catastrophic occurrences. Delays
also can arise from design changes and material or equipment shortages or
delays in delivery. Services to buildings passed by the operating systems can
be delayed if easements are not obtained from third parties. Failure to
complete construction on a timely basis could jeopardize such Operating
Company's ability to preempt its competition and could have material adverse
effects on the financial condition and results of operations of one or more of
the Operating Companies.
Adequate transmission sites are necessary for the delivery of subscription
television services via MMDS in Australia and Tahiti. MMDS is a line-of-sight
technology and the Company's access to existing tower infrastructure and
receipt of public rights-of-way, permits, authorizations and environmental and
other approvals and leases or acquisitions of well-located sites to construct
transmission towers or repeaters is necessary for delivery of its services.
Inadequate access to infrastructure and qualified construction personnel could
delay CEtv's construction schedule and have a material adverse effect on
CEtv's or Telefenua's results of operations and financial condition. In order
for Saturn to commence offering local loop telephony services, it must enter
into an interconnect agreement with New Zealand's national telephone company,
either directly or through another telephony provider which has entered into
an interconnect agreement with the national telephone company. No assurance
can be given that Saturn will be able to enter into an interconnect agreement
on terms which are acceptable to its management. Failure to do so could have a
material adverse effect on Saturn's financial performance and results of
operations.
Ability to Procure Additional Programming Services. The Company's success is
largely dependent upon management's ability to procure programming that is
attractive to its customers at reasonable commercial rates.
21
<PAGE>
The Company is dependent upon third parties for the development and delivery
of programming services. These programming suppliers will charge the operating
companies for the right to distribute the channels to its customers. The costs
to the operating companies for additional services will be determined through
negotiations between the operating companies and these programming suppliers.
Management believes that the availability of sufficient programming on a
timely basis will be critical to the Company's future success. There can be no
assurance that the operating companies will have access to additional
programming services or that management can secure rights to such programming
on commercially acceptable terms.
Rapid Technological Changes. The multi-channel television industry is
subject to rapid and significant changes in technology. Although the Company
believes that its operating companies' current and planned networks have been
designed to be sufficiently flexible to permit them to deliver a variety of
existing multi-channel television and, where appropriate, telecommunications
services to their respective customers and advanced, integrated entertainment,
telecommunications and information services as they become available in the
future, the effect of any future technological changes on the viability or
competitiveness of the Company's network and services cannot be predicted.
Government Regulations; License Renewal. Multi-channel television operations
and programming services are subject to governmental regulation, which may
change from time to time. There can be no assurance that material and adverse
changes in the regulation of the Company's existing operating systems will not
occur in the future. Regulation can take the form of price controls, service
requirements and programming content restrictions, among others. See
"Regulation."
Broadcasting services provided by CEtv are subject to Australian government
regulation under the Radiocommunications Act 1992 (the "Radiocommunications
Act"), which regulates the use of the radio spectrum in Australia; the
Broadcasting Services Act, which, among other things, regulates the delivery
and content of broadcasting services in Australia, including subscription
broadcast services; and the Telecommunications Act 1991 (the
"Telecommunications Act"), which regulates the use of telecommunications
facilities to supply telecommunications services and, among other things,
regulates program suppliers who deliver a subscription broadcast or narrowcast
service using cable or, in some respects, DTH satellite transmission. Changes
in existing regulations or laws or in the interpretation of existing
regulations or laws by the courts or governmental authorities in Australia, as
well as the development of the subscription television industry in Australia
generally, may have a material adverse effect on the ability of XYZ and CEtv
to compete with other forms of entertainment and may also have a material
adverse effect on XYZ's and CEtv's ability to attain their business objectives
or on their results of operations. Matters which could adversely affect the
profitability of XYZ and CEtv and/or the value of their licenses, include
anti-siphoning regulations which have limited and could in the future limit
the Company's access to certain sports programming, the loss by CEtv of
certain of its licenses, the inability of CEtv to acquire additional licenses,
the inability of CEtv to be issued or reissued licenses, the inability of CEtv
to comply with class licenses for the provision of broadcasting services or
eligible services under the Telecommunications Act, the issuance of additional
licenses to competitors of CEtv, changes in the Australian programming content
requirements, changes in the amount or calculation of taxes, fees or charges
payable for licenses, license renewals or conversions, changes in the
conditions attaching to any licenses or any other policies or regulations that
modify the present regulatory environment. Such regulatory changes and
limitations, or the enactment of future limitations, may adversely affect the
ability of XYZ and CEtv to secure additional financing and may also affect the
rights and remedies of holders of the Notes in the event of an insolvency or
liquidation proceedings involving XYZ or CEtv. The recently elected Australian
Federal government has expressed its intent to review certain issues including
Australian program content requirements, provisions governing access to
wireline and wireless networks and limitations on foreign and cross-media
ownership.
CEtv's MMDS licenses issued under the Radiocommunications Act have an
initial term of five years. The terms governing the renewal or conversion of
CEtv's existing MMDS apparatus licenses into spectrum licenses has not been
announced. The failure to renew such licenses or receive appropriate spectrum
licenses upon conversion of existing licenses would have a material adverse
effect on the Company's financial condition and
22
<PAGE>
ability to perform its obligations under the Notes. See "Regulation--
Australia--Licenses--Radio- communications Act."
While New Zealand currently has an extremely unregulated environment in
which to operate multi-channel television and telephony services, there can be
no assurance that the regulatory environment will continue to remain
unregulated. See "Regulation--New Zealand."
Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations. The Company currently holds a majority of the outstanding
securities presently entitled to vote for the election of directors and has
the right to designate five of six directors of CEtv. While the transactions
pursuant to which the Company acquired such securities and related rights did
not require any advance notification or approval under Australian law, they
could in the future be reviewed by the Treasurer of Australia under provisions
of the FATA. If so reviewed and determined by the Treasurer to have resulted
in a change of control of an Australian person to a foreign person that is
against the national interest of the Commonwealth of Australia, there would be
no violation of law, but the Treasurer could require the parties to restore
the voting control of CEtv so that the Issuer is entitled to appoint directly
only three of six directors of CEtv. While the Company believes a
determination under the FATA would not affect its 94% economic interest in
CEtv, there can be no assurances that such would be the case. See "--Holding
Company Structure; Limitations on Access to Cash Flow," "Regulation--
Australia--Foreign Acquisitions and Takeovers Act" and "Corporate
Organizational Structure--CEtv." In addition, if the manner in which the
Issuer designates directors of CEtv is changed as a result of action by the
Treasurer, an issue would be presented under the Investment Company Act of
1940 (the "1940 Act") as to whether the Issuer would then be an unregistered
investment company. If the Issuer's economic interests in CEtv did not
constitute voting securities or the functional equivalent thereof under the
1940 Act, and did not otherwise provide the Issuer sufficient control of CEtv
to permit the Issuer to obtain exemptive relief from the SEC, then there would
be a risk that the Issuer would be an unregistered investment company and as
such, that the Issuer would be subject to monetary penalties and injunctive
relief in an action brought by the SEC, that the Issuer would be unable to
enforce contracts with third parties and that third parties could seek to
obtain recission of transactions undertaken during the period it was
established that the Issuer was an unregistered investment company. If the
Treasurer were to review the CEtv Transaction, the Issuer would seek to avoid
any order that could affect its status under the Investment Company Act and,
if any such order were issued, the Issuer would restructure the ownership of
its assets and/or seek a favorable interpretation or order from the SEC. The
Issuer believes there would be a substantive basis on which to request such an
intrepretation or order. If the Issuer were required to register under the
1940 Act, such requirement would constitute a default under the Indenture.
There can be no assurance that the Issuer would have sufficient resources to
satisfy the claims of Noteholders if the maturity of the Notes were
accelerated.
Challenge to Telefenua Authorization. In 1993 and 1994, Telefenua entered
into local franchise agreements to provide cable television services in Tahiti
and subsequently obtained authorizations from the Conseil Superieur de
l'Audiovisuel ("CSA") permitting a holder of a cable television license to
provide subscription broadcast services via MMDS. The authorizations were
based in part on a French government decree of July 22, 1993 (the "Decree").
In response to a legal challenge by the territorial government of Tahiti, the
Conseil d'Etat of France recently canceled part of the Decree authorizing the
issuance of MMDS licenses by the CSA in French Polynesia. The cancellation
provides a legal basis to cancel the required authorization already granted to
Telefenua by the French communications agency. The territorial government of
Tahiti has brought an action in French court seeking such cancellation,
although no such cancellation has yet taken place. A law recently enacted by
the French Parliament gives Telefenua a statutory basis for seeking a new
authorization from the communications agency, should the existing
authorization be nullified. There can be no assurance, however, that if the
existing authorization is nullified a new authorization will be obtained. In
addition, the new authorization would last no more than five years and could
differ in other respects from the previous authorization. The Company believes
that if the existing authorization is nullified and Telefenua is unable to
obtain a new authorization, Telefenua would petition for restitution for the
taking of such authorizations. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Regulation--Tahiti."
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Dependence on Key Personnel; Relationship with UIH. Many of the personnel
performing key managerial and executive functions in the Operating Companies
are employees of the Issuer's parent, UIH, over which the Issuer has control.
The services of such personnel are made available to the Operating Companies
under the terms of Technical Service Agreements and the UIH Management
Agreement upon payment by the Operating Companies of certain fees. No
assurance can be given as to the continued availability of such key personnel.
See "Certain Relationships."
As the Company continues the construction and marketing of its operating
systems, its success and growth strategy depends in large part on its ability
to attract and retain local management, marketing and operating personnel at
the Operating Company level. There can be no assurance that the Company will
be able to attract and retain the qualified personnel needed for its business.
Risks Inherent in Foreign Investment. The Company has invested its resources
outside of the United States. Risks inherent in foreign operations include
loss of revenue, property and equipment from expropriation, nationalization,
war, insurrection, terrorism and other political risks and risks of increases
in taxes and governmental royalties and fees. The Company is also exposed to
the risk of changes in foreign and domestic laws and policies that govern
operations of foreign-based companies.
Foreign Currency Exchange Rate and Conversion Risks. Although the Operating
Companies have attempted, and will continue to attempt, to match costs and
revenues and borrowings and repayments in terms of their respective local
currencies, payment for a majority of purchased equipment has been, and may
continue to be, required to be made in currencies, including dollars, other
than local currencies. In addition, the value of the Issuer's investment in an
Operating Company is partially a function of the currency exchange rate
between the dollar and the applicable local currency. In general, the Company
does not execute hedge transactions to reduce its exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and
a negative impact on earnings with respect to its holdings solely as a result
of foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. Furthermore, certain of the Operating
Companies have notes payable to UIH that are denominated in a currency other
than their own functional currency. The Company may also experience economic
loss and a negative impact on earnings related to these monetary assets and
liabilities. The countries in which the Operating Companies now conduct
business generally do not restrict the removal or conversion of local or
foreign currency; however, there can be no assurance this situation will
continue. See "Management's Discussion and Analysis of Financial Condition--
Foreign Currency Exchange Rate Risks; Hedging."
Limited Insurance Coverage. The Operating Companies obtain insurance in type
and amount which management believes is appropriate for the property in their
systems. However, they do not insure the entire portion of multi-channel
television systems. Accordingly, any catastrophe affecting a significant
portion of a system's cable could result in substantial uninsured losses.
International Tax Risks. In general, a United States corporation may claim a
foreign tax credit against its federal income tax expense for foreign income
taxes paid or accrued. Because the Company must calculate its foreign tax
credit separately for dividends received from each foreign corporation in
which the Company owns 10% to 50% of the voting stock and because of certain
other limitations, the Company's ability to claim a foreign tax credit may be
limited, particularly with respect to dividends paid out of earnings subject
to a high rate of foreign income tax. This limitation and the inability of the
Company to offset losses in one foreign jurisdiction against income earned in
another foreign jurisdiction could result in a high effective tax rate on the
Company's earnings. The Company has an ownership interest in Telefenua, which
is located in Tahiti, a self-governing territory of France, with which the
United States does not have an income tax treaty. As a result, the Company may
be subject to increased withholding taxes on dividend distributions and other
payments from Telefenua and also may be subject to double taxation with
respect to income generated by Telefenua.
Original Issue Discount Consequences. The Notes will be issued at a
substantial discount from their principal amount. Consequently, the purchasers
of the Notes generally will be required to include amounts in
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gross income for federal income tax purposes in advance of receipt of any cash
payment on the Notes to which the income is attributable. See "Certain U.S.
Income Tax Considerations." If a bankruptcy case is commenced by or against
the Company under the United States Bankruptcy Code (the "Bankruptcy Code")
after the issuance of the Notes, the claim of a holder of Notes with respect
to the principal amount thereof may be limited to an amount equal to the sum
of (i) the initial offering price of the Notes and (ii) that portion of the
original issue discount that is not deemed to constitute "unmatured interest"
for purposes of the Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would most likely constitute
"unmatured interest."
Absence of Public Market for the Securities; Restrictions on Transfers. The
New Notes are being offered to the holders of the Old Notes. The Old Notes are
new issues of securities for which there is no established trading market. If
a trading market does not develop or is not maintained, holders of the
Securities may experience difficulty in reselling the Securities or may be
unable to sell the Securities at all. If a market for the New Notes develops,
any such market may be discontinued at any time. Although the Initial
Purchasers have advised the Issuer that they currently intend to make a market
in the New Notes, they are not obligated to do so and may discontinue such
market making at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be
limited during the pendency of any shelf registration statement. See
"Description of Securities--Registration Rights." Accordingly, there can be no
assurance as to the development or liquidity of any market for the Securities
and, if issued, the Exchange Notes. The Notes are eligible for trading on the
PORTAL market. The Issuer does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
No Dividends. It is not expected that any dividends will be paid on the
Common Stock in the foreseeable future. In addition, the Indenture limits the
Issuer's ability to pay cash dividends. See "Dividend Policy" and "Description
of Securities--Description of Notes--Certain Covenants--Limitation on
Restricted Payments."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1996; provided, however, that if the Issuer, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended, and provided, further, that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus.
As of the date of this Prospectus, $443,000,000 aggregate principal amount
at maturity of the Old Notes was outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about , 1996, to all
Holders of Old Notes known to the Issuer. The Issuer's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "Certain Conditions to the Exchange Offer"
below.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof; provided that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Issuer. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "Certain Conditions to the Exchange Offer." The
Issuer will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a Holder thereof as set forth below
and the acceptance thereof by the Issuer will constitute a binding agreement
between the tendering Holder and the Issuer upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder (which term, for purposes of
the Exchange Offer, includes any participant in the Book-Entry Transfer
Facility (as defined) system whose name appears on a security position listing
as the holder of such Old Notes) who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to American Bank National Association (the "Exchange
Agent") at the address set forth below under "Exchange Agent" on or prior to
the Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depositary Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date along with the Letter of Transmittal, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS
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OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUER.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) a registered Holder of the Old Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instruction" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealer, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States or by such
other Eligible Institution within the meaning of Rule 17 (A) (d)-15 of the
Exchange Act, as amended (collectively, "Eligible Institutions"). If Old Notes
are registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer, or exchange,
in satisfactory form as determined by the Issuer in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt and acceptance of Old Notes tendered for exchange will be determined
by the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Issuer or
its counsel, be unlawful. The Issuer also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Issuer shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity
with respect to any tender of Old Notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Issuer that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, that neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Issuer. If any Holder is an affiliate of the Issuer is
engaged in or intends to engage in or has any arrangement with any person to
participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holders (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospects delivery requirements of the Securities Act in
connection
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with any resale transaction. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered, issue the New notes promptly after acceptance of the Old
Notes and cause such New Notes to be authenticated. See "Certain Conditions to
the Exchange Offer" below. For purposes of the Exchange Offer, the Issuer
shall be deemed to have accepted properly tendered Old Notes for exchange
when, as an if the Issuer has given oral or written notice thereof to the
Exchange Agent.
For each Old Note accepted for exchange the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. If the Exchange Offer is not consummated by ,
1996, Liquidated Damages will accrue from and including , 1996. Such
Liquidated Damages will be payable in cash semiannually in arrears each May 15
and November 15, respectively, commencing November 15, 1996, to holders of
record on the immediately preceding May 1 and November 1, respectively, at a
rate per annum equal to 0.50% of the Accreted Value of the Old Notes
(determined daily). The aggregate amount of Liquidated Damages payable
pursuant to the above provisions will in no event exceed 2.50% per annum of
the Accreted Value (determined daily). Upon the consummation of the Exchange
Offer after , 1996, the Liquidated Damages payable on the Old Notes from
the date of such consummation will cease to accrue and all accrued and unpaid
Liquidated Damages as of the consummation of the Exchange Offer shall be paid
promptly thereafter to the holders of record of the Old Notes immediately
prior to the time of such occurrence.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount at
maturity than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchange Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal (or a manually signed
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis; a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Issuer (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount at maturity of such Old Notes)
and, (where certificates for Old Notes have been transmitted), specify the
name in which such Old Notes are registered, if different from that of the
withdrawing Holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then,
prior to the release of such certificates the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described
above, the executed notice of withdrawal, guaranteed by an Eligible
Institution, unless such Holder is an Eligible Institution, must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuer,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures
described above such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
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regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Issuer to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer, or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Issuer might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Issuer, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the SEC referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer and its subsidiaries taken as a whole that, in the
reasonable judgment of the Issuer, is or may be adverse to the Issuer, or
the Issuer shall have become aware of facts that, in the reasonable
judgment of the Issuer, have or may have adverse significance with respect
to the value of the Old Notes or the New Notes;
which, in the reasonable judgment of the Issuer in any case, and regardless of
the circumstances (including any action by the Issuer) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
American Bank National Association has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the address set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
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Delivery To: American Bank National Association, as Exchange Agent
By Mail, By Hand and Overnight By Facsimile:
Courier:
(612) 229-0415
American Bank National Association
Attention: Frank P. Leslie, III Confirm by Telephone:
Assistant Vice President
101 East Fifth Street Frank P. Leslie, III
St. Paul, MN 55101-1860 (612) 229-2600
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer except for reimbursement of
mailing expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
$320,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of
any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend on the
Old Notes and as described in the Offering Memorandum dated May 8, 1996
relating to the Old Notes, as a consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will be
required to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by Holders thereof (other than any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holders' business and such Holders,
other than brokers-dealers, are not engaged in, do not intend to engage in and
have no arrangement or understanding with any person to participate in, the
distribution (within the meaning of the Securities Act) of such New Notes. If
any Holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdiction or any exemption from registration or qualification is available
and is complied with. The Issuer does not currently intend to register or
qualify the sale of the Notes in any such jurisdictions.
31
<PAGE>
USE OF PROCEEDS
The Issuer will not receive any cash proceeds from the exchange of Old Notes
for the New Notes from the Offering are estimated to be. The Company plans to
use the approximately $216.2 million net proceeds from the Notes Offering (i)
to fund system construction and initial marketing costs and working capital
requirements of the Operating Companies, including approximately $119.0 million
for CEtv, $6.4 million for XYZ, $12.7 million for Saturn, $3.1 million for
Telefenua and $4.9 million for United Wireless, and (ii) to acquire the
remaining 6% economic interest in CEtv for approximately $8.0 million and (iii)
for general corporate purposes. In addition, the Company used the net proceeds
of the Notes Offering to acquire approximately $25.0 million of bridge loans
extended by UIH to CEtv and Telefenua and to purchase UIH AML from UIH for
$10.0 million. UIH extended the bridge loans primarily to fund the construction
and initial marketing of CEtv's and Telefenua's systems in anticipation of the
Notes Offering. UIH AML was formed by UIH, which contributed to it $10.0
million in cash to collateralize the Australis Guarantee. The amounts for CEtv,
Saturn, Telefenua and XYZ are anticipated to be funded over the next 12 months.
The amount for United Wireless is expected to be funded over the next two
years. Pending use of the net proceeds of the Offering as described above, the
Company intends to hold such proceeds in short-term interest-bearing,
investment grade securities, including governmental obligations and other money
market instruments.
The Company will require substantial additional capital to complete the
construction and launch of CEtv's and Saturn's networks and services. The
Company intends to raise such additional funds through issuances of debt by the
Company and/or its Operating Companies or sales of its equity (either through
public offerings, contributions by existing shareholders or investments by
third parties). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "Risk
Factors--Need for Additional Financing."
DIVIDEND POLICY
Neither the Issuer nor its Parent has ever paid cash dividends on its Common
Stock and currently does not expect to pay any cash dividends on its Common
Stock for the foreseeable future. In addition, the Indenture will limit the
Issuer's ability to pay cash dividends. See "Risk Factors--No Dividends" and
"Description of Securities--Description of Notes--Certain Covenants--Limitation
on Restricted Payments."
EXCHANGE RATE DATA
The Issuer's interests in CEtv, XYZ and United Wireless, companies that
operate in Australia, represent a substantial portion of its total assets. The
following table sets forth, for the periods indicated, certain information
concerning the Noon Buying Rate and the high and low exchange rates for
Australian dollars expressed in United States dollars per A$1.00. On May 31,
1996, the Noon Buying Rate was US$.80 per A$1.00.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,(1) AT AND FOR THE
-------------------------------------------- THREE MONTHS ENDED
1991 1992 1993 1994 1995 MARCH 31, 1996(1)
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of
period................. US$0.76 US$0.69 US$0.68 US$0.78 US$0.74 US$0.78
Average exchange rate
during period(2)....... 0.78 0.73 0.68 0.73 0.74 0.73
Highest exchange rate
during period.......... 0.80 0.77 0.72 0.78 0.77 0.78
Lowest exchange rate
during period.......... 0.75 0.68 0.65 0.68 0.71 0.73
</TABLE>
- ---------------------
(1) Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
(2) The average of the Noon Buying Rates on the last day of each month during
the applicable period.
Unless otherwise indicated, foreign currency amounts translated to U.S.
dollars have been converted using exchange rates in effect on December 31,
1995, with respect to the historical financial statements and certain amounts
with respect to Tahiti, and March 1, 1996 with respect to certain amounts for
Australia and New Zealand.
32
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to reflect the issuance of the Notes and the estimated
use of proceeds thereof and the Saturn Purchase. The table should be read in
conjunction with the audited Consolidated Financial Statements of the Company
and the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED(1)
------------ ----------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
Debt:
14% Senior Discount Notes due 2006............. $ -- $ 225,115
Bridge notes(2)................................ 22,527 --
Other debt..................................... 1,685 1,685
------------ ------------
Total debt................................... 24,212 226,800
Minority interest in subsidiaries.............. 1,894 1,894
Parent's equity:
Common Stock ($.01 par value); 1,000 shares
authorized; 500 shares issued................. -- --
Contributed capital............................ 97,649 105,449
Cumulative translation adjustment.............. 1,508 1,508
Accumulated deficit............................ (27,571) (27,571)
------------ ------------
Total parent's equity........................ 71,586 79,386
------------ ------------
Total capitalization..................... $ 97,692 $ 308,080
============ ============
</TABLE>
- ---------------------
(1) As adjusted for the Notes Offering and the estimated use of the net
proceeds thereof and the Saturn Purchase. See "Use of Proceeds." Long-term
debt does not include the $10.0 million Australis Guarantee, which
guarantee is collateralized by cash. See "Australis Transaction."
(2) Represents bridge loans extended by UIH to CEtv and indirectly to Telefenua
through its parent, Societe Francaise des Communications et du Cable S.A.
("SFCC"), for system construction and initial marketing, which were
acquired with the proceeds from the Notes Offering. Since March 31, 1996,
UIH funded additional bridge loans to CEtv. In May 1996, the Issuer
acquired $25.0 million of the CEtv bridge loans and repaid UIH with
proceeds from the Notes Offering. See "Use of Proceeds." In May 1996, the
remaining CEtv bridge loans totalling $25.6 (including accrued interest)
were converted to equity of CEtv and an additional $25.0 million in capital
calls were funded, thereby increasing the Company's interest to 94%. Prior
to closing of the Offering, approximately $5.0 million of the SFCC bridge
loans were used to purchase convertible debentures of SFCC, which are
convertible into preferred Stock of SFCC. The remaining SFCC bridge loans
totalling $556,700 (including accrued interest) acquired by the Issuer will
be either (i) repaid by SFCC after which time the Issuer would invest the
proceeds of such repayment as permitted under the Indenture or (ii)
converted by the Issuer into equity of SFCC.
33
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet gives effect to
the consummation of the Note Offering and the Saturn Purchase, as if each had
occurred on March 31, 1996. The following unaudited pro forma consolidated
condensed statement of operations for the year ended December 31, 1995 and the
three months ended March 31, 1996, gives effect to the CEtv Transaction, the
XYZ Sale, the Saturn Purchase and the United Wireless Purchase as if each had
occurred January 1, 1995. The pro forma adjustments are based upon currently
available information and upon certain assumptions that management believes
are reasonable under current circumstances. The unaudited pro forma
consolidated financial information and notes thereto do not purport to
represent what the Company's results of operations would actually have been if
such transactions had in fact occurred on such date. The unaudited pro forma
consolidated financial information and accompanying notes should be read in
conjunction with the audited Consolidated Financial Statements of the Company
and Notes thereto and other financial information pertaining to the Company
included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------------------
THE NOTE SATURN
ACTUAL OFFERING(1) PURCHASE(2) PRO FORMA
-------- ----------- ----------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED BALANCE
SHEET
ASSETS
Cash and cash equivalents..... $ 1,791 $193,753 $ 10 $195,554
Investments in and advances to
affiliated companies......... 4,308 -- (4,308) --
Property, plant and equipment,
net.......................... 44,789 -- 2,345 47,134
License fees, net............. 11,678 -- -- 11,678
Goodwill, net................. 44,703 -- 9,734 54,437
Other assets.................. 5,912 8,835 1,432 16,179
-------- -------- ------ --------
Total assets................ $113,181 $202,588 $9,213 $324,982
======== ======== ====== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable and accrued
liabilities ................. $ 11,482 $ -- $1,413 $ 12,895
Senior notes.................. -- 225,115 -- 225,115
Due to parent................. 26,534 (22,527) -- 4,007
Other liabilities............. 1,685 -- -- 1,685
-------- -------- ------ --------
Total liabilities........... 39,701 202,588 1,413 243,702
Minority interest in
subsidiaries................. 1,894 -- -- 1,894
Shareholders' equity.......... 71,586 -- 7,800 79,386
-------- -------- ------ --------
Total liabilities and
shareholders' equity....... $113,181 $202,588 $9,213 $324,982
======== ======== ====== ========
</TABLE>
- ---------------------
(1) As part of the Note Offering, the Company incurred approximately $8.8
million of deferred offering costs which are capitalized as other assets
and amortized using the effective interest method over the life of the Old
Notes. From the proceeds of the Offering, the Company paid UIH $22.5
million of bridge loans outstanding at March 31, 1996 and $2.5 million in
bridge loans advanced by UIH subsequent to March 31, 1996.
(2) Represents the Company's purchase of the additional 50% interest in Saturn
in exchange for 13 shares (2.6% of the total issued and outstanding
shares) of common stock of the Issuer. The fair value of the shares issued
was arrived at by using traditional valuation methology in the cable
television industry such as discounted cash flow methods and the Company's
historical rates of return.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------
UNITED
CETV XYZ SATURN WIRELESS
ACTUAL TRANSACTION(1) SALE(2) PURCHASE(3) PURCHASE(4) PRO FORMA
-------- -------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF
OPERATIONS:
Service revenue......... $ 1,883 $ 443 $ -- $ 148 $ 33 $ 2,507
Operating expense....... (3,230) (793) -- (863) (687) (5,573)
General and
administrative
expense................ (3,402) (6,681) -- (1,502) (341) (11,926)
Depreciation and
amortization expense... (1,003) (4,259) -- (1,009) (86) (6,357)
-------- -------- ------- ------- ------- --------
Net operating loss.... (5,752) (11,290) -- (3,226) (1,081) (21,349)
Equity in losses of
affiliated companies,
net.................... (16,379) 3,212 4,132 1,438 -- (7,597)
Interest, net........... 127 1,230 -- -- -- 1,357
Other, net.............. 4,771 244 (4,132) (55) 1 829
-------- -------- ------- ------- ------- --------
Net loss.............. $(17,233) $ (6,604) $ -- $(1,843) $(1,080) $(26,760)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
SATURN
ACTUAL CETV(5) PURCHASE(3) PRO FORMA
------------ ---------- -------------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS:
Service revenue........... $ 1,934 $ -- $ 52 $ 1,986
Operating expense......... (5,083) -- (252) (5,335)
General and administrative
expense.................. (2,336) -- (439) (2,775)
Depreciation and
amortization expense..... (2,748) -- (254) (3,002)
------------ ---------- ---------- -------
Net operating loss...... (8,233) -- (893) (9,126)
Equity in losses of
affiliated companies,
net...................... (1,033) -- 401 (632)
Interest, net............. 57 -- -- 57
Other, net................ 545 (635) 41 (49)
------------ ---------- ---------- -------
Net loss................ $(8,664) $ (635) $(451) $(9,750)
============ ========== ========== =======
</TABLE>
- ---------------------
(1) Represents the consolidation of CEtv and the elimination of the previously
recorded equity in losses. Included in depreciation and amortization
expense is $3.0 million of amortization related to the goodwill recorded in
connection with the additional 40% economic interest acquired in December
1995 which will be amortized over 15 years.
(2) Represents the elimination of the gain on the sale of a 25% interest in XYZ
and the related 25% of the equity in losses recognized.
(3) Represents the consolidation of Saturn and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $624,000 and $161,000 of amortization for the year
ended December 31, 1995 and for the three months ended March 31, 1996,
respectively, related to the goodwill recorded in connection with the
purchase of the additional 50% interest in Saturn which will be amortized
over 15 years.
(4) Represents the additional eight months of activity of United Wireless.
(5) Represents the elimination of 10% of the allocated minority interest losses
due to the increase in the economic ownership to 100%.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1994 and 1995, and balance sheet data as of December 31, 1994 and
1995, have been derived from the Company's consolidated financial statements
which have been audited by Arthur Andersen LLP, independent public accountants,
whose report indicated a reliance on other auditors relative to certain amounts
relating to the Company's interests in Telefenua and XYZ as of and for the year
ended December 31, 1995. The Company commenced operations in January 1994. The
following selected consolidated financial data for the three months ended March
31, 1996, and at March 31, 1996, have been derived from the unaudited
consolidated financial statements of the Company that, in the opinion of
management of the Company, reflect all adjustments, consisting of normal
recurring adjustments, necessary to fairly present the financial data for such
periods and as of such date. The data set forth below are qualified by
reference to, and should be read in conjunction with, the audited Consolidated
Financial Statements of the Company and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue....................... $ -- $ 1,883 $ 1,934
Operating expense..................... -- (3,230) (5,083)
General and administrative expense.... (659) (3,402) (2,336)
Equity in losses of affiliated
companies, net....................... (1,015) (16,379) (1,033)
Net loss.............................. (1,674) (17,233) (8,664)
Ratio of earnings to fixed
charges(1)........................... -- -- --
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ 8,730 $ 1,791
Investments in and advances to
affiliated companies................. 22,296 2,829 4,308
Goodwill, net......................... -- 45,324 44,703
Total assets.......................... 24,084 99,295 113,181
Long-term debt........................ -- 890 1,685
Total liabilities..................... 11 21,714 39,701
Parent's equity....................... 24,073 75,066 71,586
</TABLE>
- ---------------------
(1) Earnings available for fixed charges were inadequate to cover fixed charges
in each of the periods presented. The amount of the coverage deficiencies
for the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1996 were $1.1 million, $12.9 million and $8.0 million
respectively. On a pro forma basis, assuming that the Notes Offering, the
CEtv Transaction, the XYZ Sale and the Saturn Purchase had been consummated
as of January 1, 1995, the Company's pro forma earnings would have been
inadequate to cover its pro forma fixed charges for the year ended December
31, 1995 and the three months ended March 31, 1996, by $51.8 million and
$18.1 million, respectively. See "Risk Factors--Leverage; Debt Service." In
calculating the ratio of earnings to fixed charges, earnings consist of (i)
net loss before income tax expense and fixed charges plus (ii) the pro rata
share of the losses recognized in minority owned affiliates.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Issuer currently holds a (i) 94% economic interest in CEtv, which it has
agreed to increase to 100%, (ii) 25% interest in XYZ, (iii) 100% interest in
Saturn, (iv) 90% economic interest in Telefenua and (v) 100% interest in
United Wireless. Because the Company accounts for its less than majority owned
Operating Companies on the equity method, prior to September 1995 only the
Company's Tahitian subsidiary, Telefenua, was consolidated. In September 1995,
the Company acquired a 100% interest in United Wireless at which time it began
consolidating its results of operations. In late December 1995, the Company
increased its economic interest in CEtv from 50% to 90% pursuant to the CEtv
Transaction, and in late May 1996, the Company increased its economic interest
in CEtv to 94% when Australis was diluted after having failed to contribute
its pro rata share of a CEtv issued capital call. Prior to the acquisition of
the additional 40% interest in CEtv in December 1995, the Company accounted
for its investment in CEtv on the equity method of accounting. As a result of
the CEtv Transaction, the Company, beginning in fiscal 1996, will consolidate
the results of operations of CEtv. The Company accounts for its interests in
Saturn and XYZ using the equity method of accounting. Following its recent
acquisition of the remaining 50% interest in Saturn, the Company began
consolidating the results of operations of Saturn. The Company's financial
statements have been prepared on a basis of reorganization accounting as
though the Company had performed all foreign development activities, made all
investments in the foreign development activities and made all investments in
the foreign interests in Australia, New Zealand and Tahiti since inception.
The Company reports on the basis of U.S. GAAP and recognizes its proportionate
share of affiliated company income (loss) on the basis of U.S. GAAP results.
The Issuer conducts no operations other than through the Operating Companies
in which it holds varying interests. Because the Operating Companies have,
since inception, been engaged primarily in organizational and start-up
activities, the Company believes that its historical results of operations
discussed herein are not indicative of the results of operations which will
follow the completion of construction and initial marketing of service by the
Operating Companies.
The Issuer has no employees of its own. UIH, the Company's parent, provides
various management, financial reporting, accounting, and other services for
the Company pursuant to the terms of the UIH Management Agreement between UIH
and the Company. CEtv, Saturn and Telefenua are also parties to Technical
Service Agreements with UIH, for which such Operating Companies pay to UIH
fees based, in part, on their respective gross revenues. See "Certain
Relationships."
Impact of CEtv Transaction. In December 1995, the Company acquired an
additional 40% economic interest in CEtv, increasing its total effective
economic interest in both companies to approximately 90%. As a result of the
CEtv Transaction, the Company, beginning on January 1, 1996, consolidates the
results of operations of CEtv. Through December 31, 1995, the Company
accounted for its interest in CEtv on the equity method. By consolidating the
financial results of CEtv, the Company will recognize the full amount of
CEtv's losses or income before allocation of loss or income to the minority
interests until CEtv becomes a wholly owned subsidiary of the Issuer upon
consummation of the Company's planned acquisition of the 6% minority interest
in CEtv. As CEtv is in the early stages of operations and construction of its
multi-channel television systems, CEtv will continue to incur losses for the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Since commencement of operations, the Company has been financed by capital
contributed by UIH. During the year ended December 31, 1994, UIH contributed
$25.3 million to the Company, $22.8 million of which was used to finance the
Company's investments in CEtv, XYZ and Saturn. Approximately $1.9 million was
used for costs incurred in the acquisition and development of its projects,
the majority of which was for Telefenua. The remainder was used for non-
operating costs.
37
<PAGE>
During the year ended December 31, 1995, UIH contributed capital of $68.4
million to the Company and made bridge loans of $9.9 million to CEtv and
indirectly to Telefenua through its parent, SFCC. The bridge loans were used
to fund the construction and initial marketing of CEtv's and Telefenua's
systems. The Company used approximately $45.1 million of the contributed
capital to acquire an additional 40% effective economic interest in CEtv in
December 1995. Approximately $29.8 million of the contributed capital
consisted of UIH's preferred stock which the Company used as part of the
purchase price for an additional interest in CEtv. The Company used $6.1
million in cash to fund the operations of Telefenua. The Company also made
$22.5 million (not including the bridge loans) in capital contributions to the
Operating Companies during 1995 using the capital contributed to it by UIH.
During the three months ended March 31, 1996, UIH contributed capital of
$3.9 million to the Company and made bridge loans of $12.6 million to CEtv and
Telefenua. The bridge loans were used to fund the construction and initial
marketing of CEtv's and Telefenua's systems. The Company also made $3.5
million in capital contributions to Saturn and XYZ during the three months
ended March 31, 1996 using the capital contributed to it by UIH. Approximately
$17.8 million of the loans and capital contributed was used for the purchase
of property, plant and equipment by CEtv and Telefenua as these systems are in
the process of building their MMDS and DTH systems. The remainder was used in
operations.
In May 1996, the Company acquired $25.0 million of the CEtv bridge loans and
repaid UIH with proceeds from the Offering. In May 1996, the remaining CEtv
bridge loans totalling $25.6 (including accrued interest) were converted to
equity of CEtv and an additional $25.0 million in capital calls were funded,
thereby increasing the Company's interest to 94%. Prior to the closing of the
Offering, approximately $5.0 million of the SFCC bridge loans were used to
purchase convertible debentures of SFCC, which are convertible into preferred
stock of SFCC. The remaining SFCC bridge loans totaling $556,700 (including
accrued interest) acquired by the Company will be either (i) repaid by SFCC
after which time the Company would invest the proceeds of such repayment as
permitted under the Indenture or (ii) converted by the Company into equity of
SFCC.
The Company has generated negative cash flow from operating activities for
all periods presented as a result of start-up costs associated with its
Operating Companies' constructing and marketing their multi-channel television
and telecommunications services and establishing the organizational
infrastructure required for the operation of their businesses. The Company is
responsible for its proportionate share of the capital requirements of the
Operating Companies and has funded its share to date with capital contributed
by UIH.
The following table sets forth, as of May 31, 1996, assuming the Company's
purchase of the remaining 6% economic interest in CEtv, (i) the total
estimated funding required for the construction and initial marketing of the
Operating Companies' systems in their existing license areas, including any
capital invested to date or to be funded with the proceeds of the Offering,
(ii) the total amount of capital invested in each of the Operating Companies
and the portion funded by the Company, (iii) the amounts the Company expects
to invest in the Operating Companies from unrestricted cash on hand (excluding
amounts held by the Operating Companies), and (iv) the total estimated
additional funding required to complete the construction and marketing of such
Operating Companies' existing license areas and the Company's estimated
portion of such funding, pro forma for the Notes Offering and application of
the net proceeds thereof. To the extent the Operating Companies fund their
construction and other costs through project financing, the Company's portion
of estimated additional funding would be reduced proportionately. To the
extent that the other shareholders of Telefenua or XYZ fail to fund their pro
rata share of the additional shareholder capital for such Operating Companies,
the Company may fund all or a portion of such shortfall, in which case the
other shareholder's ownership interest would be diluted proportionately. To
the extent such additional funding may be required, the Company currently
anticipates seeking additional equity and/or debt funding. The Company has
monthly capital commitments to XYZ that total approximately $6.4 million
through December 31, 1996. To the extent the Company fails to make any capital
contribution to XYZ, it would face significant and punitive dilution.
38
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL PRO FORMA
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF MAY 31, 1996 ADDITIONAL FUNDING(3)
------------------ --------------------- CASH ------------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY TOTAL(1) ON HAND(2) THE COMPANY TOTAL
- ----------------- ----------- ------ ----------- -------- ----------- ------------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CEtv.................... $354.2 $354.2 $ 81.6(4) $ 81.6(4) $119.0 $153.6 $153.6
Saturn(5)............... 86.0 86.0 12.0 12.0 12.7 61.3 61.3
Telefenua............... 17.4 17.4 14.3 14.3 3.1 -- --
XYZ..................... 14.3 57.3 7.9 31.5 6.4 -- 19.4
United Wireless......... 8.2 8.2 2.3 2.3 4.9 1.0 1.0
------ ------ ------ ------ ------ ---------- ----------
Total................. $480.1 $523.2 $118.1(4) $141.7(4) $146.1 $216.0 $235.3
====== ====== ====== ====== ====== ========== ==========
</TABLE>
- ---------------------
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Represents the anticipated application of the Company's unrestricted cash
on hand (excluding amounts held by the Operating Companies) as of May 31,
1996, to fund a portion of the Company's portion of the estimated required
additional funding. See "Use of Proceeds."
(3) Represents the estimated additional funding required to complete the
construction and marketing of the operating systems of the Company's
subsidiaries and to fund the capital requirements of XYZ, pro forma for
the Offering and the estimated application of the net proceeds therefrom.
(4) Does not include the $50.7 million used by the Company to increase its
economic ownership interest in CEtv to approximately 90%.
(5) In July 1996, the Company acquired its partner's 50% interest in Saturn
bringing its ownership interest to 100% in exchange for a 2.6% common
equity interest in the Issuer, which, if the Issuer's parent has an
initial public offering, may be exchanged for an amount of stock of its
parent corporation with an equivalent value. The amount does not include
the value of this 2.6% interest.
The Company also used $10.0 million of the net proceeds of the Offering to
fund the acquisition of UIH AML from UIH. UIH AML was formed by UIH to provide
guarantees of $10.0 million in borrowings under the Australis Bank Facility.
UIH contributed $10.0 million in cash to UIH AML, which cash will be
restricted for as long as UIH AML is guaranteeing borrowings under the
Australis Bank Facility. Such restricted cash would be released at such time
that UIH AML is released from its obligation under the Australis Guarantee
unless the cash was used to refinance a portion of the Australis Bank
Facility. To the extent that Australis was unable to repay borrowings under
the Australis Bank Facility, however, each of the Guarantors would be
responsible for funding its pro rata share of the repayment shortfall up to
its total guarantee, which in the case of UIH AML is $10.0 million. To the
extent amounts are paid pursuant to the guarantees, each Guarantor may elect
to have its pro rata portion of such amounts converted, at the rate of A$0.545
per note or share, into ordinary shares or convertible notes of Australis. In
addition, at any time during the term of such guarantees, any Guarantor may
elect to refinance a portion of the Australis Bank Facility by converting all
or a portion of the amount of its guarantee into ordinary shares or
convertible notes on the same terms. In connection with the Australis
Transaction, UIH AML received warrants to purchase approximately 4.2 million
ordinary shares or convertible notes of Australis at an exercise price of
A$0.20 per share. UIH AML has agreed, subject to certain conditions, to
acquire $4.0 million of ordinary shares or convertible notes of Australis by
converting a portion of the Australis Guarantee or exercising the Australis
Warrants. Australis has informed the Company that Australis believes it will
be able to refinance borrowings under the Australis Bank Facility through debt
and/or equity financings as well as potential asset sales. There can be no
assurance, however, that Australis will be able to refinance the Australis
Bank Facility. See "Risk Factors--Reliance on Australis and Other Principal
Suppliers" and "Australis Transaction."
Pro forma for use of the proceeds of the Offering and unrestricted cash on
hand, the Company believes that it will be required to additionally fund a
total of approximately $216.0 million (assuming the Company acquires the
remaining 6% economic interest in CEtv) to build-out its existing projects
over the next four years. The Company expects to raise this additional capital
through a combination of sales of its equity, either through public offerings
or additional investments by its shareholders or third parties, and borrowings
by the Company. See "Risk Factors--Need for Additional Financing."
The Indenture and the UIH Indenture place restrictions on the Issuer and its
Restricted Subsidiaries with respect to incurring additional debt. The Issuer
and all of its Operating Companies are currently "Restricted" under the UIH
Indenture. The UIH Indenture limits the amount of debt that a Restricted
Entity may borrow based upon, among other things, the greater of (i) 5.0x
Consolidated Cash Flow (as defined in the UIH Indenture) of such Restricted
Entity or (ii) 200% of Consolidated Invested Equity Capital (as defined in the
UIH Indenture) of
39
<PAGE>
such entity. At May 31, 1996, pro forma for the estimated use of proceeds from
the Offering, the Issuer would have been permitted to borrow an additional
$106.8 million under such calculation. In order to meet its total expected
remaining commitment of approximately $216.0 million, the Issuer would have
needed to increase its Consolidated Invested Equity Capital by approximately
$36.1 million in order to increase its borrowing capacity by $72.1 million and
provide it with the total funds necessary to meet its commitments.
Consolidated Invested Equity Capital includes equity commitments by
shareholders of the Company's Operating Companies, which are expected to be
approximately $19.4 million as summarized above. As a result, the Issuer does
not expect that it will be required to raise additional equity capital in
order to meet its current business plan. However, if the funding requirements
for the Operating Companies exceed management's budget or in the event
shareholders of the Operating Companies other than the Issuer fail to make pro
rata capital contributions, the Issuer may be required to raise additional
capital and would have to raise a portion of such capital in the form of
equity in order to remain in compliance with the UIH Indenture. In any event,
it is the Issuer's current intention to pursue private placements or an
initial public offering of the capital stock of its parent in order to raise
additional equity capital to complete the build-out of its systems and to seek
the remainder through capital contributions from its shareholders and
privately negotiated transactions with third parties. The Issuer currently
intends to complete an Equity Sale before May 15, 1997 so that no additional
interest would accrete on the Notes and no Warrants would be issued pursuant
to the terms of the Notes. See "Description of Securities." A potential
investor has executed a term sheet providing for the acquisition of shares of
preferred stock of the Issuer's immediate parent corporation in an amount
sufficient to constitute an "Equity Sale," upon contribution of the net
proceeds of such sale to the Issuer. The proposed preferred stock acquisition
is subject to negotiation and execution of definitive agreements and
completion by the potential investor of its due diligence investigation of the
Company, which is currently underway. The transaction is not expected to close
prior to late August 1996; however, there can be no such assurances that the
transaction will be completed. If this transaction is not completed, the
Company intends to pursue other alternatives so that an Equity Sale will be
completed on or before May 15, 1997. The Company also expects to raise
additional capital through borrowings by the Issuer or the Operating
Companies. The restrictions imposed by the UIH Indenture will be eliminated
upon the retirement of UIH's Notes at their maturity in November 1999.
Under the terms of the respective securityholders' agreements between the
Company and the other primary securityholder of each of CTV and STV, if
securities of CTV and STV are not publicly listed prior to October 1999, UIH
and the other securityholder have the right to offer to sell its respective
interests in STV or CTV to the other at an appraised fair market value. If the
non-offering securityholder does not agree to purchase such securities at such
fair market value from the offering securityholder within 30 days, then the
offering securityholder may elect to require that CTV or STV be sold to a
third party at or above such fair market value. If the other securityholder
offers its interest in CTV or STV to the Company, the Company may choose to
acquire such interests, in which case it may seek necessary funding in order
to make such acquisition. There can be no assurances that the Company will
have, or choose to pursue, the opportunity to increase its interest in CTV and
STV, or that it will have sufficient resources to make such acquisition. See
"Corporate Ownership Structure--CEtv."
RESULTS OF OPERATIONS
The Company has experienced losses since its inception. The Operating
Companies are in the early stages of constructing and marketing their multi-
channel television systems and programming services. The Company does not
currently anticipate that such Operating Companies will generate net income
during future years as they are completing construction of their respective
multi-channel television and telecommunications systems and programming
services.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Service Revenue. The Company acquired a 90% economic interest in Telefenua
in January 1995. The Company recognized service revenues of $1.9 million
during 1995, the majority of which resulted from Telefenua, which launched
service in March 1995. The Company had no service revenues in 1994.
Operating Expense. The Company incurred $3.2 million of operating expenses
in 1995, of which $2.8 million came from Telefenua. The Company incurred no
operating expenses in 1994.
40
<PAGE>
General and Administrative Expense. The Company's general and administrative
expenses for the year ended December 31, 1995 increased to $3.4 million from
$0.7 million in the year ended December 31, 1994, primarily due to acquisition
of Telefenua in March 1995, which accounted for $2.3 million for the year
ended December 31, 1995.
Depreciation and Amortization. The Company had depreciation and amortization
expenses of $1.0 million for the year ended December 31, 1995 due primarily to
the acquisition of Telefenua and the launch of its system which began
depreciating its system in March 1995. The Company had no such expenses in
1994.
Equity in Losses of Affiliated Companies, Net. The Company recognized equity
in losses of affiliated companies of $1.0 million and $16.4 million for the
years ended December 31, 1994 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CEtv(1).............................................. $ (551) $ (3,212)
Saturn(2)............................................ (365) (1,438)
XYZ(3)............................................... (99) (11,729)
-------- ---------
Total equity in losses of affiliated companies,
net............................................... $ (1,015) $ (16,379)
======== =========
</TABLE>
---------------------
(1) The companies that comprise CEtv were incorporated in mid-1994. The
Issuer acquired an initial interest in these companies in the fall
of 1994 and increased its economic interest in these companies to
90% in late December 1995. CEtv launched its first MMDS system in
August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994.
Accordingly, the Company recognized equity in losses for Saturn for
only the six months ended December 31, 1994, as compared to the
full twelve months for the year ended December 31, 1995. In
addition, in 1995, Saturn initiated engineering and design work and
started system construction and accordingly incurred more losses in
1995 as compared to 1994.
(3) XYZ was formed in October of 1994 and began distributing its four
channels in April 1995.
Gain on Sale of Investment. In September 1995 the Company sold one half of
its interest in XYZ at cost. As the recognition of equity losses through that
date had reduced the Company's investment to zero, the Company recognized a
gain on the entire amount received of $4.1 million.
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Service Revenue. The Company's service revenue for the three months ended
March 31, 1996 increased $1.8 million (1,915%) compared to the amount for the
corresponding three month period in 1995. The increase is due to revenue of
CEtv ($1.0 million), which launched service in August 1995, and Telefenua
($862,000), which launched service in March 1995.
Operating Expenses. The Company's operating expense for the three months
ended March 31, 1996 increased $4.9 million (2,561%) compared to the amount
for the corresponding three month period in 1995. This increase is due to (i)
the consolidation, effective January 1, 1996, of CEtv ($4.2 million), which
launched service in August 1995, (ii) the consolidation of Telefenua
($572,000), which launched service in March 1995, and (iii) the acquisition of
United Wireless ($288,000) in September 1995, at which time the Company began
consolidating its results.
General and Administrative Expenses. The Company's general and
administrative expenses for the three months ended March 31, 1996 increased
$2.3 million from $389,000 for the corresponding three month period in 1995,
primarily due to (i) the consolidation, effective January 1, 1996, of CEtv
($1.3 million), which launched service in August 1995, (ii) the consolidation
of Telefenua ($606,000), which launched service in March 1995, and (iii) the
acquisition of United Wireless ($143,000) in September 1995, at which time the
Company began consolidating its results.
Depreciation and Amortization. The Company's depreciation and amortization
for the three months ended March 31, 1996 increased $2.7 million (3,133%)
compared to the amount for the corresponding three month period in 1995, due
primarily to the acquisition of CEtv and the launch of CEtv's system in August
1995 and of Telefenua's system in March 1995.
41
<PAGE>
Equity in Losses of Affiliated Companies, Net. The Company recognized equity
in losses of affiliated companies of $1.0 million and $1.5 million for the
three months ended March 31, 1996 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CEtv(1)............................................. $ 290 $ --
Saturn(2)........................................... 261 401
XYZ Entertainment(3)................................ 943 632
------------- -------------
Total equity in losses of affiliated companies,
net.............................................. $1,494 $1,033
============= =============
</TABLE>
- ---------------------
(1) The Companies that comprise CEtv were incorporated in mid-1994. The
Company acquired an initial interest in these companies in the fall of
1994 and increased its economic interest in these companies to 90% in late
December 1995. CEtv launched its first MMDS system in August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994. Accordingly,
the Company recognized equity in losses for Saturn for the six months
ended December 31, 1994, as compared to the full twelve months for the
year ended December 31, 1995. In addition, in 1995, Saturn initiated
engineering and design work and started system construction and,
accordingly, incurred greater losses in 1996 as compared to 1995.
(3) XYZ was formed in October 1994 and began distributing its four channels in
April 1995.
FOREIGN CURRENCY EXCHANGE RATE RISKS; HEDGING
The Operating Companies' monetary assets and liabilities are subject to
foreign currency exchange risk as certain equipment purchases and payments for
certain operating expenses, such as programming expenses, are denominated in
currencies other than their own functional currency. In addition, certain of
the Operating Companies have notes payable and notes receivable which are
denominated in a currency other than their own functional currency or
intercompany loans payable linked to the U.S. dollar.
In general, the Issuer and the Operating Companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange
rate risks. Accordingly, the Company may experience economic loss and a
negative impact on earnings with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. The Company may also experience economic loss
and a negative impact on earnings related to these monetary assets and
liabilities. In general, exchange rate risk to the Issuer related to Operating
Companies' commitments for equipment purchases and operating expenses is
generally limited due to the insignificance of the related monetary asset and
liability balances; however, exchange rate risk to the Issuer of these notes
payable and notes receivable and debt linked to the U.S. dollar have and will
continue to impact the Company's reported earnings. Because of the manner in
which the Company accounts for its interests in Saturn and XYZ, any adverse
effects on reported earnings of these companies would impact the Company
through its equity in losses of affiliated companies.
The countries in which the Operating Companies now conduct business
generally do not restrict the removal or conversion of local or foreign
currency; however, there is no assurance this situation will continue. The
Company may also acquire interests in companies that operate in countries
where the removal or conversion of currency is restricted. See "Risk Factors--
Foreign Currency Exchange Rate and Conversion Risks."
42
<PAGE>
BUSINESS
GENERAL
The Company, a leading provider of multi-channel television services in the
Australia and Pacific region, is currently constructing and operating multi-
channel television systems in three markets: (i) Australia, in which the
Company is constructing and operating MMDS systems and marketing a DTH service
in its regional franchise areas which encompass approximately 1.5 million
serviceable television homes; (ii) New Zealand, in which the Company is
constructing a wireline cable and telephony system intended to pass
approximately 135,000 homes; and (iii) Tahiti, in which the Company has
completed the initial phase of construction and is operating an MMDS system
which, upon completion, will pass approximately 31,000 homes. In addition, the
Company's other assets include a 25% interest in XYZ, a programming company
which provides four channels to the Australian multi-channel television market
as part of the eight channel Galaxy package. To date the Company and its
partners have invested significant capital and have devoted substantial
management resources and expertise to establish the infrastructure necessary
to implement a rapid roll-out of the Company's operating systems. As of May
31, 1996, the Company's multi-channel television systems and operations were
capable of serving 1.1 million homes of which 170,596 had been marketed and
29,145 were subscribers.
CEtv (Australia). The Company believes that Australia, the largest
undeveloped English speaking multi-channel television market in the world,
represents an attractive market for multi-channel television providers. Prior
to 1995, subscription television services were not available on a wide scale
basis and, as a result, current market penetration for such services is less
than 3%. However, there exists strong demand for television programming, as
evidenced by high average daily television viewing, high television and VCR
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
The Company owns, directly and indirectly, a combined 94% economic interest
(and has agreed to acquire the remaining 6% economic interest, subject to
certain conditions) in CEtv, which has acquired virtually all of the available
MMDS licenses in an area encompassing approximately 1.5 million serviceable
television homes in Australia. CEtv's franchise areas represent approximately
25% of the Australian market. CEtv has strategically focused on regional areas
located outside of Australia's largest capital cities. CEtv is currently the
only multi-channel television provider in markets representing over 90% of
these serviceable homes and believes that it has several competitive
advantages over any potential competitor in its markets. Of the serviceable
homes in its franchise areas, CEtv believes that approximately 800,000 homes
are in markets which CEtv will serve primarily by MMDS. CEtv is servicing
homes in its MMDS markets that are not reachable by its MMDS signals with a
DTH service which CEtv is marketing in its franchise areas on an exclusive
basis. CEtv launched MMDS service in August 1995 and as of May 31, 1996, had
completed construction and launched service in markets that contained an
aggregate of approximately 422,000 homes. As of such date, CEtv had completed
its initial direct marketing program to approximately 148,600 of these homes,
and had 21,412 metropolitan subscribers, representing a 14% penetration rate
of marketed homes. In addition, in March 1996, CEtv began marketing its
programming services via DTH in less densely populated areas outside its MMDS
markets that are more efficiently served by DTH technology. These DTH service
areas contain approximately 700,000 homes, the majority of which are located
within a fifty-kilometer radius of its MMDS markets. As of May 31, 1996, CEtv
has 2,212 DTH subscribers in these markets. CEtv also plans to construct
wireline cable networks in two small regions in its franchise areas containing
an aggregate of approximately 25,700 serviceable homes. CEtv expects to
complete construction and launch service to all of its 1.5 million potential
customers by the end of 1996.
The Company believes that programming is a critical component in building
successful multi-channel television systems. CEtv has entered into franchise
agreements providing it with the right through 2004 (which is extendable at
CEtv's option through 2014) to distribute the eight-channel Galaxy package
over all transmission technologies (MMDS, DTH and wireline cable) in its
franchise areas. See "--CEtv (Australia)--Australis Franchise Agreements." The
Galaxy package, the most widely distributed programming package in Australia,
was developed exclusively for the Australian market by several of the world's
leading programming companies including Paramount, Sony, Universal, Fox and
Viacom. The Galaxy package includes two movie
43
<PAGE>
services (Showtime and Encore), Fox Sports, two general entertainment services
(TV-1 and Arena), Australia's only 24-hour music video service (Red) and two
family programming services (Nickelodeon/Nick at Nite and The Discovery
Channel). To supplement the Galaxy package, CEtv has also secured additional
programming on a non-exclusive basis from providers of both locally-originated
and satellite-delivered programming services including CNN International, TNT,
Cartoon Network, CMT, ABN, BBC World News and World Movies, a premium channel
which is currently only available to its MMDS subscribers.
XYZ (Australian Programming). Through its 25% interest in XYZ, the Company
provides four of the eight channels offered in the Galaxy package. XYZ's
channels consist of Nickelodeon/Nick at Nite, The Discovery Channel, Arena and
Red. XYZ has entered into an agreement that provides for carriage of its four
channels by virtually all existing Australian MMDS and DTH providers,
including CEtv, Australis and ECT, as well as by the largest cable television
operator in Australia, Foxtel. The Company believes that this agreement, which
extends through 2010 for MMDS and DTH subscribers and 2020 for Foxtel
subscribers and provides for fixed per subscriber prices (and in the case of
Foxtel, substantial minimum subscriber guarantees), will cause XYZ's
programming package to be available to virtually all of Australia's 6.0
million television households through at least 2010. Foxtel, which owns 50% of
XYZ, is a joint venture between News Corporation Limited and Telstra, the
Australian government-owned telephone company. The Company's other partner in
XYZ is Century, a large U.S. multiple system cable operator and the parent of
ECT. XYZ launched its channels in April 1995 and as of May 31, 1996, XYZ
provided its channels to approximately 200,000 subscribers in Australia.
Saturn (New Zealand). The Company believes that New Zealand is an attractive
market for multi-channel television providers. New Zealand has a demographic
profile similar to Australia, including high per capita income and strong
television and VCR penetration. In addition, New Zealand permits operators to
offer combined multi-channel television and telephony services over one
network. The New Zealand multi-channel television market is also relatively
undeveloped with only one competitor currently offering a five-channel UHF
subscription service.
The Company owns a 100% interest in Saturn, which has begun constructing an
integrated wireline cable network that will allow it to provide multi-channel
television services to approximately 135,000 homes in the Wellington area as
well as business and residential telecommunications services. Wellington is
New Zealand's capital and its second largest city. Saturn expects construction
of its Wellington network to be completed in 1997. In addition, Saturn owns a
wireline cable television system on the Kapiti Coast, north of Wellington,
that as of May 31, 1996, passed approximately 6,000 homes, of which
approximately 4,500 had been marketed, and serviced approximately 1,150
subscribers.
Telefenua (Tahiti). The Company believes Tahiti is an attractive multi-
channel television market due to the favorable competitive environment,
Tahiti's relatively high income levels and the Tahitian consumers' high
propensity to spend on entertainment. The Company holds an indirect 90%
economic interest in Telefenua, a Tahitian MMDS operator that holds 30-year
local franchises, many of which are exclusive, to provide multi-channel
television services to approximately 31,000 serviceable homes on the islands
of Tahiti and Moorea. Telefenua has completed the initial phase of
construction of its MMDS system and is currently marketing its 14-channel
service to approximately 17,500 homes. As of May 31, 1996, Telefenua had
approximately 4,400 subscribers (representing a 25% penetration rate) paying
an average monthly rate of approximately $65. Telefenua is currently expanding
its network to reach all 31,000 serviceable homes in its franchise areas.
Telefenua's only subscription television competitor offers a single-channel
UHF-delivered service for approximately the same price as Telefenua's service.
See "Regulation--Tahiti."
United Wireless (Australian Mobile Data). In September 1995, the Company
acquired a 100% interest in BellSouth Mobile Data, which was renamed United
Wireless, a provider of two-way wireless mobile data services in Australia.
United Wireless is providing wireless data services on a limited basis in
Sydney, Melbourne and Brisbane. The wireless mobile and fixed data industry is
in an early stage of development; services were first introduced on a limited
basis in 1992. In order to meet growing demand for its services, United
Wireless is in the process of expanding and upgrading its existing networks
and deploying additional networks in other capital cities.
44
<PAGE>
COMPANY STRENGTHS
The Company believes that it is well positioned to capitalize on its
progress to date and to establish itself as a leading provider of multi-
channel television and related services in each of its markets. The Company
benefits from the following:
. ATTRACTIVE DEMOGRAPHICS OF TARGET POPULATION. Each of the countries in
which the Company operates has demographics and other characteristics
that are favorable to multi-channel television operators. Australia, New
Zealand and Tahiti are all characterized by high per capita incomes and
high television and VCR penetration rates. Television viewers in those
countries, however, have limited over-the-air television options. In
addition, consumers in each of these markets are generally receptive to
new technologies and services, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of the Company's markets, compared to the
comparable statistic for the more mature multi-channel television markets
of the United States and the United Kingdom:
<TABLE>
<CAPTION>
YEARS OF TELEVISION SUBSCRIPTION CELLULAR
GDP PER HOMES WITH SUBSCRIPTION HOMES TELEVISION TELEPHONE
CAPITA IN 1994(1) TELEVISION(2) TELEVISION WITH VCR(3) PENETRATION(4) PENETRATION(5)
----------------- ------------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
United States........... $25,900 99% 40+ 80% 66% 13%
Australia............... 19,544 99 1 85 3 17
New Zealand............. 16,484 99 6 78 17 10
Tahiti.................. 14,340 99 2 66 21 N/A
United Kingdom.......... 15,800 97 12 72 23 10
</TABLE>
------------
(1) U.S. Department of Commerce; Bank of America World Forecasts; UN
National Accounts Statistics; Zenith Media Worldwide 1995; European
World Year Book 1995.
(2) Zenithmedia Television in Asia Pacific; Zenith European Market 1995.
(3) Zenith European Market 1995; Cablevision's Blue Book; Zenithmedia
Television in Asia Pacific; Bortz & Company.
(4) Cable Television Advertising Bureau; New Media Markets; Company
estimates for Australia, New Zealand and Tahiti.
(5) International Cellular.
. LICENSES RIGHTS/LIMITED COMPETITION. CEtv believes that its exclusive
MMDS licenses, franchise agreements and status as the first entrant in
its markets provide significant competitive advantages in its franchise
areas. CEtv owns virtually all of the available MMDS licenses exclusive
in its franchise areas and is aggressively constructing its systems and
marketing its services. CEtv believes that its early entrance into and
rapid construction throughout its markets will enable it to continue to
build customer loyalty and establish a meaningful subscriber base within
the next twelve months. CEtv believes that the relatively low housing
densities and relatively small size of the individual markets in the
substantial majority of its franchise areas generally do not support the
higher cost of wireline cable construction. In addition, CEtv has entered
into franchise agreements providing it with the exclusive right through
2004 (which is extendable at CEtv's option through 2014) to offer the
Galaxy programming package over all technologies (MMDS, DTH and wireline
cable) in its franchise areas. These franchise agreements provide that
the franchisor will not grant the right to any other person to transmit
the Galaxy package over any transmission technology in CEtv's franchise
areas. See "--CEtv (Australia)--Australis Franchise Agreements."
Similarly, Telefenua has secured exclusive MMDS spectrum and 30-year
local franchise rights, the majority of which are exclusive, on the
islands of Tahiti and Moorea. Tahitians have limited television viewing
options with only two free-to-air broadcast channels and one subscription
television service offering a single channel of movies and sports
programming at approximately the same price as Telefenua's 14-channel
service.
. SECURED PROGRAMMING RIGHTS. The Company has secured attractive and
diverse programming for each of its markets. In Australia, CEtv has
entered into franchise agreements providing it with the exclusive right
through 2004 (which is extendable at CEtv's option through 2014) to offer
the Galaxy programming package over all technologies (MMDS, DTH and
wireline cable) in all of its franchise areas. See "--CEtv (Australia)--
Australis Franchise Agreements." Management believes that the Galaxy
channels represent the premier programming package available in Australia
and that CEtv's right to broadcast the Galaxy package provides a
significant competitive advantage in substantially all of its franchise
areas. CEtv has secured
45
<PAGE>
additional satellite-delivered programming services, including CNBC, TNT,
BBC World Service and CMT, to supplement the Galaxy package to its MMDS
customers.
Saturn offers a basic package of 22 channels and is actively seeking to
expand its channel line-up, including the introduction of pay-per-view
services. There are currently only four national broadcast networks in
New Zealand and one multi-channel television provider which offers a
five-channel UHF delivered subscription service. Telefenua provides a
basic and premium package consisting of ten and fourteen channels, all of
which, except for CNN International and ESPN International, are in French
(the primary language spoken in Tahiti). There are currently two national
networks in Tahiti and one competing subscription television operator
which provides a single-channel service for approximately the same price
as Telefenua's 14-channel service.
. SUCCESSFUL SERVICE LAUNCH. CEtv and Telefenua have successfully launched
their respective services and have achieved high penetration rates
through aggressive and focused marketing. As of May 31, 1996, CEtv had
launched MMDS service in markets containing approximately 422,000 homes.
CEtv believes that its operating results to date demonstrate that there
is strong demand for its services. As of May 31, 1996, CEtv had achieved
a penetration rate of 14% of those homes in its franchise areas for which
CEtv had completed its initial direct marketing program. CEtv plans to
complete construction of its MMDS systems and initiate the marketing of
rural DTH services in all of its franchise areas (encompassing
approximately 1.5 million serviceable homes) by the end of 1996.
Telefenua has completed construction of its MMDS system in areas
containing approximately 17,500 homes and expects to complete the
construction of its systems by the end of 1996. As of May 31, 1996,
Telefenua completed its initial marketing to these homes and had already
achieved a 25% penetration rate. XYZ began offering its programming
service in April 1995, and as of May 31, 1996, XYZ's channels were
distributed to approximately 200,000 subscribers.
. ABSENCE OF PRICING REGULATION. The Company's systems are generally not
subject to pricing or tiering restrictions and have limited content
requirements. See "Regulation." These regulatory environments will enable
the Company to pursue optimal multi-channel television pricing and
programming structures, including attractive basic rates to maximize
penetration with incremental charges for additional services such as
expanded tiers and premium channels.
. STRONG LOCAL MANAGEMENT. Each of the Company's operating systems are
managed by a team of experienced professionals selected by UIH. These
management teams consist of senior professionals who
have participated in the successful launch and management of multi-channel
television operations in the U.S. and international markets. In addition,
UIH provides management and technical support to each of the Company's
multi-channel television systems under the terms of Technical Service
Agreements. See "Certain Relationships."
TECHNOLOGIES EMPLOYED BY THE COMPANY
The Company currently uses three principal transmission technologies in the
deployment of its multi-channel television services in Australia, New Zealand
and Tahiti. These technologies are: (i) microwave multipoint distribution
systems ("MMDS" or wireless cable); (ii) direct-to-home ("DTH") satellite
broadcast services; and (iii) wireline cable, or CATV, the technology with
which multi-channel television services are most frequently delivered in the
United States. The Company has carefully evaluated the characteristics of the
markets in which it is currently operating or planning to operate multi-
channel television systems and has chosen what it believes to be the most
appropriate transmission technology for each.
MMDS is a microwave distribution system for which frequency bands are
utilized for transmission of the programming services. MMDS signals originate
from a head-end facility, which receives satellite-delivered programming
services and delivers such programming via an encoded microwave signal from
transmitters located on a tower or on top of a building to a small receiving
antenna located at a subscriber's premises, where the microwave signals are
decoded. MMDS transmission requires a clear line-of-sight because microwave
46
<PAGE>
frequencies will not pass through obstructions; however, many signal blockages
can be overcome through the use of low power signal repeaters which retransmit
an otherwise blocked signal over a limited area. The initial construction
costs of a MMDS system generally are significantly lower than a cable or DTH
system. The Company is using MMDS transmission technology in Australia and
Tahiti, where housing density and topography make MMDS the most cost effective
technology.
DTH transmits encoded signals directly from a satellite to a subscriber's
premises, where it is decoded. Currently in Australia, all DTH subscription
television services are transmitted via the Optus Satellite using High
Performance Beams ("HP Beams") covering certain geographic areas (commonly
referred to as a satellite "footprint"). All of CEtv's franchise areas are
within the Optus Satellite footprint. Since this signal will be transmitted at
a high power level and frequency utilizing MPEG II technology, its reception
can be accomplished with a relatively small (26-35 inch) dish mounted on a
rooftop or in the yard for the households located within the innermost
satellite transmission "footprint" and with a slightly larger (35-47 inch)
dish for the households located outside the innermost footprint. CEtv is using
DTH transmission technology for homes in its MMDS markets that are not
reachable by its MMDS signals as well as for homes in its franchise areas
where household densities do not support the construction of MMDS systems. Due
to satellite coverage limitations, DTH service is currently not available in
New Zealand or Tahiti.
A wireline cable television system is a network of coaxial or fiber-optic
transmission cables through which programming is transmitted to a subscriber's
premises from the system's head-end facility, which receives satellite and
tape-delivered programming. Wireline cable television offers a wide bandwidth
that generally allows the transmission of a larger number of channels than
MMDS. When constructed with a hybrid fiber coaxial network, as the Company
plans to do in New Zealand, the system's infrastructure can be used to deliver
telephony services. The primary disadvantages of a wireline cable network are
the higher costs of construction, especially in areas of low housing density,
and the length of time required to construct the network. The Company is
constructing a wireline cable system in New Zealand and, due to topography and
housing densities, plans to use wireline cable television in at least one
market in Australia.
CETV (AUSTRALIA)
Market Overview. The Company believes that Australia, the largest
undeveloped English speaking multi-channel television market in the world,
represents an attractive market for multi-channel television providers. Prior
to 1995, subscription television services were not available on a wide scale
basis and, as a result, current market penetration for such services is less
than 3%. However, there exists strong demand for television programming, as
evidenced by high average daily television viewing, high television and VCR
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
Although the Australian television industry was established in 1956 with the
introduction of Channel 9 in Sydney, prior to the enactment of the
Broadcasting Services Act in October 1992, television programming services
were limited to five off-air television networks, while the delivery of
subscription television services to residences was prohibited. The
Broadcasting Services Act modified the existing regulatory structure to
provide, in conjunction with related radiocommunications and
telecommunications legislation, a framework to allow for the delivery of
multi-channel television services to residences over MMDS, DTH and wireline
cable. These changes included the award by auction of licenses to operate
certain radio communication devices and certain related frequencies, the award
by auction of broadcast licenses for a total of ten satellite-delivered
programming channels via DTH on an exclusive basis through July 1997 and the
authorization to construct wireline cable systems. One license to broadcast
four of the ten allocated satellite-delivered programming channels was issued
to Continental Century Pay Television Pty Ltd. (the "A Licenseholder"), to
which programming is being supplied by XYZ. XYZ is 25% owned by the Company.
See "--XYZ (Australian Programming"). Similarly, a license to broadcast four
additional satellite-delivered programming channels was issued to Australis. A
third license to broadcast the two remaining satellite-delivered programming
channels was issued to the Australian Broadcasting Corporation, a government-
owned national broadcaster, which has not yet begun broadcasting its
47
<PAGE>
channels. The Company believes that the Broadcasting Services Act created a
favorable regulatory environment which, in conjunction with excellent
demographics, the existence of well capitalized operators, the availability of
satellite-delivered programming services, and the limited entertainment
alternatives available, will result in the continued rapid development of
multi-channel television services. See "Regulation--Australia."
Background. The Company entered the Australian multi-channel television
market in mid-1994 by acquiring its original interest in CTV, which
subsequently acquired virtually all of the available MMDS licenses in markets
in northern and northeastern Australia representing approximately 752,000
households. These licenses allow for the transmission of up to 19 analog video
channels, are issued for five years and are renewable upon compliance with
government regulations. In October 1994, the Company acquired its original
interest in STV, which subsequently acquired similar MMDS licenses in markets
representing over 823,000 households primarily in southern Australia. Since
1994, the Company has increased to 94% its combined direct and indirect
economic interest in both CTV and STV, which operate on a combined basis under
the name CEtv. The Company has agreed to acquire the remaining 6% economic
interest, subject to certain conditions, for approximately $8.0 million. See
"Corporate Organizational Structure--CEtv."
Because approximately 60% of the Australian population is concentrated in
its six largest cities, the competition for MMDS licenses was most intense and
expensive in these cities. As a result, the Company chose to focus on multi-
channel television system development opportunities outside these six cities.
CEtv has obtained exclusive access to frequencies enabling it to broadcast
subscription television services using MMDS technology in regional markets of
Australia which encompass approximately 1.5 million serviceable television
households or approximately 25% of the television households in Australia. In
the majority of these regions, the housing densities do not justify the
economics of building a wire-line cable system. In addition to its MMDS
frequency exclusivity, CEtv has entered into franchise agreements providing it
with the exclusive right to broadcast the Galaxy programming package over all
distribution technologies (MMDS, DTH and wireline cable) in all of its
franchise areas. Management believes that the Galaxy programming package is
the premier programming package in Australia and that the right to broadcast
the eight Galaxy channels in its franchise areas provides CEtv with a
significant competitive advantage over any potential competitor.
The Company intends to build out its franchise areas using MMDS, DTH and
wireline cable, where appropriate but, due to relatively low housing
densities, plans to deliver services via MMDS and DTH to the majority of its
subscribers. Since MMDS service is less expensive to install than DTH, CEtv
intends to service customers by MMDS whenever possible. Of the serviceable
homes in its franchise areas, CEtv believes that approximately 757,000 homes
are in markets which CEtv will serve primarily by MMDS. CEtv is servicing
homes in its MMDS markets that are not reachable by its MMDS signals with a
DTH service which CEtv is marketing in its franchise areas on an exclusive
basis. In addition, CEtv will market its programming services via DTH in less
densely populated areas outside its MMDS markets that are more effectively
serviced by DTH technology. CEtv expects to market the DTH service in regions
containing approximately 735,000 homes, the majority of which are located
within a fifty-kilometer radius of its MMDS markets. Because local topography
and vegetation make an MMDS system impractical, CEtv plans to build and
operate a wireline cable network in two markets, Darwin and Lismore, which
together represent approximately 52,000 serviceable homes.
The deployment of MMDS networks in combination with DTH allows CEtv to
quickly roll out its service and achieve rapid penetration in its franchise
areas. CEtv believes that the ability to be the first provider of multi-
channel television services in each of its markets will give CEtv a
significant market presence which will further diminish the likelihood of
competitive pressure. CEtv is currently the only provider of multi-channel
television services in substantially all of its franchise area.
CEtv believes it has established the infrastructure required for the rapid
roll-out of service in each of the markets in its franchise areas. As of May
31, 1996, CEtv had launched service in 11 of its MMDS markets representing
422,000 serviceable homes. The early marketing results in each has met or
exceeded management's expectations. As of May 31, 1996, CEtv had achieved
penetration of approximately 14% of those homes for which CEtv had completed
its initial direct marketing program. The following table sets forth the
summary operating statistics in CEtv's first 11 MMDS markets:
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<PAGE>
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
--------------------------------
LAUNCH HOMES IN HOMES
METROPOLITAN MARKET DATE MARKET MARKETED(1) SUBSCRIBERS
------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Gold Coast...................... Aug.1995 113,942 60,540 8,758
Cairns.......................... Aug.1995 32,715 19,170 2,554
Townsville...................... Nov.1995 37,870 17,687 2,709
Bendigo......................... Nov.1995 27,975 14,916 1,276
Toowoomba....................... Jan.1996 53,811 8,810 1,738
Sunshine Coast.................. Feb.1996 66,201 15,300 1,710
Mount Isa....................... Feb.1996 7,898 -- 870
Wagga Wagga..................... Mar.1996 17,723 2,460 601
Ballarat........................ Mar.1996 30,047 8,775 1,012
Murray Bridge................... Mar.1996 7,049 980 184
Shepparton...................... May 1996 26,500 -- --
------- ------- ------
Total......................... 421,731 148,638 21,412(2)
======= ======= ======
</TABLE>
---------------------
(1) Homes marketed represents those homes to which the Company has
completed its initial direct marketing program.
(2) Does not include 2,212 DTH subscribers in areas outside MMDS
markets.
Operating and Growth Strategy. CEtv believes that the strong initial
penetration rates achieved in its first market launches can be duplicated in
its other markets. CEtv plans to continue its rapid system launch schedule and
systematic marketing and installation efforts to obtain a strong initial
subscriber base which it believes will preempt competition. CEtv currently
anticipates launching service in its remaining MMDS markets by the end of
1996. The following table sets forth CEtv's remaining MMDS market anticipated
launch schedule for the period after May 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF NEW TELEVISION
1996 MONTH MMDS MARKETS HOUSEHOLDS
------------------ ------------- ----------
<S> <C> <C>
June.............. 2 65,858
July.............. 8 155,266
August............ 4 54,153
September......... 4 47,350
October........... 3 19,175
November.......... 3 33,390
December.......... 4 15,721
--- -------
Total........... 28 390,913
=== =======
</TABLE>
CEtv's market launches scheduled for June and July have been accomplished as
scheduled. The Company anticipates launching all of the remaining MMDS markets
by December 1996.
CEtv plans to market MMDS service to each of the over 800,000 serviceable
television households in its MMDS markets, but estimates that approximately
20% of the television households in these markets will be out of the line-of-
sight of its microwave signal. CEtv will service these television households
through the DTH service which it is marketing. In addition CEtv has begun
marketing DTH service to television households in rural Australia outside of
its MMDS markets. CEtv anticipates that it will have initiated marketing to
all of the approximately 700,000 serviceable television households in these
rural markets by July 1996.
To focus the strong local management of its multi-channel television systems
as well as to maximize experience gained in system launches, CEtv has
organized ten regional offices. These regional offices will typically serve
three to five MMDS markets as well as CEtv's DTH customers in the surrounding
areas. CEtv estimates that approximately 70% of its potential DTH customers
are within fifty kilometers of its MMDS service areas. This proximity will
enable CEtv to minimize installation and service costs associated with DTH
service. System launches will be alternated by region so that launches within
a particular region can be sequentially
49
<PAGE>
scheduled to allow adequate time for the management and staff of each regional
office to be able to participate in each launch and use the experience gained
from previous system launches.
CEtv has entered into agreements with three contractors who are
constructing, to CEtv's engineering specifications and on a turn key basis,
all of CEtv's head-end facilities and transmission towers for its MMDS
markets. CEtv believes that using multiple contractors will provide the
flexibility necessary to meet its aggressive launch schedule, while allowing
the Company to realize economies of scale by using a limited number of
contractors.
CEtv has also entered into contracts with a number of service companies to
install the MMDS receivers, DTH satellite dishes and set-top decoders for most
of CEtv's markets. Installers collect the installation fee, install subscriber
equipment and test reception quality. CEtv has trained and established certain
guidelines for all of its third party service company employees who install
CEtv reception equipment. CEtv intends to expend a significant amount of
effort to follow-up on installations to ensure customer satisfaction and, in
the case of DTH equipment installed within its MMDS markets, verify that more
economical MMDS technology could not be used. CEtv's objective is to establish
loyalty among its customers and to resolve any service problems quickly in an
effort to satisfy and retain subscribers.
The primary capital expenditures for CEtv's MMDS systems include fixed costs
consisting of the head-end facility and equipment and transmission towers and
variable per subscriber capital expenditures consisting of MMDS receiver
antennas and set-top converters. The DTH services marketed by CEtv require no
fixed costs and only variable capital expenditures consisting of satellite
reception dishes and set-top converters. CEtv has budgeted approximately $45
million for construction of MMDS head-end and transmission facilities for all
of its operating systems. Variable installation and equipment costs for each
MMDS and DTH subscriber are currently estimated at $450 and $1,000 per
subscriber, respectively. These budgeted amounts are consistent with CEtv's
experience to date. These subscriber costs are partially offset by the
Company's MMDS and DTH installation charges of $15-$75 and $150, respectively.
Pricing. In all MMDS markets excluding the Gold Coast, CEtv is currently
providing the eight channel Galaxy programming package plus three additional
channels of programming as its basic package at a monthly rate ranging from
approximately $31 to $38 with a one-time installation charge ranging from
approximately $37 to $76. CEtv's DTH subscribers currently pay approximately
$31 to $38 for the Galaxy package with an installation rate of approximately
$150. In the Gold Coast, the only market where CEtv currently faces
competition, CEtv is currently providing twelve channels of programming as its
basic package which includes the eight channel Galaxy programming package as
well as four additional channels, at a monthly rate of approximately $23 with
a one-time installation charge of approximately $15. These lower rates are in
response to competitive pressure from Foxtel, which is building a wireline
cable television system in the Gold Coast. Foxtel offers the Galaxy package of
eight channels as well as nine other satellite or locally originated channels.
See "--Competition."
Competition. Approximately 700,000 of CEtv's 1.5 million franchise homes are
in rural regions which generally have densities of less than 25 households per
square kilometer. As a result, the Company believes that these markets can
only be economically served with DTH technology. Existing regulations prohibit
any DTH service, other than the DTH service that is being marketed on an
exclusive basis by CEtv in its franchise areas, from being offered in
Australia prior to June 1997. Although regulations will no longer prohibit
additional DTH services after June 1997, CEtv will retain its exclusive right
to market the Galaxy package in its franchise areas through 2004 (extendable
to 2014 at CEtv's option). In addition, CEtv launched the marketing of its DTH
service in March 1996 and expects to establish a significant presence prior to
June 1997. CEtv believes that its franchise agreements which provide it with
the exclusive right to distribute the Galaxy package and its status as the
first entrant into its markets provide significant competitive advantages in
its franchise areas.
The substantial majority of CEtv's MMDS markets are either small (i.e., less
than 30,000 homes), and/or have relatively low household densities (generally
25 to 75 homes per square kilometer as compared to 100 to 130 homes per square
kilometer in Australia's largest capital cities). As a result, CEtv believes
that its MMDS markets generally do not have sufficient density to justify the
construction of wireline cable systems. While the Company believes household
densities could potentially support wireline cable construction in areas
representing approximately 25% of CEtv's total franchise homes, the relatively
small size of these markets reduces the attractiveness of cable construction.
In addition, the Company believes CEtv's entrance into these markets will
further diminish the economic attractiveness to any potential competitor.
Finally, CEtv, as a licensed subscription television provider, is authorized
to build wireline cable systems in its markets and where appropriate could
deploy this technology. With the exception of the Foxtel cable television
system currently being constructed in CEtv's 114,000-home Gold Coast franchise
area,
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CEtv does not currently have any subscription television competitors in its
franchise areas. See "--Australis Franchise Agreements," "Risk Factors--
Reliance on Australis and Other Principal Suppliers."
Management believes that the Galaxy channels represent the premier
programming package available in Australia and that CEtv's right to broadcast
the Galaxy package provides a significant competitive advantage over any
potential competitor. While other programming services may apply for a DTH
license after June 1997 when the Broadcasting Service Act permits additional
satellite service licenses to be granted, CEtv will retain the right under its
franchise agreements until 2004 (which is extendable until 2014 at the option
of CEtv) to market the Galaxy package in its franchise areas. The only current
provider of multi-channel television in Australia that does not offer the
Galaxy package is Optus Vision and the Company does not currently perceive
Optus Vision as a competitive threat because Optus Vision is focusing its
efforts on building cable and telephony networks in the major metropolitan
areas rather than in regional Australia such as CEtv's franchise areas.
Programming. The Company believes that programming is an important component
in building successful multi-channel television systems. Accordingly, CEtv has
secured the right to distribute the Galaxy package of programming in its
service areas pursuant to a franchising agreement with Australis with an
initial term through 2004 (extendable at the option of CEtv through 2014).
CEtv believes that the terms of its franchise agreements with Australis are
favorable to CEtv and that these terms provide CEtv with a programming cost
advantage over potential competitors. See "--Australis Franchise Agreements."
The Galaxy package is the most widely distributed programming package in
Australia and creates the core programming services of CEtv, ECT, Australis
and Foxtel. The channels in the Galaxy package were developed exclusively for
the Australian market by several of the world's leading programming companies,
including Paramount, Sony, Universal, Fox and Viacom. The Galaxy package
consists of the following eight channels:
<TABLE>
<CAPTION>
GALAXY CHANNEL PROGRAMMING GENRE
-------------- -----------------
<S> <C>
Showtime............................. premium feature movies
Encore............................... library movies
Fox Sports........................... sports
TV-1................................. general entertainment
Discovery............................ documentary, adventure, history and
lifestyle
Nickelodeon/Nick at Nite............. children's and family entertainment
Arena................................ general entertainment
Red.................................. music video
</TABLE>
Australis, the franchisor of the Galaxy package, has secured certain
exclusive pay television rights to first run movies from leading providers of
programming including Paramount, Sony and Universal, each of which is also an
equity investor in one or more of the Galaxy channels. The Galaxy package also
provides programming from Liberty Sports Australia Pty Limited (an affiliate
of Telecommunications, Inc.) in conjunction with Fox Sports. See "Risk
Factors--Reliance on Australis and Other Principal Suppliers." Four of
Galaxy's programming channels are supplied by XYZ, which is 25% owned by the
Company. XYZ's program suppliers include Fox, Viacom and Discovery
Communications.
CEtv has secured additional programming on a non-exclusive basis, which it
is distributing to its MMDS customers as part of its basic programming
package. These channels include:
<TABLE>
<CAPTION>
OTHER CHANNELS PROGRAMMING GENRE
-------------- -----------------
<S> <C>
CMT................................................. country music videos
BBC World(1)........................................ world news
CNBC(1)............................................. business news
TNT(2)(3)........................................... library movies
Cartoon Network(2)(3)............................... cartoons
CNN International(2)................................ international
</TABLE>
---------------------
(1)All markets except the Gold Coast.
(2)The Gold Coast only.
(3)TNT and Cartoon Network share one channel.
51
<PAGE>
In March 1996, CEtv began offering its first premium channel to its MMDS
customers, World Movies, which consists primarily of foreign movies and art
films and features. CEtv is charging approximately $5.30 per month for World
Movies and, although it has yet to be formally marketed, demand has been
strong with approximately 2,600 customers as of April 30, 1996.
CEtv intends to further expand the number of programming services available
on its MMDS systems and expects that, upon deregulation of the DTH business in
1997, it will be marketing additional channels of programming via DTH. CEtv
also plans to consider the introduction of digital compression in certain of
its MMDS systems to increase channel capacity when such equipment is
available.
Australis Franchise Agreements. CTV and STV have each entered into a
franchise agreement with Australis. Each franchise agreement is for a term of
ten years (subject to certain conditions, to be amended to 15 years as part of
the Australis Settlement) commencing in October 1994, and CTV and STV have the
option to renew the franchise agreements on identical terms for another ten
years. Under the respective agreements, Australis granted each of CTV and STV
an exclusive license and right to distribute the eight-channel Galaxy package
of programming in its respective franchise areas. These franchise agreements
are exclusive to any delivery system (MMDS, DTH and wireline cable) and
provide that Australis will not grant rights to any other person to transmit
Galaxy in CEtv's franchise areas.
Pursuant to the terms of its franchise agreements, CEtv pays a percentage of
net revenues to Australis for the right to distribute the Galaxy package. For
purposes of the franchise agreements, net revenues equal gross revenues
received from the eight Galaxy channels currently provided less a percentage
of certain agreed costs, including depreciation of subscriber equipment, which
the Company believes results in a favorable programming pricing structure.
In March 1995, Australis granted Foxtel a license to distribute the Galaxy
package over cable television systems throughout Australia, including CEtv's
franchise areas. The Company believes that because of such action Australis
was in breach of its franchise agreements. Foxtel is currently distributing
Galaxy programming on its cable television system in the Gold Coast. On June
19, 1996, CEtv and the Company agreed, subject to certain conditions described
below, to settle their dispute with Australis with respect to this matter. As
part of the Australis Settlement, the parties agreed that Australis is
entitled to grant Foxtel the non-exclusive right to distribute Galaxy
programming by cable, but that Foxtel may not sublicense or assign this right
without CEtv's consent. Australis agreed to pay to CEtv an amount equal to the
amount Australis received from Foxtel for programming service for the period
from March 1995 through June 30, 1996, less the amount Australis paid to third
party programming suppliers for such programming with respect to Foxtel
subscribers located in CEtv's franchise areas during such period. In addition,
from June 30, 1996 though the term of the franchise agreements, CEtv has the
right to in its sole discretion, to either: (i) sublicense to Foxtel the right
to transmit the services provided to it by Australis (and any other services)
by cable transmission in its franchise areas or (ii) require Australis to pay
to it an amount each month equal to the sum of (a) the greater of A$4.50 per
subscriber and all revenues (less programming costs) per subscriber during
such month received under the agreement between Foxtel and Australis with
respect to Foxtel subscribers located in CEtv's franchise areas and (b) an
additional amount (if any) to put CEtv in the position that it would have been
in had it sublicensed the services provided to it by Australis directly to
Foxtel. The Company believes that, because its programming costs are less than
the revenue to be generated by sublicensing such programming to Foxtel, the
benefits to be gained from this portion of the Australis Settlement will be
substantial over the years. As part of the Australis Settlement, Australis
agreed to extend the term of the franchise agreements by five years to an
initial 15-year term and amended favorably certain financial and strategic
terms of the franchise agreements. As part of the Australis Settlement, the
Company has agreed to waive and release any claim that it has or may have
against Australis with respect to Australis' actions with respect to Foxtel as
such actions relate to CEtv's franchise agreements, and the Company has also
agreed not to make any objection or claim against Australis or Foxtel in
connection with Australis' license agreement with Foxtel. Effectiveness of the
Australis Settlement is subject to completion of anticipated financing to
Australis of at least $250 million, including at least $50 million of equity
(the "Australis
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<PAGE>
Financing"), which conditions may be waived by the Company and CEtv. See "--
Competition" and "Risk Factors--Reliance on Australis and Other Principal
Suppliers."
Marketing. CEtv has focused its marketing efforts to support its strategy of
rapid system roll-out in an effort to preempt competition in each of its
markets. CEtv's marketing program is based on the traditional multi-channel
television system roll-out marketing efforts that have generally been
successful in the United States, with a heavy emphasis on door-to-door direct
sales by trained sales persons. The Company believes that this direct sales
approach has been successful to date in CEtv's existing operating systems
which, as of May 1996, had resulted in an approximate 16% subscriber
penetration rate for those homes for which the initial direct marketing
program had been completed. The direct sales approach also allows CEtv to plan
its system rollout installation and marketing in an orderly fashion, allowing
CEtv to minimize backlog by regulating demand to match its installation
capacity. As multi-channel television services are new to Australia, CEtv
believes that the direct sales approach is more successful than more general
advertising, although CEtv also engages in print and broadcast advertising
during the first few months of a MMDS system launch. In addition, CEtv will
selectively use print and broadcast advertising to support the marketing of
its DTH service.
Customer Support. CEtv operates a centralized National Customer Operations
Center ("NCOC"), located in the Gold Coast, which currently services all of
CEtv's MMDS and DTH subscribers and has the capacity to service all future
customers. NCOC employees process installation orders, handle customer
inquiries, including programming and technical questions, and implement the
customer retention program, which includes telephone contact with customers
following a cancellation request, as well as making unprompted contact with
customers immediately following installation in an effort to ensure customer
satisfaction. CEtv's customer service representatives undergo a training
program, which provides instruction on all aspects of CEtv's customer service
programs.
CEtv's NCOC has a sophisticated communications system which ensures a high
level of customer service. Incoming calls from all of CEtv's markets are
directed to the NCOC where customer service representatives are available to
provide sales and service information. The NCOC currently handles
approximately 1,300 calls per day but has the capacity to handle 5,000 calls
per day. The NCOC facility currently employs 43 customer service
professionals, which CEtv will grow as it builds out its franchise areas. In
addition, CEtv is exploring the possibility of using the NCOC to outsource
customer service to third parties in similar lines of business where
appropriate.
Properties. CEtv leases office space in Sydney for its administrative
offices and has established several regional offices in leased space in the
areas where it has launched service. CEtv anticipates having a total of ten
regional offices upon completion of system construction. CEtv also plans to
lease locations for smaller local offices in most of its markets to handle
local customer maintenance, marketing and installation. In addition, CEtv
leases or plans to lease facilities to house the head-end facility and
transmitter tower in each of its markets. CEtv's national customer service
center is located in leased facilities in the Gold Coast. Generally, these
CEtv facilities are leased with terms of three to six years, with renewal
options in many instances. CEtv believes that its leased facilities are
sufficient for its foreseeable needs and that it has access to a sufficient
supply of additional facilities in its various markets, should it require more
space.
Management and Employees. In October 1994, UIH executed Technical Service
Agreements with CTV and STV pursuant to which UIH will provide various
management and technical services for a fee equal to 5% of CEtv's total gross
revenue through October 1996, 4% through October 2002, 3% through October 2004
and 2% thereafter, and certain direct costs incurred by UIH, including
employee expenses. UIH has appointed eight of its employees to senior
management positions of CEtv, including managing director, chief operating
officer and marketing director. UIH pays those employees' salaries and
benefits (which in 1996 are estimated to be approximately $2.5 million) and
charges CEtv for these amounts under the Technical Service Agreement. UIH has
historically deferred such payables and credited any amounts owed to it
against capital contributions UIH was required to make to CEtv. In the future,
UIH anticipates collecting such amounts from CEtv on a current basis.
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As of December 31, 1995, CEtv had a total of 184 employees. Substantially
all of CEtv's employees are parties to an "award" governing the minimum
conditions of their employment including probationary periods of employment,
rights upon termination, vacation, overtime and dispute resolution. See
"Certain Transactions."
XYZ (AUSTRALIAN PROGRAMMING)
Background. In order to participate in developing the Australian programming
market and enhance program offerings provided by its multi-channel television
systems, the Company and its original partner, Century, founded XYZ in late
1994. In September 1995, UIH and Century sold one-half of their respective
interests to Foxtel, giving Foxtel a 50% ownership interest and leaving each
of the Company and Century with a 25% ownership interest.
XYZ provides four channels (the "XYZ Channels") of the eight channels which
are distributed as the Galaxy package. The XYZ Channels consist of the
following:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<C> <S>
Discovery Channel......... documentary, adventure, history and lifestyle
programming
Nickelodeon/Nick at Nite.. children's educational, entertainment and
cartoons/family oriented drama and
entertainment
Red....................... music video with local presenters
Arena..................... drama, comedy, general entertainment,
programming, library movies
</TABLE>
XYZ provides the XYZ Channels to the A Licenseholder, which in turn,
pursuant to long-term carriage agreements, supplies them as part of the Galaxy
package to Australis and its franchisees and to Foxtel. The Galaxy package
will be available to the majority of Australia's approximately six million
television households, including all households marketed via MMDS and DTH by
Australis and its franchisees, pursuant to a carriage agreement between
Australis and the A Licenseholder that has been warranted to XYZ as having a
term through at least 2010. The XYZ Channels are also distributed to Foxtel,
the largest cable television system operator in Australia, pursuant to a
carriage agreement between Foxtel and the A Licenseholder that has been
warranted to XYZ as having a term through 2020. XYZ's agreement with the A
Licenseholder provides for fixed per subscriber prices. The Company
understands the carriage agreement between the A Licenseholder and Foxtel
provide for substantial minimum subscriber guarantees. XYZ currently receives
monthly revenues of approximately $3.15 per MMDS or DTH subscriber and $4.15
per Foxtel subscriber. ECT, an affiliate of the A Licenseholder, has
guaranteed the performance of all of the A Licenseholder's obligations to XYZ
under this agreement. As of May 31, 1996, the XYZ channels were distributed to
approximately 200,000 multi-channel television subscribers.
Operating and Growth Strategy. XYZ is an independently managed venture which
purchases programming for, edits, packages and transmits the XYZ Channels in
exchange for a monthly fee per subscriber. UIH and Century jointly manage
Arena, Foxtel manages Red, and UIH and Century, together with Nickelodeon
Australia, Inc. ("Nickelodeon") manage the Nickelodeon/Nick at Nite channel.
Each of these three channels reports to a board comprised of UIH, Century and
Foxtel executives. The Discovery Channel is managed by Discovery Asia and
distributed by XYZ.
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. In addition, when restrictions
on multi-channel television advertising expire in mid-1997, XYZ plans to offer
advertising on each of the XYZ Channels. XYZ also plans to create and
distribute two additional channels in 1997. See "Regulation--Australia--
Broadcast Services Act."
Acquisition of Programming. In July 1995, XYZ and Discovery Asia executed a
twelve-year exclusive carriage agreement whereby a localized version of the
Discovery Channel replaced the existing documentary
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<PAGE>
channel developed by XYZ. The Company believes that, as a result of this
arrangement, XYZ will be able to offer subscribers higher quality programming
at a lower cost to XYZ.
In September 1995, XYZ and Nickelodeon, a division of Viacom, executed a
memorandum of understanding, the terms of which provide that, upon receipt of
regulatory approvals prior to July 31, 1996 or another agreed date should
approvals not be received by such date, Nickelodeon and XYZ will each acquire
a 50% interest in a new company to be established to produce and distribute an
Australian version of Nickelodeon/Nick at Nite, which XYZ began distributing
in October 1995. The memorandum of understanding contemplates at least a 15-
year term for the joint venture. Pending finalization of the definitive joint
venture agreement, Nickelodeon and XYZ currently are jointly producing
Nickelodeon/Nick at Nite for supply to XYZ. XYZ pays a monthly per subscriber
license distribution fee that is shared equally by Nickelodeon and XYZ.
XYZ acquires, locally-produces interstitials for, packages and distributes
Arena and Red. XYZ has acquired a two to three year supply of programming for
Arena at prices its management considers to be favorable. XYZ is pursuing
supply agreements and potential joint venture arrangements with a number of
other international programming suppliers. XYZ has non-exclusive licenses with
many of the world's largest record companies for music video programming.
Properties. XYZ currently uses a portion of Foxtel's broadcasting facilities
located in Sydney. XYZ is currently negotiating with Foxtel terms of a four-
year lease for this facility. The Company believes this arrangement results in
operational cost savings. XYZ believes its facilities are sufficient for the
foreseeable future.
Employees. As of December 31, 1995, XYZ had 47 employees and the Nickelodeon
joint venture had 20 employees. CUPV had 15 employees that provide management
services to XYZ.
SATURN (NEW ZEALAND)
Market Overview. Management believes that New Zealand is an attractive
market for the development of multi-channel television services. New Zealand
is one of the world's most unregulated telecommunications markets with strong
per capita income, high television viewership and high acceptance of new
technologies. In addition, New Zealand's existing regulatory structure permits
the delivery of pay television and telephony services over a single network
and provides virtually no regulation concerning pricing and only limited
program content regulations.
Multi-channel television has been slow to develop in New Zealand due
primarily to the lack of satellite delivered programming and government
broadcasting regulations. Government broadcasting deregulation in 1988 led to
the auction of UHF frequencies in 1990 and the introduction of TV3, a private
national broadcaster, Sky TV ("Sky"), a pay television operator, and several
private regional broadcasters. The Company believes that as the Australian
multi-channel television market continues to develop, the quality and quantity
of programming available in New Zealand will expand.
Background. Saturn is building an integrated wireline cable and
telecommunications network which will pass approximately 135,000 homes in the
Wellington area. Wellington is New Zealand's capital and second largest city.
Saturn selected Wellington based upon several factors including housing
density, demographic profile and expected construction costs. Saturn entered
the New Zealand market through the purchase of a small multi-channel
subscription television system which passes approximately 6,000 homes on the
Kapiti Coast, north of Wellington and serves approximately 1,150 subscribers.
Prior to the Company's involvement, this system had not been aggressively
marketed and provided only a relatively limited program offering.
Operating and Growth Strategy. Saturn plans to build-out its integrated
network over a two- to three-year period. Saturn has secured pole attachment
agreements with various local utilities and has secured permits necessary to
construct its network in the Wellington area servicing approximately 135,000
television households.
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<PAGE>
Saturn plans to provide both cable television and telecommunication services
at competitive prices. It has secured an attractive programming offering and
plans to negotiate for interconnect agreements that will allow it to bundle
its subscription television and local residential and business telephone
services. By providing both subscription television and telephony services,
Saturn can offer pricing discounts across both services, which management
believes will provide a significant advantage over competitors that offer only
one service. Saturn is currently in the preliminary stages of discussions with
several telecommunications providers in the New Zealand market concerning
potential strategic partnership arrangements. There can be no assurances,
however, that Saturn will be able to successfully conclude any such
arrangements that it may choose to pursue.
Competition. The New Zealand television market is still dominated by state
free-to-air broadcaster TVNZ, whose two channels account for approximately 80%
of the television audience share. Saturn also competes with one other
nationwide broadcast channel and four recently established regional channels.
In addition to Saturn, there are currently two providers of subscription
television services in New Zealand, Sky and Telecom New Zealand ("Telecom"),
the national telephone company.
The largest provider of subscription television services in New Zealand is
Sky, which operates a five channel scrambled UHF subscription television
service. Although Sky offers a popular sports channel on an exclusive basis,
Sky does not offer the programming diversity or television/telephony bundling
that Saturn plans to offer, which Saturn believes will drive its penetration.
The Company estimates that since its launch in 1990, Sky's subscriber base has
increased to approximately 200,000 with an estimated 800,000 serviceable homes
for a penetration rate of 25%. Sky's shareholders include a number of large
international telecommunications companies with significant resources,
including TCI, Time Warner, Bell Atlantic, Ameritech and TVNZ. Telecom has
announced its intention to rebuild its existing networks using hybrid fiber-
coax technology which will allow it to offer video, data and voice services.
Telecom's multi-channel television offering has to date, however, been limited
to a 600-home trial system in the Auckland area. Telecom has also announced
its intention to construct a similar system in the Wellington area.
The primary competitor to Saturn's planned local loop telephony service will
be Telecom. Telecom is one of New Zealand's largest companies and is 49% owned
by two U.S. regional Bell operating companies, Bell Atlantic and Ameritech.
Telecom remains the largest telecommunications service provider with a 100%
share of local loop revenues, 75% of national and international toll revenues
and 90% of cellular revenues. In addition, Clear Communications, a consortium
consisting of British Telecom, MCI, TVNZ and the Todd Corporation, began
offering long distance services to residential and business customers in 1991
and today controls approximately 25% of the long distance market.
Saturn plans to build a substantial portion of its system by attaching cable
to utility poles pursuant to its pole attachment agreements. Zoning
regulations and technical requirements make it difficult to attach multiple
broadband cable lines to existing utility poles. Management believes that it
will be able to quickly build-out its service area and, because of the first
entrant opportunity afforded by the pole attachment rights as well as zoning
restrictions, a potential competitor may be forced to use slower and more
expensive underground construction.
Programming. The Company believes that Saturn's success will be dependent
upon its ability to secure attractive programming at competitive rates. Saturn
has conducted market research among potential local subscribers and plans to
focus its marketing and programming strategies on variety and choice, local
content and competitive pricing created through bundling multi-channel
television services with telephony services. Saturn, which is currently
offering a single tier of service consisting of twenty-two channels and is
currently negotiating with a number of programming services, including pay-
per-view providers, to upgrade its channel offering. The following is a list
of the programming currently offered by Saturn:
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<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
TV One...................................... general entertainment
TV 2........................................ general entertainment
TV 3........................................ general entertainment
The Community Channel....................... local news, events
CNN International .......................... world news
Asia Business News.......................... Asian business news
Nostalgia................................... general entertainment
Frontiers................................... documentary
Cartoon Network............................. childrens' programming
Country Music Television.................... music video
Much Music.................................. music video
TAB......................................... racing channel
Capital City Television..................... local news, events
Cable Sports Network........................ local sports
Information Channel......................... weather, programming line-up
RFO......................................... French general entertainment
TNT......................................... movies
NHK......................................... Japanese general entertainment
NBC Super Channel........................... general entertainment
Elijah Television........................... religious programming
CNBC........................................ world news
Worldnet.................................... news and science
</TABLE>
Saturn's programming is licensed from various companies that produce
original programming or have the distribution rights to such programming. The
Company believes that the amount of satellite-delivered programming will
increase in the next few years, driven in part by the rapid development of
multi-channel television in Australia. Saturn currently anticipates the
addition of several pay-per-view channels by mid-1996.
Pricing. Saturn plans to introduce a basic service package with a minimum of
22 channels in Wellington at a monthly subscription rate of $30. Sky, Saturn's
primary competitor, charges subscribers a monthly rate of approximately $36
for five channels of programming.
Marketing. Saturn's marketing strategy will utilize promotion techniques
proven in existing subscription television markets such as the United States
and Europe, including direct sales campaigns (door-to-door selling), direct
mail and telemarketing supported by press and radio advertising. Direct sales
has proven to be the most effective technique in other cable television
markets, particularly in areas where multi-channel television is in its
introductory stage. Each of these techniques aims to communicate the selling
points of cable television: expanded choice, high entertainment value and
breadth of programming genre to potential subscribers. In Saturn's case, the
sales strategy is also designed to include an emphasis on telephony services
and to communicate to potential subscribers the cost, quality and customer
service advantages associated with bundled services.
Customer Support. Saturn is establishing a national customer services center
at its corporate headquarters in Wellington. The center will be operational
when Saturn's services are launched in mid-1996. The center will initially
have the capacity to service 1,200 calls per week with an ability to expand to
2,400 over the next 18 months.
Properties. Saturn has constructed a head-end facility on leased property in
Paraparaumn. Saturn leases office and warehouse facilities for its
headquarters in Petone, located north of Wellington, and additional office and
warehouse space in the Kapiti Coast. These leases have six and three year
terms, respectively, with six- and three-year renewal options, respectively.
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<PAGE>
Management and Employees. In July 1994, Saturn and UIH executed a Technical
Service Agreement pursuant to which UIH provides technical, administrative and
operational assistance to Saturn encompassing the following areas: (i)
engineering, design, construction, and equipment purchasing, (ii) marketing,
selling and advertising, (iii) selection of programming and public relations,
(iv) accounting, billing and subscriber management systems, and (v) personnel
management and training, for a fee of 5% of Saturn's gross revenue through
July 1999. UIH is also reimbursed for all direct and indirect costs associated
with these services, including employee costs. UIH has appointed three of its
employees to senior management positions, including its chief executive
officer and technical director. UIH pays these employees' salaries and
benefits (which in 1996 are estimated to be approximately $450,000) and
charges Saturn for these amounts. See "Certain Relationships."
As of December 31, 1995, Saturn had 43 employees. Substantially all of
Saturn's employees are parties to a collective employment contract governing
certain conditions of their employment including probationary periods of
employment, termination, redundancy, overtime, holidays, leave and dispute
resolution.
TELEFENUA (TAHITI)
Market Overview. Tahiti and Moorea are the two largest and most populous
islands of French Polynesia, a self-governing territory of the Republic of
France. The French government contributes heavily to French Polynesia's
economy and approximately one-third of Tahiti's population is employed by the
national government. Television viewing alternatives are limited, but demand
for television is strong as demonstrated by the country's high television and
VCR penetration, 99% and 66%, respectively, and television viewing of nearly
four hours per day. Prior to late 1994, television choice was limited to two
government broadcast channels.
Background. In January 1995, UIH acquired a majority economic interest in
Telefenua, which holds 30-year licenses permitting it to build and operate a
multi-channel television system on the islands of Tahiti and Moorea. Telefenua
launched service in March 1995. Telefenua has completed the buildout of its
MMDS system and is currently in the process of marketing its service to
approximately 17,500 homes.
Telefenua is expanding its network by selectively adding beam benders and
repeaters that will allow its signal to reach all 31,000 serviceable homes in
its franchise areas. Telefenua's MMDS service passed approximately 17,500
serviceable homes and had approximately 4,400 subscribers as of May 31, 1996,
representing a 25% penetration rate.
Operating and Growth Strategy. Telefenua is focusing on increasing its
penetration rates through continued direct marketing campaigns, including
door-to-door sales, and expanding its serviceable homes through select
deployment of beam benders and repeaters. Management is actively seeking to
expand its programming offering including the planned introduction of premium
movie services.
Competition. Telefenua's only subscription television competitor is Canal
Plus, which offers a single channel UHF service offering a combination of
sports, movies and general entertainment programming. The Company estimates
Canal Plus has approximately 3,800 subscribers, of which an estimated 1,000
are also customers of Telefenua. The monthly subscription fee for Canal Plus'
service is approximately equal to the subscription fee for Telefenua's 14-
channel expanded tier service. There is no existing competition in Tahiti from
DTH services due to limited satellite coverage in the region and lack of
available satellite delivered French language programming.
Pricing. The subscription fee for Telefenua's basic tier is approximately
$49 per month and the expanded tier monthly rate is approximately $65. To
date, nearly 99% of Telefenua's customers are subscribing to the expanded tier
of service.
Programming. Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 14 channels
segregated into two tiers of service--a basic service with nine channels and
an expanded tier with an additional five channels. Telefenua's basic tier
offers the two local broadcast channels as well as French language children's,
sports, general entertainment and music channels and
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<PAGE>
the English language CNN International channel. Telefenua also offers a
French/Tahitian language program guide and plans to offer a local public
access channel. The expanded tier includes French language movies, cultural,
general entertainment and documentary channels and ESPN International.
With the exception of CNN International, ESPN International, and the two
local broadcast channels, all programming consists of taped French satellite
services. Current French regulations require approval of the national
regulatory authority for all programming. The following is a list of
programming currently offered by Telefenua:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
RFO 1.......................... government broadcast, general entertainment
RFO 2.......................... government broadcast, general entertainment
CNN International.............. world news
ESPN International............. sports
RTL............................ general entertainment
Eurosport...................... sports
Canal J/Canal Jimmy............ adult and childrens'
Serie Club..................... general entertainment
Paris Premiere................. arts, life
MCM............................ music video
Planete........................ documentary
Cine Cinemas................... movies
France Supervision............. sports, movies
Program Guide.................. program guide service
</TABLE>
Marketing. Telefenua utilizes several marketing techniques, proven in the
U.S. multi-channel television industry, including door-to-door, direct mail,
and local media. The Company's customer service center also conducts
telemarketing campaigns and has opened sales boutiques in high traffic areas
throughout Tahiti. Marketing campaigns consist of selected promotions
targeting specific demographic groups throughout the year and new markets as
they are activated.
Customer Support. Telefenua's customer service center is located at its
corporate headquarters. The center handles all customer inquiries, coordinates
installations and manages all maintenance activities.
Properties. Telefenua leases office space in Punaania, Tahiti. This facility
also contains the customer service center and the headend equipment for the
system, including equipment for the receipt of satellite delivered programming
and local broadcasts as well as play-back of taped programming. Telefenua
compiles its 14-channel service at this facility and then transmits from its
MMDS broadcast tower located on the island of Moorea. Telefenua leases its
offices and other facilities.
Management and Employees. In January 1995, UIH and the parent company of
Telefenua executed a Technical Service Agreement whereby UIH has agreed to
provide technical, administrative and operational assistance to the parent
company. The parent company has a similar technical assistance agreement with
Telefenua under which it makes available to Telefenua UIH's services
encompassing the following areas: (i) engineering, design, construction, and
equipment purchasing, (ii) marketing, selling and advertising, (iii)
accounting, billing and subscriber management systems, and (iv) personnel
management and training for a fee equal to 5.5% of Telefenua's gross revenue
through 1996, 3.5% of gross revenue for the following 12 months, and 2.5%
thereafter. The fees payable to UIH under its Technical Service Agreement with
Telefenua's parent company are 5%, 3% and 2% of Telefenua's gross revenues
over the same periods. UIH is also reimbursed for all direct and indirect
costs associated with the services it provides. UIH has appointed two of its
employees to serve as managing director and technical director of Telefenua.
UIH pays these employees' salaries and benefits (which in 1996 are estimated
to be approximately $340,000) and charges Telefenua for these amounts. See
"Certain Relationships." The total amount accrued as of December 31, 1995
payable to UIH under the Technical Service Agreement is $1.2 million. Amounts
accrued before the closing of the Offering will be paid in cash to
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<PAGE>
UIH at some time after the Offering. Amounts accruing under the Technical
Assistance Agreement after the closing of the Offering will be paid as
accrued.
As of March 15, 1996, Telefenua had 45 employees.
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
Market Overview. Wireless data networks provide for the two-way transmission
of packet switched data between a customer's terminal and a host computer. The
transmission of wireless data occurs over a network, similar in configuration
to a cellular telephone network, which is constructed and maintained by a
local network carrier, such as United Wireless.
The Australian wireless mobile and fixed data industry is in an early stage
of development. Wireless data services were first introduced in Australia in
1992 by BellSouth Mobile Data, United Wireless' predecessor. Today, there are
two public wireless data carriers in Australia with a total estimated
installed base of 6,000 customer terminals.
Background. In September 1995, the Company acquired a 100% interest in
BellSouth Mobile Data which was renamed United Wireless. United Wireless is in
the second phase of its network deployment in the major metropolitan markets
of Australia. United Wireless' network is based on the "Mobitex" technology,
developed by Ericsson and Swedish Telekom and launched in 1984. Today, there
are 15 operational Mobitex wireless data networks deployed throughout Europe,
North America and the Asia/Pacific region.
Operating and Growth Strategy. United Wireless is aggressively expanding its
network coverage areas to encompass the metropolitan markets of Adelaide,
Brisbane, Canberra, the Gold Coast, Melbourne, Perth and Sydney. The Company
plans on spending approximately $2.8 million for network construction and
working capital needs through the end of 1996 and an additional $3.1 million
in 1997 and 1998.
Competition. United Wireless competes primarily with Telstra Wireless Data,
a subsidiary of Telstra, whose wireless data network was developed by
Motorola. The Company estimates Telstra Wireless Data has an installed base of
approximately 5,250 customer terminals.
The Company believes that the Mobitex network provides certain competitive
advantages over other operating platforms including: (i) superior transmission
quality; (ii) broader redundancy capabilities; (iii) larger base station
coverage areas; (iv) lower maintenance and support requirements; and (v) a
greater array of proven application solutions.
Marketing/Customers. United Wireless' target market includes large companies
with significant potential installed bases, such as utilities, commercial
banks, transport companies, and courier and delivery companies. Management
believes that the most expeditious and economical approach to building an
installed customer terminal base is to target its efforts on securing these
large corporate accounts. Specific applications that will be targeted include:
remote order entry (e.g., sales persons and couriers), credit and debit card
validation, remote meter reading for utilities and vending machine inventory
monitoring.
Revenue/Pricing. The majority of United Wireless' revenues are derived from
monthly access fees charged on a per terminal basis. The average customer pays
a monthly rate of $25 per terminal.
Sales. United Wireless utilizes a network of systems integrators that act as
the primary interface with potential customers. These systems integrators
develop specific customer applications which utilize the Mobitex wireless
network for transmission of data. United Wireless works closely with these
systems integrators providing technical, marketing and other general sales
support.
Properties. United Wireless leases corporate office space in Sydney and has
a leased regional sales office in Melbourne.
Employees. As of December 31, 1995, United Wireless had ten employees.
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<PAGE>
EMPLOYEES
The Issuer has no employees. Administrative and other services for the
Company are currently provided by UIH. UIH and the Company are parties to the
UIH Management Agreement pursuant to which UIH will provide all management and
administrative services necessary for the Company. UIH supplies certain
employees to CEtv, Saturn and Telefenua pursuant to the Technical Service
Agreements. See "Certain Relationships."
LEGAL PROCEEDINGS
The Company does not believe that, if resolved adversely to the Company, any
action to which it is a party or is otherwise described herein would have a
material adverse effect on its financial condition or results of operations
and, other than as described herein, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorization. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
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REGULATION
AUSTRALIA
Australia is a Federal jurisdiction. The Federal Government of Australia has
exclusive jurisdiction with respect to certain matters enumerated in
Australia's constitution while the States and Territories of Australia have
residual power over all other matters. The provision of subscription
television services is regulated by the Federal government under various
Commonwealth statutes. In addition, State and Territory laws, including
environmental and consumer contract legislation may impact the construction
and maintenance of a transmission system for subscription television services,
and the content of those services, as well as on various aspects of the
subscription television business itself.
The Australian regulatory framework distinguishes between the regulation of
the subscription television services themselves and the regulation of the
facilities used to transmit those services. The Broadcasting Services Act
("BSA"), which is a Federal statute, regulates the provision of subscription
broadcasting and subscription narrowcasting services in Australia, and certain
aspects of the content and satellite transmission of those services. However,
the transmission facilities used to provide these services are principally
regulated by the Radiocommunications Act and the Telecommunications Act.
BROADCASTING SERVICES ACT
Overview. The BSA regulates the ownership and operation of television and
radio services in Australia. It applies to all categories of television and
radio services, whether those services are broadcasting or narrowcasting;
television or radio; national, community, commercial or subscription;
transmitted via cable (fiber-optic or coaxial), DTH, MMDS or any other means
or a combination of those means of transmission. Generally, only the BSA
provisions governing subscription television broadcasting services are
relevant to CEtv.
Subscription Television Broadcasting Services. The BSA regulates
subscription television broadcasting services by requiring each service to
have an individual license. Non-satellite broadcasting licenses are issued by
the Australian Broadcasting Authority ("ABA") on receipt of a written
application and fee and a satisfactory report from the Australian Competition
and Consumer Commission ("ACCC") that the grant of the license would not
substantially lessen competition. In addition, the ABA must also determine
whether the applicant is suitable to hold a subscription television
broadcasting license under the BSA pursuant to certain enumerated factors.
CEtv is not aware of any existing circumstances that would affect its
suitability to be a licensee.
Companies associated with STV and CTV hold approximately 100 non-satellite
subscription television broadcasting licenses. These licenses, together with
CEtv's MMDS licenses, enable CEtv to provide subscription television
broadcasting services by MMDS in its franchise areas.
Each broadcasting license is issued subject to certain conditions,
including: (i) advertisements are prohibited until July 1997; (ii) cigarette
or other tobacco product advertising is prohibited; (iii) subscription fees
must be the predominant source of revenue for the service, even after
advertisements are permitted; (iv) the licensee must remain a "suitable"
licensee under the BSA; (v) if the licensee provides a service devoted
predominantly to drama programs, the licensee must ensure that at least 10% of
its annual programming expenditure relates to new Australian drama programs;
(vi) customers must have the option to rent domestic reception equipment; and
(vii) the licensee must comply with provisions of the BSA relating to anti-
siphoning and the broadcasting of R-rated materials. The ABA may vary or
revoke license conditions or may, by written notice, specify additional
conditions.
The BSA also provides for the issue of three satellite licenses for DTH
service and prohibits the ABA from issuing before July 1997 any other license
for delivery of DTH service. While CEtv has been granted a license and
franchise by Australis to market DTH services for two satellite license
holders and XYZ supplies programming to one satellite license holder, the DTH
services are provided by those satellite license holders and the conditions of
the satellite licenses do not directly apply to either CEtv or XYZ. However,
material non-compliance by a satellite license holder with conditions of its
license could have a material adverse effect on CEtv or XYZ. See "Risk
Factors--Reliance on Australis and Other Principal Suppliers."
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Foreign Ownership. Foreign ownership of "company interests" of subscription
television broadcasting licensees is limited to 20% by a single foreign person
and an aggregate of 35% by all foreign persons. "Company interests" under the
BSA include a beneficial entitlement to, or an interest in, shares of the
company, i.e., exercising control of votes at a shareholders meeting, having a
beneficial entitlement to a dividend, a share of profits under the company's
memorandum and articles of association or shareholder distributions upon
liquidation or otherwise. "Foreign persons" under the BSA include corporations
in which non-Australian citizens hold, directly or indirectly, a majority of
the company interests. Company interests can be traced through a series of
companies in order to determine levels of foreign ownership in accordance with
a formula specified in the BSA. Currently, the Issuer's indirect interests in
the companies that hold the licenses are in the form of debentures and not
company interests under the BSA. See "--Foreign Acquisition and Takeovers Act"
and "Corporate Organizational Structure--CEtv."
Broadcasting Adult Materials. A subscription television broadcasting
licensee may not broadcast R-rated material ("restricted to persons over
eighteen years of age" as determined by the Office of Film Literature
Classification) programming until the ABA has completed an extensive survey on
community standards on taste and decency in relation to classifications for
subscription television and on what levels of violence and depiction of sex
should be allowed, and has recommended, and the Federal Parliament has
approved, the broadcast of programs in the category.
While the ABA has completed its survey and has recommended that R-rated
programming should be available to subscription broadcasting television
subscribers, subject to certain controls, Parliament has not approved the
recommendation. A Senate (upper house) committee issued a unanimous report in
February 1995 recommending an extension of the existing moratorium banning R-
rated movies from subscription television. The Senate committee also
recommended that the Australian Government revise the R-rating system (which
is somewhat different than the R-rating system in the United States), creating
one version for movies and another, censored version for video and
subscription television. The Minister has yet to submit a proposal regarding
the transmission of R-rated programming to Parliament.
The Company is unable to predict the Minister's recommendations or their
likely effect on CEtv or XYZ. A change from the current prohibition on R-rated
material may enable subscription television service providers, such as CEtv,
or programmers, such as XYZ, to provide or produce a broader range of services
than is currently permitted. If Parliament approves the broadcast of R-rated
programs, the BSA also imposes a condition that the licensee must ensure that
access to programs classified as R-rated may be restricted by disabling
devices acceptable to the ABA.
Anti-Siphoning. The BSA prohibits subscription television broadcasting
licensees from obtaining exclusive rights to events of national importance or
cultural significance that have traditionally been shown on free-to-air
television. The prohibition applies to any event that the Minister has
specified on the "anti-siphoning list" unless a national broadcaster or
commercial television broadcasting licensee (whose services cover more than
50% of the Australian population) has the right to broadcast that event. To
date, the anti-siphoning list contains only sports of interest to Australians
including certain Rugby League, Rugby Union and Australian Rules football
matches, cricket matches, the English FA cup final and World Cup soccer
matches, the Australian National Basketball League finals, certain national
and international golfing events and tennis matches, all for a period of ten
years. The Minister may add or remove events from the anti-siphoning list.
Australian Content. The BSA requires any subscription television
broadcasting service predominantly devoted to drama programs to devote at
least 10% of its annual program expenditures to new Australian drama programs.
Based on its discussions with government regulators, CEtv believes the
programming it distributes currently complies with these provisions. The BSA
requires the Minister to conduct a review of Australian content before July
1997, including the feasibility of increasing this percentage to 20%. The new
government has indicated that this review should consider whether Australian
content requirements should be extended to non-drama services.
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LICENSES
Radiocommunications Act. The Radiocommunications Act regulates the use of
the radio spectrum in Australia, including the issue and use of MMDS apparatus
licenses and the grant of spectrum licenses. Apparatus licenses authorize the
licensee (and certain persons authorized by the licensee) to operate specified
radiocommunications devices. The apparatus licenses issued to CEtv authorize
the operation of radiocommunications transmitters at each of CEtv's MMDS
systems and permit the transmission of signals over specified frequencies to
CEtv's subscribers. As of the date hereof, the government has not issued any
spectrum access licenses.
General conditions apply to each MMDS license, including conditions that
apparatus licensees and operators of devices comply with the
Radiocommunications Act and its conditions, and meet all obligations under
that Act. MMDS licenses of the type held by CEtv are further restricted by
conditions including operating on specified frequencies and operating
consistently with the frequency band plan, without the likelihood of
interference. The Spectrum Management Agency ("SMA"), the government agency
established under the Radiocommunications Act to manage the radio frequency
spectrum, may at any time impose new conditions or revoke or vary them with
respect to individual licenses. See "Risk Factors--Government Regulations;
License Renewal."
Each apparatus licensee may, within six months before an apparatus license
is due to expire, apply to the SMA for renewal. Licenses bear the following
notation with respect to renewal:
Issue of the Licenses for a further period is not and cannot be
automatic due to changing community demands on the radio frequency
spectrum. Every reasonable effort will be made to give adequate notice
of any intention not to renew the Licenses or any changes to any
conditions placed on the Licenses. The Minister, the Spectrum
Management Agency, the Commonwealth of Australia or its officers,
servants or agents accept no liability for costs due to refusal to
renew the license or changes to any of the conditions placed on the
license.
If the SMA decides to refuse to renew a license, it must notify the licensee
in writing of its reasons for doing so. That decision is then reviewable by an
administrative appeals body. In deciding whether or not to renew an apparatus
license, the SMA must consider the effect on radiocommunications of the
proposed operation of the radiocommunications devices that would be authorized
under the relevant apparatus license. The SMA may not issue an apparatus
license that is inconsistent with the spectrum plan or any relevant frequency
bank plan. On renewal, an apparatus license will remain in force, unless
canceled or suspended on an earlier date, for the period specified in the
apparatus license, which may be a period of up to five years.
The Radiocommunications Act provides that the SMA may cancel or suspend an
apparatus license if it is satisfied that the licensee or a person authorized
by the licensee to operate a radiocommunications device has violated the terms
of the license or the Radiocommunications Act or any other law. The
Radiocommunications Act does not prohibit the sale of shares in a company that
holds an apparatus license.
The Radiocommunications Act provides for the preparation of plans for the
conversion of existing apparatus licenses into spectrum apparatus licenses.
The SMA is required to prepare conversion plans at the direction of the
Minister, but, as at the date hereof, no conversion plans have yet been
announced. When conversion occurs, spectrum access charges may be payable to
the SMA. In determining the spectrum access charges payable on conversion,
consideration may be given to the basis on which a particular license was
issued, for example, whether it was issued pursuant to a price-based process
(like an auction) or by administrative allocation. The SMA has not made any
declarations or issued any guides setting out the basis for calculation of
spectrum access charges for licenses.
The principal differences between apparatus licenses and spectrum licenses
relate to subject matter, term and renewal/reallocation. Both apparatus and
spectrum licenses are transferable subject to the terms of the
Radiocommunications Act and as may be determined by the SMA. Apparatus
licenses authorize the licensee to
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<PAGE>
operate specified radiocommunications devices such as MMDS transmitters and
repeaters. Spectrum licenses are expected to emphasize the ability of a
licensee to use a part of the radiowave spectrum (defined by frequency and
geographic location) rather than operate a specifically identified
radiocommunications device. MMDS spectrum licenses may have a term of up to
ten years, but will not necessarily be reissued to the same licensees.
Instead, MMDS spectrum licenses will be reallocated under a price based tender
process at the end of their term unless the SMA is satisfied that special
circumstances exist as a result of which it is in the public interest for the
same licensees to continue to hold the spectrum licenses or the Minister
determines that it is in the public interest that the MMDS spectrum licenses
be reissued to the same licensees. See "Risk Factors--Government Regulations;
License Renewal."
TELECOMMUNICATIONS ACT
The Telecommunications Act regulates the use of telecommunications
facilities to supply telecommunications services. Telstra and Optus have the
right to install and maintain facilities (for example, wireline cable) and,
therefore, are expected to be the primary providers of cable and satellite-
based facilities and carriage services on these facilities. Non-carriers, such
as CTV and STV, can use carriage services provided by such carriers to provide
telecommunications services to others and can also install and maintain
facilities for the provision of subscription television broadcasting services.
However, non-carriers must comply with the Eligible Service Providers Class
License under the Telecommunications Act, including technical and operational
standards, provision of eligible services, prevention of the supply of
eligible services for illegal purposes and use of telecommunications networks
for unlawful purposes.
The Telecommunications Act permits a provider of subscription television
services, such as CEtv, to install and maintain a wireline cable network for
the purposes of providing multi-channel television services. Other services,
such as telephony, cannot currently be provided over the wireline network, but
this is expected to be allowed after July 1997.
Foxtel and Optus Vision, general carriers, have constructed wireline cable
networks. Under a direction issued by the Minister, Foxtel, Optus Vision and
their associates would be obliged to comply with interconnection and non-
discriminatory access principles similar to those applicable to common
carriers in Australia. However, such direction provides for a limited
exemption from this access regime in relation to connection of subscription
television broadcasting services to their respective networks until July 1997.
The Minister under the Labor Government (in power from 1983 until March 1996)
has stated that this exemption may continue until 1999 if there is
"appropriate competition" in the delivery of subscription television
broadcasting services using cable transmission. However, the new Government's
policy principles issued in January 1996 indicate that they will not grant
this extension.
FOREIGN ACQUISITIONS AND TAKEOVERS ACT
Generally, the FATA prohibits any non-Australian person from entering into
an agreement to acquire a substantial shareholding in an Australian
corporation with assets beyond an A$5 million threshold unless that person has
notified the Treasurer of his intention to enter into that agreement and
either: (a) the Treasurer has advised that the Commonwealth Government has no
objection to the transaction, or (b) at the end of 40 days after the person
gave the notice, the Treasurer has made no order prohibiting the transaction
and the person has received no advice referred to in clause (a) above.
A "foreign person" for purposes of the FATA is generally defined as a person
not ordinarily resident in Australia or any corporation in which a natural
person not ordinarily resident in Australia or a foreign corporation (being a
corporation organized outside Australia) holds a substantial interest or in
which two or more such persons or foreign corporations hold an aggregate
substantial interest. A "substantial interest" for purposes of the FATA is
defined as 15% or more of the voting power or shares of a corporation. An
"aggregate substantial interest" is defined as a total of at least 40% of the
voting power or shares of a corporation held by two or more persons. The
interests of associates are included in determining whether a foreign person
has a substantial interest
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<PAGE>
or two or more persons have an aggregate substantial interest. An interest in
a share includes a legal or equitable interest in the share, having entered
into a contract to purchase the share or an option over the share, or an
interest in the share, or having the right to vote the share. Voting power is
determined by reference to the right to vote at an annual general or
extraordinary general meeting of the corporation and not by reference to the
right to appoint or elect directors. The right of a company to nominate and
vote for the election of directors is not voting power expressly limited by
the FATA. See "Corporate Organizational Structure--Australia--CEtv."
The FATA also regulates certain other transactions, such as altering a
constituent document of an Australian corporation or entering into an
arrangement in relation to an Australian business. However, the FATA does not
require compulsory notification of those transactions. If the Treasurer is
satisfied that (a) a transaction falls within the description regulated by the
FATA, (b) the result of the transaction is that one or more foreign persons or
different foreign persons would control the Australian corporation, and (c)
that the result would be contrary to the national interests, then the
Treasurer may make any order to restore the control of the corporation as
closely as possible to the position in which it was immediately prior to
giving effect to the relevant transaction.
While notification of those other transactions is not required, there is a
procedure for voluntarily notifying the Treasurer of those transactions. If
the Treasurer advises that the Commonwealth Government has no objection to the
transaction or does not prohibit the transaction or respond to the
notification within a period of 30 days, then the Treasurer may not make any
orders in relation to that transaction. The Treasurer may extend the 30-day
period by a further 90 days.
The FATA also provides for the "tracing" of interests of a foreign person
through intermediary companies. The FATA tracing formula is not the same as
the formula applied under the BSA. Under the FATA, a holder of a substantial
interest or holders of aggregate substantial interests in a corporation that
is in a position to control any voting power in another corporation or which
holds interest in shares in another corporation is taken to be in a position
to control that voting power in the other corporation or to hold such interest
in the other corporation, as the case may be.
The CEtv Transaction and certain recent amendments to the articles of
association and securityholder agreements of CEtv affected the number of CEtv
directors designated by the Company and the manner in which those directors
are elected. While those matters did not require any advance notification or
approval under Australian law, they could in the future be reviewed by the
Treasurer of Australia under provisions of the FATA. If so reviewed and
determined by the Treasurer to have resulted in a change of control of an
Australian person to a foreign person that is against the national interest of
the Commonwealth of Australia, there would be no violation of law but the
Treasurer could require control of CEtv to be restored to its previous
position. Prior to any change, the Issuer was entitled to appoint directly
three of six directors of CEtv. While the Company believes that it is unlikely
that the Treasurer would reach such a conclusion if it decided to review the
CEtv Transaction, there can be no such assurances. If the Treasurer were to
require control of CEtv to be restored to the maximum extent permitted by the
FATA, the Issuer could appoint only one-half of the directors of CEtv and it
might no longer affirmatively control CEtv. While the Company believes a
determination under the FATA would not affect the Company's 94% economic
interest in CEtv, there can be no assurances that such would be the case. If
the Treasurer were to review matters, the Issuer would seek to minimize the
effect of any required change on its relationship with CEtv through a
restructuring of its ownership interest or arrangements providing for the
designation of independent persons as the directors it does not designate. See
"Risk Factors--Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations" and "Corporate Ownership Structure--CEtv."
TRADE PRACTICES ACT
The Trade Practices Act ("TPA") governs restrictive trade practices and
consumer protection. This may impact on the conduct of a company in developing
a multi-channel television business and the associated transmission
facilities. The restrictive trade practices provisions prohibit, among other
things, agreements that substantially lessen competition, price fixing
agreements, exclusive dealing, price discrimination, resale price maintenance,
third line forcing, and abuse of market power by corporations having a
substantial degree of power in a market. The restrictive trade practices
provisions also prohibit acquisitions of the shares or assets of a corporation
which would substantially lessen competition in a market.
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The ACCC may authorize otherwise prohibited conduct, other than price fixing
agreements (except in special circumstances, price discrimination, and misuse
of market power) if it results in, or is likely to result in, a net benefit to
the public.
As part of changes to the Telecommunications Act and associated regulations
scheduled to take effect in July 1997, changes to the TPA are also
contemplated with respect to providing a framework requiring access to be
available to all network and systems. The newly elected government has
indicated this open access should apply to both wireline cable and wireless
systems. While the detail of the anticipated changes is not known at present,
required access could be relevant to CEtv.
Local Regulation. When CEtv constructs facilities, such as transmitter
towers, it must also comply with local government regulations, such as
planning and zoning requirements, as well as federal environmental laws.
CEtv works with the local government primarily on issues concerning
construction standards. CEtv has established construction standards that CEtv
believes meet or exceed the local regulations.
NEW ZEALAND
The Company believes that the deregulated nature of the New Zealand market
is favorable to providers of multi-channel television and telephony services.
The New Zealand government does not regulate the rates of multi-channel
television or telephony services. There are no programming regulations in New
Zealand other than those regulating programming with sexual or violent
content, or which is likely to offend good taste and decency, the maintenance
of law and order or the privacy of individuals. Unlike the other countries in
which the Company operates, there are at present no quotas on foreign
originated programming.
New Zealand's Telecommunications Act is primarily concerned with technical
and operational issues such as the licensing of certain forms of radio
equipment, and the right in certain circumstances to construct and maintain
telecommunications networks across public and privately owned land without the
owner's consent. These rights to construct and maintain telecommunications
networks are exercisable by "network operators," although they are very
infrequently used, with most lines being built with the consent of the
relevant landowner or local government body. Saturn holds network operator
status, which is granted on a nationwide non-exclusive basis. Construction and
operation of a telecommunications network on privately-owned land with the
consent of the relevant land owner may be done by any person and there is no
legal requirement to hold network operator status.
The New Zealand government does not specifically regulate pricing of multi-
channel television or telecommunications services. However, pricing may be
subject to New Zealand's competition legislation, the Commerce Act 1986, which
prohibits businesses in a dominant position (i.e., possessing a high degree of
monopoly power) in any market from using that position for an anti-competitive
purpose. The Commerce Act also prohibits arrangements or understandings which
have the purpose or effect of substantially reducing competition. In addition,
pursuant to the Commerce Act, the government can impose price controls on any
goods or services, although this power has been used only once and is not
currently in use.
New Zealand has no restrictions on foreign ownership of companies that
provide multi-channel television and telephony services other than a
requirement in certain circumstances for the consent of the Overseas
Investment Commission, which is typically given as a matter of course.
TAHITI
Telefenua's right to operate a multi-channel television service was granted
by the CSA in 1994 for a term expiring on December 31, 2004. The CSA
authorizations were based on the Decree of the French government and decisions
of the Commission Mixte Des Frequences, which controls all radio frequencies
for France and grants ranges to various public and private enterprises.
Telefenua is the first multi-channel operator to be granted approval to
operate a wireless network by the CMDF. Telefenua was granted the right to use
all necessary MMDS microwave frequencies, 2.5 GHz to 2.7 GHz, through the year
2004. The Company expects that the term for the MMDS frequency will be renewed
when the frequency distribution is revised on January 1, 2005, in
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accordance with the 1992 World Administrative Radio Communications Conference.
No fees are payable for use of such frequencies.
Telefenua has local franchise agreements with 16 municipalities (of which 14
are exclusive) on the islands of Tahiti and Moorea. The franchise agreements
provide the Company with 30-year rights to operate MMDS multi-channel
television networks. The franchise agreements require Telefenua to carry
certain services, including local broadcast channels, and to provide local
programming. No fees are payable by Telefenua under these franchise
agreements.
There are currently no government regulations on subscription rates or rate
increases.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorizations. There can be
no assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
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CORPORATE ORGANIZATIONAL STRUCTURE
GENERAL
The Company was formed in October 1994 as a wholly-owned subsidiary of UIH
and was recently reorganized to hold UIH's interests in multi-channel
television systems in Australia, New Zealand and Tahiti and UIH's interests in
XYZ and United Wireless. The following chart summarizes the organizational
structure of the Issuer and Operating Companies as well as certain of the
Issuer's parent corporations. Some of the Company's interests in such
Operating Companies are held through various partnerships and holding
companies and the Company's voting rights and rights to participate in
earnings of such entities may differ from the economic interest indicated in
the chart.
United International
Holdings, Inc.
(Delaware
corporation)
100%
UIH Asia/Pacific,
Inc.
(Colorado
corporation)
100%
United Australasian
Communications, Inc.
(Delaware
corporation)
97.4%
UIH
AUSTRALIA/PACIFIC,
INC.
(COLORADO
CORPORATION)
"THE ISSUER"
--------------------------------------------------------------------
88.8% (1) 93.3% (1) 100.0% (2) 90.0% (3) 50.0% (2) 100.0%(2)
--------
Salstel Salstel Saturn UIH-SFCC, Century United
Media Media Communications L.P. United Wireless
Investments Holdings Limited (Colorado Programming Pty Limited
Pty Pty (New limited Ventures (Australian
Limited Limited Zealand partnership) Pty Limited corporation)
corporation) (Australian
5.3% (1) 1.0% (1) corporation)
50.0%
STV Pty CTV Pty Societe
Limited Limited Francaise
des
Communications
et du
Cable S.A.(French
corporation)
XYZ
Entertainment
(Australian (Australian Pty Limited
corporation) corporation) (Australian
corporation)
- -- -- -- -- -- -- -- -- -- Telefenua
S.A.
CEtv (French Polynesian
corporation)
- ---------------------
(1) The Company holds, directly and indirectly, a combined approximate 94%
economic interest in each of STV and CTV. The Company holds ordinary
shares and convertible debentures of STV and CTV which account for
approximately 1.1% and 87.7%, respectively, of the total economic
interests of STV and account for approximately 0.2% and 93.1%,
respectively, of the total economic interests of CTV. In addition, the
Company holds debentures of two companies that in turn hold ordinary
shares of CTV and STV. Through such debentures the Company has an indirect
additional 5.3% and 1.0%, respectively, economic interest in STV and CTV.
The Company has the right to designate all directors of these companies.
The Company's approximate 6% partner in CTV and STV is Australis. The
Company and Australis have agreed, subject to certain conditions, for the
Company to purchase Australis' interests in CTV and STV for approximately
$8.0 million.
(2) The Company's interests in Saturn, Century United Programming Ventures Pty
Limited ("CUPV") and United Wireless are or will be held by wholly owned
subsidiaries of the Issuer that are each an Unrestricted Subsidiary under
the Indenture and, as such, will not be subject to many covenants under
the Indenture. See "Risk Factors--Holding Company Structure; Limited on
Access to Cash Flow" and "Description of the Notes."
(3) The Company's net economic interest in Telefenua is held through several
intermediate partnerships and holding companies. Generally, the Company
is entitled to receive 90%, and then 75%, of all economic distributions
from the parent company of Telefenua until such time as it has received a
20% and 40% rate of return on its invested capital, respectively.
Thereafter, the Company is entitled to receive 64% of all economic
distributions. The Company controls 40% of the voting power of the parent
company of Telefenua and has the right to appoint three of its six
directors.
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CETV
The Issuer currently holds a combined 94% economic interest in CTV and STV,
which operate together under the name CEtv, through direct and indirect
holdings of convertible debentures and ordinary shares. The Issuer, holds
approximately 15.0% of the ordinary shares of CTV and STV, which accounts for
an approximately 0.5% economic interest in CEtv. The Issuer holds
approximately 94.4% of CTV's and STV's convertible debentures, which accounts
for an approximately 91.0% economic interest in CEtv. In addition, through the
Issuer's holdings of certain debentures of Salstel Media Holdings Pty Limited
("SMH") and Salstel Media Investments Pty Limited ("SMI"), which in turn hold
ordinary shares of CTV and STV, the Issuer has an additional effective 2.6%
economic interest in CEtv. Australis, a publicly held Australian corporation,
owns the remaining 6% economic interest in CTV and STV. In connection with the
Australis Settlement, Australis has agreed to sell and, subject to the
completion of the Australis Financing, the Company has agreed, subject to
certain conditions, to purchase Australis' 6% economic interest in CEtv for
approximately $8.0 million. Although the Company holds debentures and one
share in each of SMH and SMI, it does not control such entities or have
controlling rights as a shareholder of such entities. See "Risk Factors--
Holding Company Structure; Limitations on Access to Cash Flow."
These holdings resulted from three acquisitions and certain capital
contributions made by the Company. In July 1994, as part of the establishment
of CTV, the Company acquired an initial 40% economic interest in CTV, which
was later increased to 50%, and in October 1994, as part of the establishment
of STV, the Company acquired a 50% economic interest in STV. In the CEtv
Transaction in December 1995, the Company acquired an additional 40% economic
interest in CTV and STV from existing shareholders for approximately $15.3
million in cash and 170,513 shares of UIH's convertible preferred stock,
having a liquidation value upon issuance of approximately $29.8 million. As
part of the CEtv Transaction, SMH and SMI, which are Australian companies and
members of the Salisbury Securities Limited Group of companies, acquired 74%
and 75% of the ordinary shares of CTV and STV, respectively. In late May 1996,
the Company increased its economic interest in CEtv to 94% as a result of
capital contributions, including the conversion of bridge loans and accrued
interest, totalling $50.6 million made by the Company to CEtv as to which
Australis, the other principal holder of economic interests in CEtv, did not
contribute its pro rata share.
The Company, CTV, STV, SMI, SMH and Australis are parties to securityholders
agreements, (collectively, the "CTV/STV Securityholders' Agreements") that
contain provisions relating to governance of the companies, transfers by the
securityholders of their respective interests in the companies (including a
change in control), raising additional capital and funding for the companies
and other matters concerning ownership and operation of the companies. Certain
of these provisions are also contained in the Articles of Association of each
of CTV and STV (collectively, the "CTV/STV Articles of Association"). In
connection with the CEtv Transaction, the Company and SMH, with respect to
CTV, and the Company and SMI, with respect to STV, executed agreements (the
"SMH/SMI Agreements") relating to the appointment of directors. SMH and SMI
also executed deeds under Australian law in which they agreed to be bound by
the terms of the CTV/STV Securityholders' Agreements.
Under the CTV/STV Articles of Association and the CTV/STV Securityholders'
Agreements, each of the boards of directors of CTV and STV consist of six
voting directors and one non-voting managing director, and each holder of an
ordinary share or debenture of CTV and STV is entitled to cast one vote for
the election of directors of CTV or STV, respectively, for each share or
debenture held. Each such holder is required to vote its shares and debentures
for those voting directors nominated by the other holders, with each holder of
15% or more of the shares and debentures having the right to nominate one
voting director for each 15% of the shares and debentures held and each holder
of 10% or more but fewer than 15% of the shares and debentures having the
right to nominate one voting director. For the purposes of determining such
rights, the Company and any person nominated by the Company to hold economic
interests in CTV and STV are considered one holder and their economic
interests are aggregated. Thus, the Company and SMH, with respect to CTV, and
the Company and SMI, with respect to STV, are effectively treated as one
holder for the purposes of determining the right to nominate voting directors.
Based on the current economic interests, the Company and SMH together have the
right to nominate all of CTV's six voting directors for election by CTV's
securityholders, the Company and SMI together have the right to nominate all
of STV's six voting directors for election by STV's securityholders.
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While adoption of the securityholders voting and director selection
arrangements for CTV and STV did not require compulsory notification to the
Treasurer under the FATA, they may be determined by the Treasurer to result in
a change of control of CTV and STV that has resulted in a foreign person being
in control who had not previously been in control. If the Treasurer makes such
a determination and concludes that the change of control is against the
national interest, then the Treasurer may require the parties to the CEtv
Transaction to restore the control of CTV and STV to the position it was in
before the CEtv Transaction. Before the CEtv Transaction, directors were not
elected but were appointed directly by securityholders, and the Company had
the right to appoint half of the directors of CTV and STV and the other
securityholders had the right to appoint the other half of the directors of
CTV and STV. While the Company believes an adverse review and determination by
the Treasurer to be unlikely, there can be no assurance that the Treasurer, if
he reviews the transaction, would give effect to the contractual provisions of
the SMH/SMI Agreements. See "Risk Factors--Foreign Acquisitions and Takeovers
Act/Investment Company Act Considerations."
Under the SMH/SMI Agreements, the Company has the right to nominate all
voting directors that the Company and SMH, with respect to CTV's board, and
the Company and SMI, with respect to STV's board, have the right to nominate.
Thus, the Company is currently entitled to designate all of the six voting
directors of each company. The Company and SMH and SMI have agreed that if the
Treasurer issues an order restoring control or indicates the intention to do
so, the Company will have the right to designate three directors of the
relevant company and SMH and SMI will have the right to designate the
remaining directors that the parties are entitled to designate pursuant to the
CTV/STV Articles of Association and CTV/STV Securityholders' Agreements. They
have also agreed that if that arrangement is considered in breach of any law
or prompts such government action, then the Company will have the right to
designate the maximum number of voting directors permitted by law and the
Company and SMH, in the case of CTV, and the Company and SMI, in the case of
STV, will designate as independent directors the remaining number of voting
directors that the parties are entitled to designate pursuant to the CTV/STV
Articles of Association and CTV/STV Securityholders' Agreements. An
independent director is a person agreed on by the Company and SMH or SMI, as
the case may be, but not associated with either the Company or SMH or SMI.
Either the Company or SMH or SMI, as the case may be, will have the right to
remove an independent director.
The CTV/STV Securityholders' Agreements provide that while the day-to-day
running of CTV and STV is handled by the management, certain decisions must be
made by the board. These decisions include, among other things, the following
actions with respect to either company: the adoption or modification of a
business plan; entering into or modifying any material agreement; making
acquisitions, dispositions or capital expenditures exceeding A$50,000; the
negotiation of certain finance facilities and borrowings; the issuance of
additional securities; entering a new line of business or changing a current
line of business; any consolidation or restructuring; the listing of shares on
a securities exchange; changing the management structure of the company;
appointing and compensating the Managing Director; the declaration and payment
of dividends; making loans of the company's funds; and dealing with any
license. CTV and STV's Articles of Association cannot be amended without the
consent of the parties to the CTV/STV Securityholders' Agreements, other than
CTV or STV.
While under Australian corporate law shareholders have relatively little
power with regard to the management of a company (management resting with the
directors), a shareholder vote is required for certain specified actions, such
as reductions in capital, amendments to articles of association, the
restructuring or takeover of a company and share repurchases. The Company
holds 15.0% of the ordinary shares of CTV and STV that may be voted on these
matters at an ordinary meeting of shareholders.
The CTV/STV Securityholders' Agreements provide that a securityholder may
not transfer its securities in CTV or STV, except to or between certain
affiliates or as security to a bank or in other specified situations, until
the securityholder has first offered the securities to the other
securityholders. If the other securityholders do not purchase the offered
securities, then the selling securityholder may, in the six months after
offering the securities to the other securityholders, transfer all or part the
securities to a third party at a price no lower than the price offered to the
other securityholders, subject to approval by the board of directors of CTV or
STV. Such approval is to be granted if the securityholder has followed the
requisite procedures.
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<PAGE>
In the event of a "change of control" of a securityholder, the party
experiencing the change of control must offer its securities in CTV or STV to
the other securityholders at the average fair market value of the securities
based on the valuations of two qualified independent persons. A change of
control is deemed to occur when (i) the power to control the composition of
the board or the management of the securityholder passes to a person who did
not possess such power at the date of the CTV/STV Securityholders' Agreements,
(ii) the ability to procure or prevent passing an ordinary resolution at the
general meeting of the securityholder passes to a person who did not possess
that ability at the date of the CTV/STV Securityholders' Agreements, or (iii)
a person becomes beneficially entitled to more than 50% of the ordinary shares
or voting rights of a securityholder or any holding company of a
securityholder and the person was not at the date of the CTV/STV
Securityholders' Agreements beneficially entitled to more than 50% of those
share or voting rights. These "change of control" provisions do not apply to
changes in control of Australis or UIH.
If securities of CTV or STV are not listed on the Australian Stock Exchange,
Nasdaq or other agreed upon exchange by October 1999, then a securityholder
may offer to sell its securities in CTV or STV to the other securityholders at
an appraised fair market value determined in accordance with the CTV/STV
Securityholders' Agreements. If the other securityholders do not purchase all
the shares held by the selling securityholder, then the selling securityholder
may require CTV or STV, as the case may be, be sold to a third party at or
above such fair market value, subject to applicable regulatory requirements
and Australian law.
The CTV/STV Securityholders' Agreements provide that to the extent CTV or
STV cannot finance its requirements from external sources and the Board makes
a capital call, each securityholder may subscribe for further securities in
accordance with that capital call and in proportion to its economic interest.
If a securityholder fails to subscribe for such further securities then such
securityholder's economic interest will be diluted pro rata to the extent it
does not participate in an additional issue.
The Company and the other securityholders party to the CTV/STV
Securityholders' Agreements and their affiliates may not directly or
indirectly carry on or otherwise have an interest in any business similar to
or competitive with the DTH, MMDS and cable television services provided by
CTV and STV in their respective regions unless CTV or STV, as applicable, has
first been offered and has declined the opportunity to be involved in that
business.
XYZ
The Company has an indirect 25% interest in XYZ through its 50% interest in
CUPV, an Australian corporation owned equally by the Company and Century. CUPV
holds a 50% interest in XYZ. The remaining 50% interest in XYZ is held by
Foxtel.
In October 1994, UIH and Century formed XYZ and each acquired an initial 50%
interest. In September 1995, Foxtel purchased a 50% interest in XYZ and the
Company and Century transferred the remaining 50% interest to CUPV. The sale
diluted UIH's indirect interest in XYZ to 25%. UIH received sale proceeds of
approximately $4.1 million from Foxtel for one-half of its initial interest in
XYZ.
Pursuant to a shareholders agreement executed in September 1995 (the "XYZ
Shareholders' Agreement"), each shareholder holding an economic interest of at
least 40% in XYZ may appoint two of the four directors to each of the boards
of directors of XYZ and the companies in which XYZ holds interests. As long as
CUPV and Foxtel hold an economic interest of at least 40% in XYZ, each of them
is entitled to one vote at meetings of each of the XYZ boards and any board
decisions must include an affirmative vote by each of them. A quorum consists
of two directors, of which one must be a representative of CUPV and one must
be a representative of Foxtel, provided that neither CUPV nor Foxtel's
interest is less than 40%. If either CUPV or Foxtel's economic interest is
less than 40%, that party will not be entitled to any representation on any of
the XYZ boards and the other party must appoint further representatives. All
board decisions require unanimous consent. Board approval is required for
actions relating to, among other things: amendments or variations to the
business plan and certain agreements (including the XYZ Shareholders'
Agreement) and articles of any company in which XYZ holds an interest;
admitting new shareholders
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<PAGE>
or issuing or redeeming any shares of CUPV or Foxtel in XYZ; or requiring
additional capital or other contributions, incurring indebtedness or
expenditures, issuing securities, or approving distributions of property, not
approved in the business plan. Funding required by XYZ must be contributed by
each shareholder in proportion to its economic interest or as otherwise
provided by the XYZ Shareholders' Agreement and if a shareholder fails to do
so within the requisite time period after a call is made, its economic
interest will be diluted accordingly.
The XYZ Shareholders' Agreement provides that a shareholder may not transfer
its interest in XYZ, except in limited circumstances, until the shareholder
has first offered such interest to the other shareholders at fair market value
as determined in accordance with the XYZ Shareholders' Agreement. If the other
shareholders do not purchase the offered securities, then during the six-month
period following such offer, the selling shareholder may transfer all or part
of its XYZ interest to any third party at a price no lower than the price
offered to the other shareholders, subject to such third party's agreeing to
the same transfer restrictions and the terms of the XYZ Shareholders'
Agreement. Century and the Company have granted each other a right of first
refusal to acquire the other's interest in CUPV. If neither the Company nor
Century purchases the other's interest in CUPV, then Foxtel has a right of
first refusal to purchase that interest in CUPV before it may be offered to a
third party.
SATURN
The Company acquired in 1994 a 50% interest in Saturn, a New Zealand
corporation, which recently changed its name from Kiwi Cable Company Ltd. In
July 1996, the Company acquired the remaining 50% interest in Saturn from Todd
International Limited ("Todd"), a company that also owns and operates cable
television systems in the Caribbean. The Company acquired Todd's 50% interest
in Saturn in exchange for a 2.6% common equity interest in the Issuer, which,
if the Issuer's parent has an initial public offering, may be exchanged for an
amount of stock of its parent corporation with an equivalent value.
TELEFENUA
UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly-owned by
the Company, is the general partner of a limited partnership (the
"Partnership") that owns 100% of the preferred stock of Societe Francaise des
Communications et du Cable S.A. ("SFCC"), representing approximately 40% of
the share capital of SFCC. SFCC is the parent company of Telefenua, which owns
and operates the multi-channel television system in Tahiti. As holder of 100%
of the preferred stock of SFCC, the Partnership is entitled to certain
preferential distributions by SFCC. Through its general partner's interest in
the Partnership, UIH-SFCC will receive 90% of distributions made by SFCC until
UIH-SFCC has received a return of its investment plus a 20% cumulative
compounded annual return, 75% of distributions until it has received the
return of its investment plus a 40% cumulative compound annual return and 64%
of distributions thereafter. Once UIH-SFCC's total equity investment exceeds
$10 million, further equity investments would not be entitled to the 90% and
75% distributions. Instead, equity investments above $10 million, to the
extent not matched pro rata by the Company's partners, would increase the 64%
that UIH receives after the preferential distributions are made on the first
$10 million. As of May 31, 1996, UIH-SFCC has also advanced $5.1 million as a
bridge loan to SFCC, approximately $5.0 million of which was used to purchase
convertible debentures of SFCC, which are convertible into preferred stock of
SFCC. UIH-SFCC intends to convert approximately $3.1 million of such
debentures into preferred stock with the same terms as the existing preferred
stock of SFCC, to bring UIH-SFCC's total equity investment to $10.0 million.
UIH-SFCC has also invested $2.3 million in equipment, which has been leased to
Telefenua.
As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to designate three of the six members of SFCC's board of directors.
In addition, certain actions by SFCC require the approval of at least two
of the directors designated by the Partnership. These decisions include
expenditures exceeding 50,000 French francs, borrowing funds or making loans
or guarantees, transferring material assets, adopting or modifying or
deviating from an annual business plan, investing in any other business or
activity and certain other matters specified in the Articles of Association of
SFCC. As general partner of the Partnership, UIH-SFCC has broad powers to
manage the Partnership's affairs, subject to fiduciary duties.
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The Articles of Association of SFCC provide that (a) the preferred shares of
SFCC are freely transferable and (b) sales of the common shares are subject to
a right of first refusal in favor of the other shareholders of the Company. In
the case of a sale of common shares, each other shareholder may require the
purchaser to purchase the other shareholders' shares on the same terms. As
general partner of the Partnership, UIH-SFCC may cause the Partnership to sell
the preferred shares of SFCC to third parties. However, if any such sale
occurs before June 1, 1999, then each limited partner will have the right to
receive a distribution of its pro rata portion of the preferred shares before
they are sold to the third party. Sales of interests in the Partnership are
subject to a right of first refusal in favor of the other partners. In the
case of a sale of a general partner's interest, the limited partners may
require the purchaser to purchase their interests on the same terms as the
purchase of the general partner's interests.
UNITED WIRELESS
United Wireless is a wholly owned subsidiary of the Issuer.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages and
positions with the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gene W. Schneider................. 69 Chairman of the Board, Chief Executive
Officer and Director
Michael T. Fries.................. 33 President and Director
Bernard G. Dvorak................. 36 Chief Financial Officer and Director
Donald F. Hagans.................. 49 Vice-President--Australia
Euan F.D. Fannell................. 48 Vice President--South Pacific
Mark L. Schneider................. 41 Director
</TABLE>
GENE W. SCHNEIDER has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation. He has served as
Chairman of the Board of Directors of UIH since May 1989 and UIH's Chief
Executive Officer since October 1995. Mr. Schneider was, until November 1991,
Chairman of United Artists Entertainment Company, the third-largest U.S. cable
television company and the largest theater owner in the world. He was founder
of United Cable Television Corporation ("United Cable") in early 1950s and, as
its Chairman and Chief Executive Officer, built United Cable into the eighth-
largest multiple system operator prior to merging with United Artists in 1989.
He has been active in cable television affairs and has served on numerous
National Cable Television Association committees and special projects since
NCTA's inception in the early 1950s. He also has served on the boards of
directors of several other companies, including Turner Broadcasting
Corporation.
MICHAEL T. FRIES has served as President of the Company since its formation
and is also a Director of the Company and President of UIH Asia/Pacific, Inc.,
UIH's subsidiary responsible for all operating and development activities of
the Company as well as UIH's other business in the Asia/Pacific region. Prior
to assuming that position, Mr. Fries served as Senior Vice President,
Development, of UIH, in which capacity he was responsible for managing UIH's
worldwide acquisitions and new business development activities since 1990,
including UIH's expansion into the Asia/Pacific market. From 1985 to 1990, Mr.
Fries was employed by PaineWebber Incorporated where he spent four years in
the investment banking division, specializing in domestic and international
transactions for companies in the media and communications industry.
BERNARD G. DVORAK is the Chief Financial Officer and a Director of the
Company and has served as Vice President and Treasurer of the Company since
its formation. He has also served as Chief Financial Officer of UIH since June
1992. From June 1989 until June 1992, he was Vice President, Finance of UIH.
He is responsible for the Company's and UIH's financial, accounting and
administrative functions. Prior to joining UIH in June 1989, Mr. Dvorak spent
four years as Controller of United Cable, where he was responsible for the
accounting, financial reporting and financial planning functions as well as
acting as business manager overseeing international investments.
DONALD F. HAGANS has served as Vice President--Australia of the Company
since its formation. Mr. Hagans is a Regional Vice President of UIH
Asia/Pacific Inc., a position he has held since January 1994. Mr. Hagans
serves as chairman of CEtv and oversees UIH's interests in XYZ and UIH's
development activities in Australia. From January 1989 until joining UIH in
January 1994, Mr. Hagans was a principal in the firm, Hagans Ziegler, a
private investment group specializing in domestic and international ventures.
Mr. Hagans also acted as the Legislative Director for Texas Senator Phil
Gramm, participated extensively in the activities of the International Bank
Subcommittee of the U.S. Senate and practiced law as an attorney in a private
practice.
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<PAGE>
EUAN F.D. FANNELL is Vice President--South Pacific of the Company and is
also a Vice President of UIH Asia/Pacific, Inc., a position he has held since
January 1994. Mr. Fannell is responsible for the organization and management
of the Company's development activities in the South Pacific regions and
provides operational support for UIH's interests in New Zealand and Tahiti.
Mr. Fannell has over 14 years of cable television general management,
financial and operations management experience at corporate and operating
levels. From June 1989 until joining UIH in January 1994, Mr. Fannell was the
President and Chief Operating Officer of United Artists Cable of Baltimore.
Prior to assuming his position in Baltimore, Mr. Fannell acted as Director of
Operational Planning for United Cable, a position he assumed in 1985.
MARK L. SCHNEIDER is a Director of the Company. Mr. Schneider is also a
Director of UIH. In May 1996, Mr. Schneider became Chief of Strategic Planning
and Operational Oversight of UIH. He served as President of UIH from July 1992
until March 1995 and was Senior Vice President of UIH from May 1989 until July
1992. At UIH he was responsible for all of its international multi-channel
television system and programming activities. Prior to joining UIH, he served
as Vice President of Corporate Development at United Cable from March 1987
until May 1989. In that position, he was responsible for United Cable's
acquisition and development of international cable television systems and
other businesses.
Gene W. Schneider and Mark L. Schneider are father and son. No other family
relationships exist between any other executive officers or directors of the
Company.
OTHER MANAGEMENT
Senior management of the Company's operating companies include the following
individuals:
Robert G. McRann, Managing Director, CEtv, 61. Mr. McRann has served as
Managing Director of CEtv since joining that company in March 1995. Mr. McRann
is responsible for the management of all aspects of CEtv's MMDS, DTH and cable
television operations including engineering, customer service, marketing and
administrative functions. For the twelve years prior to joining CEtv, Mr.
McRann served as Senior Vice President responsible for Cox Cable's San Diego
system, which had annual revenues in 1995 of $140.0 million and a subscriber
base of over 325,000. Mr. McRann has over 17 years of management experience in
the U.S. multi-channel television industry.
John C. Porter, Chief Operating Officer, CEtv, 38. Mr. Porter has served as
Chief Operating Officer of CEtv since joining that company in April 1995. Mr.
Porter directly manages the technical, operating and administrative aspects of
CEtv's multi-channel systems and is the principal executive in the field
responsible for the launch of MMDS and cable systems, as well as CEtv's DTH
business. Prior to joining CEtv, Mr. Porter spent the last 10 years serving in
various capacities for Time Warner Cable, a subsidiary of Time Warner, Inc.
Most recently, Mr. Porter acted as the Division President, Central Ohio
responsible for all activities of this 170,000 subscriber, 400 employee
division. Mr. Porter has over 15 years of management experience in the U.S.
multi-channel television industry.
Bruce Mann, Sales and Marketing Director, CEtv, 40. Mr. Mann has served as
Sales and Marketing Director of CEtv since joining that company in April 1995.
Mr. Mann is responsible for the development of CEtv's marketing and sales
techniques and has played a critical role in the successful implementation of
these plans throughout CEtv's franchise area. Mr. Mann has been involved in
various marketing capacities of communications and entertainment companies for
the past 15 years including eight years at Time Warner Cable as Director of
Marketing-Brooklyn, Queens. From 1994 until joining CEtv, Mr. Mann served as
President, National Division, of Cross Country Wireless, Inc., a U.S. provider
of wireless multi-channel television services. From 1991 to 1994, Mr. Mann
served as Vice President-Marketing of Washington Redskins/Jack Kent Cooke
Stadium, Inc., specializing in sports and entertainment related promotion,
advertising and marketing.
Jack B. Matthews, Chief Executive Officer, Saturn, 44. Mr. Matthews has
served as Chief Executive Officer of Saturn since joining that company in
January 1995. Mr. Matthews is responsible for all technical, operating and
marketing aspects of the business. Mr. Matthews has served in various general
management capacities with several U.S. multiple system operators including,
Cox Cable Communications and Continental Cablevision. From August 1993 until
joining Saturn, Mr. Matthews was the Vice President-Sales & Marketing of
Arrowsmith Technologies, a cable technology company which develops and
installs advanced field operations
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<PAGE>
management and operations support systems for the cable television industry.
From 1990 to 1993, Mr. Matthews was the President of COMM/ONE, a
entrepreneurial business marketing sophisticated video and voice processing
systems. Mr. Matthews has over 13 years of U.S. multi-channel television
industry experience.
Michel Laurent, Managing Director, Telefenua, 43. Mr. Laurent has served as
Managing Director of Telefenua since May 1995. Since joining Telefenua, Mr.
Laurent has been responsible for the launch of Telefenua's service and rapid
increase in its customer base. From 1991 until joining Telefenua, Mr. Laurent
held various positions with Videotron Ltd., the largest cable television and
telecommunications company in the province of Quebec and the second largest
multiple system operator in Canada. Mr. Laurent most recently served as Vice
President of Operations for Videotron's Montreal division and was responsible
for all technical, operational and marketing aspects of the business. Mr.
Laurent is fluent in French and English.
EXECUTIVE COMPENSATION
All of the officers of the Company are employed by UIH, the majority
stockholder of the Company. The Company pays no separate compensation to these
officers, however, in connection with the formation of the Company, the
Company and UIH will execute the UIH Management Agreement, pursuant to which
the Company will pay UIH a management fee for certain services provided to the
Company. See "Certain Transactions."
Most of the members of senior management of CEtv, Saturn and Telefenua are
U.S. or Canadian expatriates who are employed by UIH and have been seconded to
the respective operating companies. The respective operating companies
reimburse UIH for compensation paid to these employees pursuant to Technical
Service Agreements between UIH and each of CEtv, Saturn and Telefenua. Gene W.
Schneider, the Company's Chairman and Chief Executive Officer, is also the
Chairman and Chief Executive Officer of UIH and spends only a portion of his
time on matters pertaining to the Company and its operations. The President of
the Company, Michael T. Fries, is also an officer and employee of UIH and
spends approximately 75% of his time on matters pertaining to the Company and
its operations. Bernard G. Dvorak, the Company's Chief Financial Officer, is
also an officer and employee of UIH and spends only a portion of his time on
matters pertaining to the Company and its operations. Following this Offering,
the services of Messers. Schneider, Fries and Dvorak will be provided to the
Company pursuant to the UIH Management Agreement. While the Company and its
operating companies do not reimburse UIH directly for a specified portion of
the compensation UIH pays to Messrs. Schneider, Fries or Dvorak, the Company
pays a management fee to UIH under the UIH Management Agreement for certain
services, including those of Messrs. Schneider, Fries and Dvorak, performed on
behalf of the Company. The chart below summarizes the compensation paid during
the fiscal year ended December 31, 1995 to the Company's Chief Executive
Officer and the four most highly compensated executive officers of the Company
and its 50% or greater owned subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#S) COMPENSATION(2)
- --------------------------- ---- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider(3).... 1995 $ 324,577 $ -- 40,000 $4,620
Chairman and Chief Ex-
ecutive Officer
Michael T. Fries(3)..... 1995 212,769 -- 35,000 4,620
President
Bernard G. Dvorak(3).... 1995 192,769 -- 35,000 4,620
Chief Financial Officer
Donald F. Hagans........ 1995 175,000 -- 12,000 --
Vice President--Austra-
lia
Robert G. McRann(4)..... 1995 161,538 24,279(5) -- 3,836
Managing Director, CEtv
</TABLE>
- ---------------------
(1) Options with respect to shares of Class A Common Stock of UIH granted to
such executives as officers and employees of UIH.
(2) Consists of matching employer contributions made by UIH under UIH's
Employee 401(k) Plan.
(3) Total compensation paid by UIH for duties performed with respect to the
Company and other operations of UIH.
(4) Mr. McRann started employment with CEtv in March 1995.
(5) Consists of additional cash compensation relating to the overseas
assignment of Mr. McRann.
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<PAGE>
UIH and Mr. McRann are parties to a five-year employment agreement. This
employment agreement provides for an annual base salary of $210,000 per year,
to be reviewed annually, with eligibility for an annual bonus of up to 30% of
the base salary, based on the performance of CEtv as well as Mr. McRann's
individual performance. Mr. McRann was also granted an incentive interest
equal to .75% of the residual equity value of CEtv, calculated as (i) ten
times EBITDA from the prior 12 months, less (ii) the sum of CEtv's net
liabilities and an amount equal to the total shareholder investment in CEtv,
plus a 12% compounded annual return on such investment. The incentive interest
vested 20% at the date of Mr. McRann's employment, with the remaining 80%
vesting monthly in equal portions over the following 48 months. In the event
of a change of control of CEtv, the residual equity value will be the greater
of the amount calculated above of the net gross proceeds to the shareholders
from the event that causes the change of control, less an amount equal to the
total shareholder investment in CEtv, plus a 12% compounded annual return on
such investment. The employment agreement also provides for cost of living
differentials, relocation and moving expenses, automobile allowances and
income tax equalization payments, if necessary, to keep Mr. McRann's tax
liability the same as it would be in the United States. CEtv reimbursed UIH
under the Technical Services Agreement for employment costs associated with
Mr. McRann.
Messrs. Schneider, Fries, Dvorak and Hagans, as employees and officers of
UIH, have been granted options to acquire stock of UIH. Mr. McRann has not
been granted any options by UIH. The following table sets forth information
concerning options granted to these executives in the last fiscal year as well
as unexercised options held by such executives as of December 31, 1995. No
such executive has exercised any options during the fiscal year there ended
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------- ---------------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider....... 40,000 6.07% $15.75 6/16/05 $ 396,204 $ 1,004,058
Michael T. Fries........ 35,000 5.32 15.75 6/16/05 346,678 878,551
Bernard G. Dvorak....... 35,000 5.32 15.75 6/16/05 346,678 878,551
Donald F. Hagans........ 12,000 1.82 15.75 6/16/05 118,861 301,217
</TABLE>
- ---------------------
(1) The stock options granted during the last fiscal year become exercisable
with respect to 25% of the shares covered thereby after the first
anniversary of the effective date of the grant and with respect to the
remaining 75% in equal monthly increments over the three-year period
thereafter. The initial 25% of all of the options listed in this table
become exercisable on June 16, 1996. Vesting of the options granted is
accelerated upon a change of control of the Company as defined in the
Employee Plan.
78
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Gene W. Schneider........... 90,625/99,375 $475,781/311,719
Michael T. Fries............ 72,500/82,500 441,041/288,958
Bernard G. Dvorak........... 60,417/74,583 317,187/207,813
Donald F. Hagans............ 40,002/51,998 0/0
</TABLE>
COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of UIH,
the majority stockholder of the Company. They receive no separate compensation
for serving as directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has no separate Compensation Committee as
the Company currently does not have any employees. Directors or executive
officers of the Company may serve on the boards of directors of CEtv, Saturn,
Telefenua and XYZ and as part of their duties may determine the compensation
of those operating companies' employees. None of the employees of such
operating companies, however, are Directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation eliminates the personal liability
of its directors to the Company and its stockholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. The
Company's Certificate of Incorporation and Bylaws provide that the Company
shall indemnify its officers and directors to the fullest extent permitted by
law. The Company believes that such indemnification covers at least negligence
and gross negligence on the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements require the Company,
among other things, to indemnify the Company's directors and officers for
certain expenses (including attorney's fees), judgments, fines, penalties and
settlement amounts incurred by any such person in certain actions or
proceedings, including actions by or in the right of the Company, arising out
of such person's services as a director or officer of the Company, any
subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these agreements are necessary to attract and retain qualified persons as
directors and officers.
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CERTAIN RELATIONSHIPS
The Issuer is currently an indirect, majority owned subsidiary of UIH and
prior to the Offering, its operations have been funded by UIH. Immediately
prior to the Offering, UIH Australia, Inc., UIH Australia II, Inc. and UIH
Australia III, Inc. (the "UIH Australia Subsidiaries"); UIH New Zealand, Inc.
(the "UIH New Zealand Subsidiary"); UIH-SFCC, Inc. (the "UIH Tahiti
Subsidiary"); and UIH Australia Holding, Inc. were merged with and into Issuer
(the "Merger"). The UIH Australia Subsidiaries held UIH's interest in CEtv,
the UIH New Zealand Subsidiary held UIH's interest in Saturn, the UIH Tahiti
Subsidiary held UIH's interest in Telefenua, UIH Australia Holdings, Inc. held
UIH's interest in United Wireless (the "UIH Wireless Subsidiary") and the
Issuer held UIH's interest in XYZ Entertainment. Each of the UIH Australia
Subsidiaries, the UIH New Zealand Subsidiary, the UIH Tahiti Subsidiary, the
UIH Wireless Subsidiary and the Issuer were initially capitalized with $100
and 100 shares of common stock were issued to UIH, the sole shareholder of
such corporations. During the years ended December 31, 1994 and 1995, UIH
contributed (i) a total of $19.7 million and $50.8 million, respectively, to
the UIH Australia Subsidiaries, which amounts were used to fund the UIH
Australia Subsidiaries' investment in CEtv; (ii) a total of $2.5 million and
none, respectively, to the UIH New Zealand Subsidiary, which amounts were used
to fund the UIH New Zealand Subsidiary's investment in Saturn, (iii) a total
of none and $6.9 million, respectively, to the UIH Tahiti Subsidiary, which
amounts were used to fund the UIH Tahiti Subsidiary's investment in Telefenua;
(iv) a total of none and $911,000, respectively, to the UIH Wireless
Subsidiary, which amounts were used to fund the UIH Wireless Subsidiary's
investment in United Wireless and (v) a total of $629,000 and $5.1 million,
respectively, to the Issuer, which amounts were used to fund the Issuer's
investment in XYZ Entertainment. No additional shares of capital stock were
issued to UIH in connection with these capital contributions. During the years
ended December 31, 1994 and 1995, UIH made bridge loans (i) totaling none and
$5.4 million, respectively, to certain of the UIH Australia Subsidiaries,
which amounts in turn were used to make loans to CEtv; (ii) totaling none and
$2.0 million, respectively, to the UIH New Zealand Subsidiary, which amounts
in turn were used to make loans to Saturn; and (iii) totaling none and $6.8
million, respectively, to the UIH Tahiti Subsidiary, which amounts in turn
were used to make loans to Telefenua. These bridge loans are payable upon
demand and bear interest at rates ranging from 9.25% to 14.0% per annum. At
the time of the Offering, the Company acquired $25 million of these bridge
loans and the remaining portion of the bridge loans were contributed to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
As a result of the Merger, all of the issued and outstanding capital stock
of the UIH Australian Subsidiaries, the UIH New Zealand Subsidiary, the UIH
Tahiti Subsidiary and the UIH Wireless Subsidiary were canceled.
In connection with the Saturn Purchase, the Issuer declared and paid a
dividend of 387 shares of common stock to UIH and issued to the other
shareholder of Saturn 13 shares of common stock, which represented 2.6% of its
issued and outstanding common stock.
In connection with the formation of the Company, the Issuer and UIH have
executed the 10-year UIH Management Agreement, pursuant to which UIH will
continue to perform certain administrative, accounting, financial reporting
and other services for the Issuer, which has no separate employees of its own.
Pursuant to the UIH Management Agreement, UIH will be paid a management fee of
$750,000 for the first year of such agreement, which fees shall increase on
the first anniversary date of the UIH Management Agreement and each
anniversary date thereafter by 8% per year. In addition, the Issuer shall
reimburse UIH for any out-of-pocket expenses incurred by UIH in performance of
its duties under the UIH Management Agreement, including travel, lodging and
entertainment expenses. UIH calculated the management fee for the first year
of the UIH Management Agreement, based upon an estimate of staff hours to
accomplish the various administrative, accounting, financial reporting and
other services to be provided to the Issuer under the UIH Management
Agreement. UIH then calculated the percentage those hours constituted of the
respective employees' annual work hours and multiplied that percentage by the
employment cost for such employees to UIH. The Company believes the fee
payable under the UIH Management Agreement to be comparable for the costs for
such services if obtained from a non-affiliate of UIH.
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UIH and each of CEtv, Saturn and Telefenua are parties to Technical Service
Agreements, pursuant to which UIH provides certain technical assistance in
connection with such Operating Companies' design, development, construction,
marketing and operation of their respective multi-channel television systems.
In addition, pursuant to such agreements, certain members of senior management
of CEtv, Saturn and Telefenua are employees of UIH that have been seconded to
the respective Operating Companies. Fees paid under these technical service
agreements are typically a percentage (currently 4% to 5%, declining to 2% in
future years) of gross revenues generated by the Operating Companies plus
reimbursements for costs associated with such seconded employees. For the year
ended December 31, 1994, CEtv, Saturn and Telefenua had accrued fees to UIH
under their respective Technical Service Agreements of approximately $89,000,
$3,000 and $0, respectively. For the year ended December 31, 1995, CEtv,
Saturn and Telefenua had accrued fees to UIH under their respective Technical
Service Agreements of approximately $1.5 million, $574,000 and $1.2 million
respectively. The fees payable to UIH under each of the Technical Service
Agreements were negotiated between UIH and the respective companies and their
other shareholders at such time as UIH did not hold the majority interest in
such Operating Companies. See "Business--CEtv (Australia), --Saturn (New
Zealand), --Telefenua (Tahiti)" and "Management--Executive Compensation."
The Issuer is included as a member of UIH's consolidated tax return and,
after the Offering, will remain a member of the UIH consolidated group (as
long as non-UIH ownership of the Issuer does not exceed 20%). UIH and the
Issuer are parties to a tax sharing agreement that defines the parties' rights
and obligations with respect to tax liabilities and benefits relating to the
Company and its operations as part of the consolidated group of UIH. In
general, UIH is responsible for filing consolidated tax returns and paying the
associated taxes and the Issuer will reimburse UIH for the portion of the tax
cost relating to the Company and its operations.
AUSTRALIS TRANSACTION
On April 19, 1996, the Guarantors committed to make or procure guarantees of
a total of $125.0 million for an approximately six month period to support the
Australis Bank Facility. Initial funding of the Australis Bank Facility
occurred on May 13, 1996. In connection with this transaction, Australis sold
certain of its equity securities, at a price of A$0.545 per share, and
warrants to an investor for approximately $10.0 million. The $125.0 million in
guarantees will guarantee approximately $38.0 million of refinanced
indebtedness as well as provide for $87.0 million of new borrowings under the
Australis Bank Facility, which, together with the $10.0 million of proceeds of
such equity sale, are to be used for working capital and to repay
approximately $25.0 million of existing debt.
As part of the Australis Transaction, UIH AML guaranteed $10.0 million of
the Australis Bank Facility, which guarantee was collateralized by $10.0
million in cash. In connection with the Australis Settlement, the Company has
agreed, subject to certain conditions, to acquire $4.0 million of ordinary
shares or convertible notes of Australis by converting a portion of the
Australis Guarantee (at a conversion price of A$0.545 per share) or exercising
the Australis Warrants. See "Business--CEtv (Australia)--Australis Franchise
Agreements."
The term of the guarantees and amounts to be borrowed under the Australis
Bank Facility is approximately six months. Australis will grant the Guarantors
a second priority security interest in all of the assets of Australis and its
subsidiaries with limited exceptions. One of the Guarantors (the "First
Guarantor") that provided $32.0 million of the guarantee of the Australis Bank
Facility will have first rights with respect to this second priority security
interest and thereafter the remaining Guarantors, including UIH AML, will have
rights to the security pari passu among such remaining Guarantors. Amounts
paid under the guarantee will be allocated pro rata among the Guarantors in
proportion to the amount each has guaranteed. However, the First Guarantor is
entitled to first priority of repayment of any amounts repaid with respect to
the guarantees. To the extent amounts are paid pursuant to the guarantees,
each Guarantor may elect to have its pro rata portion of such amount
converted, at a rate of A$0.545 per note or share, into (i) ordinary shares or
convertible notes of Australis of the classes currently listed on the
Australian Stock Exchange or (ii) a new class of convertible notes of
Australis (the "New
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Australis Notes"). In addition, at any time during the term of such
guarantees, any Guarantor may elect to repay a portion of the Australis Bank
Facility by converting all or a portion of the amount of its guarantee into
ordinary shares, convertible notes or New Australis Notes on the same terms.
The New Australis Notes will be unsecured, bear no interest and will be also
convertible prior to maturity into ordinary shares or convertible notes of
Australis on the same terms. The New Australis Notes become due and payable
upon the earlier of December 31, 1998 or such time as Australis becomes
insolvent.
Upon an event of default under the Australis Bank Facility or if certain
conditions imposed by the Guarantors are not satisfied within 60 days after
the effective date of the guarantee, Australis must proceed to sell specified
programming assets, the proceeds of which will be used to repay the Australis
Bank Facility. Australis will grant an affiliate of the First Guarantor a
right of first refusal to acquire such programming assets.
In consideration for the Guarantors agreeing to the Australis Guarantee,
Australis granted warrants to the Guarantors to purchase ordinary shares or
convertible notes of Australis at an exercise price of A$0.20 per share or
note, of which warrants to acquire 4,171,460 ordinary shares or convertible
notes were granted to UIH AML. The number of warrants may be reduced to the
extent required by Australian Stock Exchange regulations.
During the six month term of the guarantees and borrowings under the
Australis Bank Facility, Australis intends to refinance borrowings under the
Australis Bank Facility through debt and/or equity financings as well as
potential asset sales. There can be no assurances, however, that Australis
will be able to secure adequate long term financing on satisfactory terms or,
if such financing is secured, how long such financing will satisfy Australis'
working capital needs. As a consequence, there can be no assurances that (i)
UIH AML's guarantee will not be drawn, (ii) if amounts are drawn on such
guarantee, Australis will be able to repay such amounts or (iii) UIH AML will
be able to realize an amount equal to the amounts paid by it under such
guarantee if UIH AML elects to convert amounts owed it in connection with the
Australis Guarantee into shares or notes of Australis or similarly refinance a
portion of the Australis Bank Facility. See "Risk Factors--Reliance on
Australis and Other Principal Suppliers."
SECURITY OWNERSHIP
UIH, through its wholly owned subsidiary United Australasian Communications,
Inc., owns 487 (97.4%) of the 500 shares of issued and outstanding common
stock of the Issuer. The remaining 13 shares are owned by Kiwi Cable Company
BVI, Inc., the entity from which the Company acquired the 50% interest in
Saturn.
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DESCRIPTION OF THE SECURITIES
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture to be dated as of May 13, 1996
between the Issuer and American National Bank Association, as trustee (the
"Trustee"). A copy of the form of the Indenture is available from the Initial
Purchasers upon request. Upon the issuance of the Exchange Notes, if any, or
the effectiveness of a Shelf Registration Statement, the Indenture will be
subject to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following is a summary of the Indenture. A copy of the Indenture is
filed as an exhibit to the Registration Statement. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions." Unless the context otherwise requires, references to the
Notes shall include the Exchange Notes.
GENERAL
The Notes will be general unsecured senior obligations of the Issuer,
limited to $443,000,000 aggregate principal amount at maturity (subject to
certain exceptions), and will mature on May 15, 2006. Cash interest will not
accrue on the Notes prior to May 15, 2001. Thereafter, cash interest on the
Notes will be payable, at the Interest Rate then in effect, semi-annually in
arrears on each May 15 and November 15 (each, an "Interest Payment Date"),
commencing November 15, 2001, to the holders of record of Notes at the close
of business on the May 1 and November 1 immediately preceding such Interest
Payment Date. Cash interest will accrue from the most recent Interest Payment
Date to which interest has been paid or duly provided for or, if no interest
has been paid or duly provided for, from May 15, 2001. Cash interest will be
computed on the basis of a 360-day year of twelve 30-day months. If, prior to
May 15, 2001 the Issuer defaults in any payment of principal (including any
accreted original issue discount), whether at maturity, upon redemption or
otherwise, if the payment of cash interest on the Notes is then permitted by
law, cash interest will accrue on the amount in default at the interest rate
borne by the Notes and, if the payment of such cash interest is not permitted
by law, original issue discount will continue to accrete at the rate then in
effect. On or after May 15, 2001, interest on overdue principal and, to the
extent permitted by law, on overdue installments of interest will accrue at
the rate of interest borne by the Notes. The Notes will be issued in the form
of one or more fully registered Notes, without coupons, in global form. Except
in those limited circumstances described below, Notes in definitive form
("Certificated Notes") will not be issued. See "--Book-Entry System; Delivery
and Form."
As discussed under "Exchange Offer; Registration Rights," pursuant to the
Registration Rights Agreement, the Issuer has agreed, at its expense, for the
benefit of the holders of the Notes, to effect the Registered Exchange Offer
under the Securities Act to exchange the Notes for Exchange Notes. If (a) the
Issuer is not permitted to file the Exchange Offer Registration Statement or
to consummate the Exchange Offer because the Exchange Offer is not permitted
by applicable law or Commission policy or (b) any holder of Notes notifies the
Issuer within the specified time period that (i) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (ii) due to a
change in law or policy it may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (iii) it is a
broker-dealer and owns Notes acquired directly from the Issuer or any
affiliate of the Issuer, the Issuer will file with the Commission the Shelf
Registration Statement to cover resales of the Transfer Restricted Notes (as
defined in "Exchange Offer; Registration Rights") by the holders thereof.
Any Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
REDEMPTION
Mandatory Redemption. The Issuer will not be required to make any mandatory
sinking fund payments in respect of the Notes. However, (i) upon the
occurrence of a Change of Control, the Issuer will be obligated to make an
offer to purchase all outstanding Notes at a price of 101% of the Accreted
Value thereof (determined at
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the date of purchase), if such purchase is prior to May 15, 2001, or 101% of
the principal amount at maturity thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase, if such purchase is on or after May
15, 2001), and (ii) the Issuer may be obligated to make an offer to purchase
Notes with the Net Cash Proceeds of certain Asset Sales at a price of 100% of
the Accreted Value thereof (determined at the date of purchase). See "--
Certain Covenants--Change of Control" and "--Disposition of Proceeds of Assets
Sales," respectively.
Optional Redemption. The Notes will be redeemable, in whole or in part, at
any time on or after May 15, 2001 at the option of the Issuer, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, plus accrued and
unpaid interest to the redemption date, if redeemed during the 12-month period
beginning May 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2001.......................................... 107.00%
2002.......................................... 104.67%
2003.......................................... 102.33%
2004 and thereafter........................... 100.00%
</TABLE>
Notwithstanding the foregoing, on or prior to May 15, 1999 the Issuer may,
at its option, use the net cash proceeds of (i) a Public Equity Offering or
(ii) a sale or series of related sales by the Issuer (or any person of which
the Issuer is a direct Subsidiary) of its Capital Stock (other than
Disqualified Capital Stock) to one or more Strategic Equity Investors to
redeem up to an aggregate of 33% of the originally issued principal amount at
maturity of Notes from the holders of Notes, on a pro rata basis (or as nearly
pro rata as practicable), at a redemption price equal to 113% of the Accreted
Value thereof; provided that not less than 67% of the originally issued
principal amount at maturity of Notes are outstanding immediately thereafter;
provided, however, that in the case of a Public Equity Offering by, or an
investment by a Strategic Equity Investor in, a person of which the Issuer is
a direct Subsidiary, such person contributes to the capital of the Issuer net
cash proceeds in an amount sufficient to redeem Notes called for redemption in
accordance with the terms thereof. In order to effect the foregoing redemption
with the net proceeds of a Public Equity Offering or an investment by a
Strategic Equity Investor, the Issuer shall send the redemption notice not
later than 60 days after the consummation thereof.
Selection; Effect of Redemption Notice. In the case of a partial redemption,
selection of the Notes for redemption will be made on a pro rata basis, by lot
or such other method as the Trustee in its sole discretion deems fair and
appropriate or in such manner as complies with the requirements of the
principal national securities exchange, if any, on which the Notes being
redeemed are listed; provided that no Notes of a principal amount at maturity
of $1,000 shall be redeemed in part; provided, further, that any such
redemption pursuant to the provisions relating to a Public Equity Offering or
an investment by a Strategic Equity Investor shall be made on a pro rata basis
or on as nearly a pro rata basis as practicable (subject to the procedures of
The Depository Trust Company). Upon giving of a redemption notice, interest on
Notes called for redemption will cease to accrue from and after the date fixed
for redemption (unless the Issuer defaults in providing the funds for such
redemption) and, upon redemption on such redemption date, such Notes will
cease to be outstanding.
RANKING OF THE NOTES
The indebtedness of Issuer evidenced by the Notes will rank senior in right
of payment to all indebtedness of the Issuer that is expressly subordinated to
the Notes and will rank pari passu in right of payment with all other existing
or future unsubordinated indebtedness of the Issuer. At the Issue Date, it is
expected that there will be no outstanding Indebtedness of the Issuer ranking
junior in right of payment to the Notes. The Notes will be effectively
subordinated in right of payment to all existing and future liabilities,
including trade payables, of any of the Issuer's subsidiaries. See "Risk
Factors--Holding Company Structure; Limitations on Access to Cash Flow."
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CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture.
Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Indenture will provide that (i) the Issuer will not, and
will not permit any Restricted Subsidiary, to create, incur, assume, issue,
guarantee or in any manner become directly or indirectly liable, contingently
or otherwise for or with respect to (in any such case, to "incur"), any
Indebtedness (including any Acquired Indebtedness) and (ii) the Issuer will
not permit any Restricted Subsidiary to issue any Preferred Stock except for,
in each case, Permitted Indebtedness and Preferred Stock; provided that (a)
the Issuer will be permitted to incur Indebtedness (including any Acquired
Indebtedness) and (b) a Restricted Subsidiary will be permitted to incur
Acquired Indebtedness, if, in either case, after giving pro forma effect to
such incurrence (including the application of the net proceeds therefrom), the
ratio of (x) Total Consolidated Indebtedness and Subsidiary Preferred Stock to
(y) Annualized Pro Forma Consolidated Operating Cash Flow for the latest
fiscal quarter for which consolidated financial statements of the Issuer are
available preceding the date of such incurrence or issuance would be less than
or equal to (1) 7.0 to 1.0 if the Indebtedness is incurred prior to May 15,
1998 or (2) 6.5 to 1.0 if the Indebtedness is incurred on or after May 15,
1998.
Limitation on Restricted Payments. The Indenture will provide that the
Issuer will not, and will not permit any Restricted Subsidiary to, make,
directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately prior to and after giving effect to such Restricted
Payment, the Issuer would be able to incur $1.00 of Indebtedness under the
proviso of the covenant "Limitation on Additional Indebtedness and
Preferred Stock of Restricted Subsidiaries;" and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date (including any Designation Amount) does not exceed an amount
equal to the sum of (a)(x) the Cumulative Consolidated Operating Cash Flow
determined at the time of such Restricted Payment minus (y) 150% of the
cumulative Consolidated Interest Expense of the Issuer determined for the
period commencing on the Issue Date and ending on the last day of the
latest fiscal quarter for which consolidated financial statements of Issuer
are available preceding the date of such Restricted Payment plus (b) the
aggregate net cash proceeds received by the Issuer either (x) as capital
contributions to the Issuer after the Issue Date or (y) from the issue or
sale (other than to a Restricted Subsidiary of the Issuer) of its Capital
Stock (other than Disqualified Stock) on or after the Issue Date plus (c)
the aggregate net proceeds received by the Issuer from the issuance (other
than to a Restricted Subsidiary of Issuer) on or after the Issue Date of
its Capital Stock (other than Disqualified Stock) upon the conversion of,
or exchange for, Indebtedness of the Issuer or a Restricted Subsidiary plus
(d) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date for cash,
(including upon a Revocation after the Issue Date of any Designation made
after the Issue Date but excluding Investments made pursuant to clauses
(v), (vi) and (viii) of the following paragraph), an amount equal to the
lesser of the return of capital with respect to such Investment and the
cost of such Investment, in either case, reduced by the excess, if any, of
the cost of the disposition of such Investment over the gain, if any,
realized by the Issuer or such Restricted Subsidiary in respect of such
disposition. For purposes of the preceding clauses (b)(y) and (c) and
without duplication, the value of the aggregate net proceeds received by
the Issuer upon the issuance of Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received by the Issuer upon the
conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
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The provisions of this covenant shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof if, at said date
of declaration, such payment would comply with the foregoing paragraph; (ii)
so long as no Default shall have occurred and be continuing, the purchase,
redemption, retirement or other acquisition of any shares of Capital Stock of
the Issuer (A) in exchange for or conversion into or (B) out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary of the Issuer) of, shares of Capital Stock of the Issuer
(other than Disqualified Stock) provided that any such net cash proceeds
pursuant to the immediately preceding clause (B) are excluded from clause
(iii)(b) of the preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing, the purchase, redemption, retirement, defeasance
or other acquisition of (A) Preferred Stock of any Restricted Subsidiary made
by exchange for or conversion into, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary
of the Issuer) of (x) Capital Stock (other than Disqualified Stock) of the
Issuer provided that any such net cash proceeds pursuant to the immediately
predesignate clause (x) are excluded from clause (iii)(b) of the preceeding
paragraph or (y) other Preferred Stock of any Restricted Subsidiary having an
Average Life to Stated Maturity equal to or greater than the Average Life to
Stated Maturity of the Preferred Stock being purchased, redeemed, retired,
defeased or otherwise acquired or (B) Subordinated Indebtedness made by
exchange for or conversion into, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary
of the Issuer) of (x) Capital Stock (other than Disqualified Stock) of the
Issuer provided that any such net cash proceeds pursuant to the immediately
preceeding clause (x) are excluded from clause (iii)(b) of the preceeding
paragraph or (y) other Subordinated Indebtedness having an Average Life to
Stated Maturity equal to or greater than the Average Life to Stated Maturity
of the Subordinated Indebtedness being purchased, redeemed, retired, defeased
or otherwise acquired; (iv) the purchase by the Issuer on the Issue Date of
$25,000,000 outstanding balance of bridge loans extended by UIH to the
Operating Companies on the terms described under "Use of Proceeds" for an
aggregate purchase price not to exceed $25,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) (it being understood
that following the purchase on the Issue Date of such bridge loans with a
portion of the proceeds of the Notes as described in this clause (iv), the
Issuer will not be permitted to make any other Restricted Payments pursuant to
this clause (iv)); (v) so long as no Default shall have occurred and be
continuing, Investments in Saturn in an amount not to exceed $15,000,000 (or,
to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent thereof)
plus, to the extent any such Investment is repaid to the Issuer or a
Restricted Subsidiary in cash, an amount equal to the lesser of the return of
capital with respect to such Investment and the cost of such Investment, in
either case, reduced by the excess, if any, of the cost of the disposition of
such Investment over the gain, if any, realized by the Issuer or such
Restricted Subsidiary in respect of such disposition; (vi) so long as no
Default shall have occurred and be continuing, Investments in Unrestricted
Subsidiaries and Unrestricted Affiliates that operate principally or have been
formed to operate principally a Related Business in an amount not to exceed
$15,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) in the aggregate at any time outstanding, provided that no
more than $8,000,000 in the aggregate of Investments under this clause (vi)
(or to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent
thereof) shall constitute Investments in persons other than XYZ Entertainment
Limited, plus, in the case of the disposition or repayment of any such
Investment for cash (including upon a Revocation after the Issue Date of a
Designation made after the Issue Date), an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, reduced by the excess, if any, of the cost of the
disposition of such Investment over the gain, if any, realized by the Issuer
or such Restricted Subsidiary in respect of such disposition; (vii) the
purchase by the Issuer on the Issue Date of all of the outstanding Capital
Stock of UIH AML for an aggregate purchase price of $10,000,000; (viii) so
long as no Default shall have occurred and be continuing, any Investments in
Unrestricted Subsidiaries and Unrestricted Affiliates principally engaged in
or which will principally engage in a Related Business which is made with the
net cash proceeds of a (1) capital contribution to the Issuer or (2) issue or
sale of Capital Stock (other than Disqualified Stock) of the Issuer, but (to
avoid duplication of the use of such net cash proceeds) only to the extent the
Company has not previously made any Restricted Payment either (x) with such
net cash proceeds pursuant to clauses (ii), (iii) or (viii) of this paragraph
or (y) which the Issuer could not have made without including such net cash
proceeds in clause (iii)(b) of the first paragraph of the preceding paragraph
plus, in the case of the disposition or repayment of any such Investment for
cash (including upon a Revocation after the Issue Date of a Designation made
after the Issue Date), an amount equal to the lesser of the return of capital
with respect to such Investment and the cost of such Investment, in either
case, reduced by the excess, if any, of the cost of the disposition of such
Investment over
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the gain, if any, realized by the Issuer or such Restricted Subsidiary in
respect of such disposition (excluding, in the case of repayment of any such
Investments in XYZ Entertainment, the portion of such repayment which may be
paid as dividends by the Issuer pursuant to clause (x) of this paragraph),
(ix) so long as no Default shall have occurred and be continuing, payments of
dividends (not constituting a return of capital) on Disqualified Stock of the
Issuer issued pursuant to and in compliance with the covenant "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries;" (x)
so long as no Default shall have occurred and be continuing, following
compliance with the provisions of the covenant "Disposition of Proceeds of
Asset Sales" with respect to the sale of the Issuer's direct or indirect
interest in XYZ Entertainment, the payment of dividends by the Issuer in an
amount up to the XYZ Distribution Amount; (xi) so long as no Default shall
have occurred and be continuing, payments pursuant to the Tax Sharing
Agreement, as such agreement is in effect on the Issue Date and (xii) (a) the
acquisition by the Issuer of interests in Saturn not owned (directly or
indirectly) by the Issuer on the Issue Date, provided that the consideration
paid by the Issuer in such acquisition shall consist solely of Capital Stock
(other than Disqualified Capital Stock) of the Issuer and (b) the contribution
of such interests acquired by the Issuer in accordance with subclause (a) of
this clause (xi) to an Unrestricted Subsidiary. In determining the amount of
Restricted Payments permissible under this covenant, amounts expended pursuant
to clauses (i) (net of the amount of dividends declared and previously
included as Restricted Payments), (v), (vi), (vii) and (viii), in each case,
of the immediately preceding sentence, shall be included as Restricted
Payments and amounts expended pursuant to clauses (ii), (iii), (iv), (ix),
(x), (xi) and (xii) shall not be included as Restricted Payments.
Limitation on Liens. The Issuer will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Liens of any kind
(other than Permitted Liens) against or upon any of its property or assets, or
any proceeds therefrom, or upon any income or profits therefrom or assign or
convey any right to receive income therefrom.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Issuer will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise enter into or cause to become effective any consensual encumbrance
or restriction of any kind on the ability of any Restricted Subsidiary to (a)
pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by the Issuer or any Restricted Subsidiary, (b) pay any
Indebtedness owed to the Issuer or a Restricted Subsidiary, (c) make any
Investment in the Issuer or any Restricted Subsidiary or (d) transfer any of
its property or assets to the Issuer or to any Restricted Subsidiary, except
for (i) any such customary encumbrance or restriction contained in a security
document creating a Lien permitted under the Indenture to the extent relating
to the property or asset subject to such Lien following a default in respect
of the applicable secured obligation, (ii) any such encumbrance or restriction
with respect to a Restricted Subsidiary that is not a Restricted Subsidiary on
the Issue Date which encumbrance or restriction is in existence at the time
such person becomes a Restricted Subsidiary but not created in contemplation
thereof, (iii) any such encumbrance or restriction imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, (iv) any encumbrance or restriction existing under any amendment
to, and any agreement which refinances or replaces, an agreement containing a
restriction permitted by clause (ii), provided that any such amendment or
agreement constitutes no greater encumbrance or restriction on the ability of
any Restricted Subsidiary to pay dividends or make distributions, pay
Indebtedness, make Investments or transfer property or assets than those under
or pursuant to the agreement evidencing the Indebtedness or obligations so
amended, refinanced or replaced, and (v) any such encumbrance or restriction
imposed in any agreement governing Senior Bank Financing; provided no such
encumbrance or restriction shall, so long as no default shall exist under such
agreement, prevent the payment of amounts to the Issuer required for it to
meet its operating expenses (including, without limitation, payments under the
Notes and the Indenture).
Business of the Issuer. The Indenture will provide that the Issuer will not,
and will not permit any of its Subsidiaries or controlled Affiliates to, be
principally engaged in any business or activity other than a Related Business.
Limitation on Status as Investment Company. The Indenture will provide that
the Issuer will not, and will not permit any of its Subsidiaries or controlled
Affiliates to, conduct its business in a fashion that would cause
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the Issuer to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended), or otherwise
become subject to regulation under the Investment Company Act of 1940, as
amended.
Limitation on Transactions with Affiliates. The Indenture will provide that,
the Issuer will not, and will not permit, cause, or suffer any of its
Subsidiaries or controlled Affiliates to, conduct any business or enter into
any transaction or series of related transactions with or for the benefit of
any Affiliate of the Issuer, any beneficial holder of 10% or more of any class
of Capital Stock of the Issuer or any officer or director of the Issuer or any
Subsidiary (each an "Affiliate Transaction"), except on terms that are fair
and reasonable to the Issuer, such Subsidiary or such controlled Affiliate, as
the case may be. Each Affiliate Transaction involving aggregate payments or
other Fair Market Value in excess of $1,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) shall be approved by
the Board of the Issuer, such approval to be evidenced by a Board Resolution
(delivered to the Trustee) stating that the Board of the Issuer (including a
majority of the Disinterested Directors) has determined that such transaction
complies with the foregoing provisions. In addition to the foregoing, with
respect to any Affiliate Transaction involving aggregate consideration of
$5,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) or more (other than an Investment in an Unrestricted
Subsidiary or Unrestricted Affiliate permitted by the covenant "Limitation on
Restricted Payments."), the Issuer must obtain a written opinion (delivered to
the Trustee) from an Independent Financial Advisor stating that the terms of
such Affiliate Transaction to the Issuer, the Subsidiary or such controlled
Affiliate, as the case may be, are fair from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among the Issuer and/or any of
the Restricted Subsidiaries, (ii) any dividend permitted by the covenant
"Limitation on Restricted Payments," (iii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries
and bonuses (or other incentive compensation) or legal fees in the ordinary
course of business, (iv) the purchase by the Issuer on the Issue Date of
$25,000,000 outstanding balance of bridge loans extended by UIH to the
Operating Companies on the terms described under "Use of Proceeds" for an
aggregate purchase price not to exceed $25,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof), (v) the purchase by
the Issuer on the Issue Date of all of the outstanding Capital Stock of UIH
AML for an aggregate purchase price of $10,000,000, (vi) transactions pursuant
to the UIH Management Agreement and the Technical Service Agreements, in each
case, as the same may be amended or supplemented, so long as amounts paid or
payable under any amended or replacement agreement do not exceed the amounts
payable under the original agreement as in effect on the Issue Date; provided,
that if a Default shall have occurred and be continuing, amounts paid and
payable under the UIH Management Agreement and the Technical Service
Agreements shall not exceed reimbursement of the reasonable expenses
(including reasonable allocations of salary and overhead) of UIH incurred
pursuant to such agreements and (vii) the issuance of Capital Stock (other
than Disqualified Capital Stock) of the Issuer.
Change of Control. Upon the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Issuer shall notify
the holders of the Notes, in the manner prescribed by the Indenture, of such
occurrence and shall make an offer to purchase (the "Change of Control
Offer"), on a business day (the "Change of Control Payment Date") not later
than 60 days following the Change of Control Date, all Notes then outstanding
at a purchase price equal to 101% of the Accreted Value thereof, if the Change
of Control Payment Date is prior to May 15, 2001 or 101% of the principal
amount at maturity thereof, together with all accrued and unpaid interest
thereon, if the Change of Control Payment Date is on or after May 15, 2001.
Notice of a Change of Control Offer shall be given to holders of Notes, not
less than 28 days nor more than 45 days before the Change of Control Payment
Date. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the Change of Control Payment
Date.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer. The Issuer shall not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with
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the requirements applicable to a Change of Control Offer made by the Issuer
and purchases all Notes validly tendered and not withdrawn under such Change
of Control Offer. Restrictions in the Indenture described herein on the
ability of the Issuer and the Restricted Subsidiaries to incur additional
Indebtedness, to grant Liens on its property, to make Restricted Payments and
to make Asset Sales may also make more difficult or discourage a takeover of
the Issuer or any of the Restricted Subsidiaries, whether favored or opposed
by the management of the Issuer or any of the Restricted Subsidiaries. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout
of the Issuer or any of the Subsidiaries by management of the Issuer. While
such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
If the Issuer is required to make a Change of Control Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable United States or foreign securities laws and
regulations and any applicable requirements of any securities exchange on
which the Notes are listed.
Disposition of Proceeds of Asset Sales. The Issuer will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (a) the Issuer
or such Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets sold or otherwise disposed of and (b) at least 85% of such
consideration consists of cash or Cash Equivalents (provided that any notes or
other obligations received by the Issuer or such Restricted Subsidiary from
such transferee or purchaser that are immediately sold or transferred (on a
non-recourse basis) for cash or Cash Equivalents shall be deemed cash for
purposes of this provision and be treated as Net Cash Proceeds, subject to
application as hereinafter provided). The Issuer or such Restricted
Subsidiary, as the case may be, may either (i) within 365 days of an Asset
Sale (other than an Asset Sale of the Issuer's direct or indirect interest in
XYZ Entertainment, as to which no such limit would exist) apply the Net Cash
Proceeds of such Asset Sale to permanently repay, and permanently reduce the
commitments under, any Specified Indebtedness, or (ii) apply such Net Cash
Proceeds to an investment in properties and assets ("Replacement Assets") that
(x) in the case of an Asset Sale of the Issuer's direct or indirect interest
in XYZ Entertainment will be used in a Related Business (or in Capital Stock
of any person principally engaged in a Related Business) and (y) in all other
cases will be used in a Related Business (or in Capital Stock of any person
that will become a Restricted Subsidiary as a result of such investment to the
extent such person owns properties and assets that will be used in a Related
Business) of the Issuer or any Restricted Subsidiary located in the same
nation as the assets disposed of in the Asset Sale within 365 days of such
Asset Sale (in the case of clause (y)). Pending the final application of any
such Net Cash Proceeds in accordance with the second sentence of this
paragraph or to an Asset Sale Offer, the Issuer or such Restricted Subsidiary
may invest such Net Cash Proceeds in any manner not prohibited by the
Indenture and may temporarily repay Specified Indebtedness. Any Net Cash
Proceeds from any Asset Sale that are neither used to repay, and permanently
reduce the commitments under, any Specified Indebtedness nor invested in
Replacement Assets in accordance with this paragraph shall constitute "Excess
Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000
(or, to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent
thereof), the Issuer shall make an offer to purchase (an "Asset Sale Offer"),
from all holders of the Notes, Notes having an aggregate purchase price equal
to such Excess Proceeds at a price in cash equal to 100% of the Accreted Value
thereof on any purchase date prior to May 15, 2001 or 100% of the outstanding
principal amount at maturity thereof plus accrued and unpaid interest, if any,
to any purchase date on or after May 15, 2001. Each Asset Sale Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law. Notwithstanding the foregoing, in the event that any Pari
Passu Indebtedness contains provisions requiring that the Issuer or a
Restricted Subsidiary apply any Excess Proceeds from an Asset Sale made by it
to make an offer to purchase or to permanently repay such Pari Passu
Indebtedness, and thereby reduce the commitments for such Pari Passu
Indebtedness, (i) the Issuer will only be
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required to make an offer to purchase Notes having an aggregate purchase
price, determined as set forth above, equal to the Pro Rata Share of the
Excess Proceeds and (ii) the balance of such Excess Proceeds may be used to
offer to purchase or to permanently repay, and reduce the commitments in
respect of, such Pari Passu Indebtedness. To the extent that the aggregate
purchase price for Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds available for such offer, the Issuer and the Restricted
Subsidiaries may use such deficiency (the "Deficiency") for general corporate
purposes permitted under the Indenture. If the aggregate purchase price for
the Notes validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds available for such offer, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, (a) up to the XYZ
Distribution Amount of the Net Cash Proceeds from any Asset Sale of the
Issuer's or any Restricted Subsidiary's direct or indirect interest in XYZ
Entertainment need not be applied as provided in the second sentence of the
first paragraph of this covenant and (b) the Issuer and the Restricted
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (i) at least 85% of the consideration for
such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for
Fair Market Value (with Fair Market Value being determined by an Independent
Financial Advisor as required by the definition of Fair Market Value);
provided that any Net Cash Proceeds received by the Issuer or any of the
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall be subject to the provisions of the two
preceding paragraphs.
If the Issuer is required to make an Asset Sale Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable United States or foreign securities laws and
regulations and any applicable requirements of any securities exchange on
which the Notes are listed.
Issuance of Contingent Warrants. The Indenture will provide that the Issuer
will be obligated to issue to holders of the Notes the Warrants, exercisable
at the Exercise Price for 3.0% of the Common Stock of the Issuer on a fully
diluted basis as of the date of such issuance after giving effect to the
exercise of such Warrants in the event that the Issuer does not effect an
Equity Sale on or prior to November 15, 1997. Such Warrants will be issued
pursuant to the Warrant Agreement. Any Warrants issued shall be issued to the
holders of the outstanding Notes as of November 1, 1997 pro rata, based upon
the aggregate principal amount of the Notes held by such holders as of
November 1, 1997.
Reports. The Indenture will provide that, whether or not the Issuer has a
class of securities registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and after the date on which an Exchange
Offer Registration Statement is required to be effective, the Issuer will file
with the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15 of the
Exchange Act, when such filings would be required to be made under the
Exchange Act. The Issuer will be required to file with the Trustee and provide
to each holder of Notes within 15 days after it files them with the Commission
(or, if any such filing is not permitted under the Exchange Act, 15 days after
the Issuer would have been required to make such filing) copies of such
reports and documents.
Limitation on Unrestricted Subsidiaries and Unrestricted Affiliates. The
Indenture will provide that the Issuer may designate (i) any Subsidiary of the
Issuer as an "Unrestricted Subsidiary" under the Indenture and (ii) any
Restricted Affiliate as an Unrestricted Affiliate (each, a "Designation") only
if:
(a) no Default shall have occurred and be continuing after giving effect
to such Designation; and
(b) the Issuer would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of such Subsidiary or Restricted Affiliate, as the case may
be, on such date.
In the event of any such Designation, the Issuer shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount. If at any time a person designated as a Restricted
Affiliate under the
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Indenture ceases to constitute a Restricted Affiliate for any reason, the
Issuer shall be deemed to have made an Investment constituting a Restricted
Payment pursuant to the covenant "Limitation on Restricted Payments" for all
purposes of the Indenture in an amount equal to the Fair Market Value of such
person at such time. The Indenture will further provide that (i) the Issuer
shall not and shall not permit any Restricted Subsidiary to, at any time (x)
provide credit support for, or a guarantee of, any Indebtedness of any
Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be, or
(z) be directly or indirectly liable for any Indebtedness which provides that
the holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary or Unrestricted Affiliate, as the
case may be (including any right to take enforcement action against such
Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be), except
in the case of clause (x) or (y) to the extent permitted under the covenant
"Limitation on Restricted Payments," and (ii) no Unrestricted Subsidiary or
Unrestricted Affiliate shall at any time guarantee or otherwise provide credit
support for any obligation of the Issuer or any Restricted Subsidiary.
Notwithstanding the foregoing, the Issuer shall be permitted to transfer its
indirect interest in XYZ Entertainment to a Subsidiary and designate such
Subsidiary as an "Unrestricted Subsidiary" under the Indenture without
satisfaction of the foregoing clause (b), and such designation shall not
result in the Issuer having been deemed to have made any Investment
constituting a Restricted Payment under this Indenture.
The Indenture will further provide that the Issuer may (i) revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary or (ii) designate
any Unrestricted Affiliate as a Restricted Affiliate (each, a "Revocation")
if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary or
Unrestricted Affiliate, as the case may be, outstanding immediately
following such Revocation would, if incurred at such time, have been
permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Issuer delivered to the Trustee certifying compliance with the foregoing
provisions.
As of the Issue Date, each of Saturn, XYZ Entertainment and United Wireless
will be owned, directly or indirectly, through one or more Unrestricted
Subsidiaries, and UIH AML will be an Unrestricted Subsidiary.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Issuer will not, in a single transaction
or through a series of transactions, consolidate or combine with or merge with
or into or, directly or indirectly, sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
any person or persons, and the Issuer will not permit any of its Subsidiaries
to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, lease, transfer or disposition of all or
substantially all of the properties and assets of the Issuer and its
Subsidiaries, taken as a whole, to any person or persons, unless (a) the
Issuer shall be the continuing person or the resulting, surviving or
transferee person (in either case, the "surviving entity") shall be a company
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia; (b) the surviving entity (if other
than the Issuer) shall expressly assume all of the obligations of the Issuer
under the Notes and the Indenture and shall execute a supplemental indenture
to effect such assumption which supplemental indenture shall be delivered to
the Trustee and shall be in form reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Issuer or the surviving entity
(assuming such surviving entity's assumption of the Issuer's obligations under
the Notes and the Indenture), as the case may be, would be able to incur $1.00
of
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Indebtedness under the proviso of the covenant "Limitation on Additional
Indebtedness and Preferred Stock of Restricted Subsidiaries;" (d) immediately
after giving effect to such transaction or series of transactions on a pro
forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default shall have occurred and be
continuing; and (e) the Issuer or the surviving entity, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel stating that such transaction or series of transactions, and, if a
supplemental indenture is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of a person
subject to, and in accordance with, the foregoing, the surviving entity shall
succeed to, and be substituted for, and may exercise every right and power of
the Issuer under the Indenture with the same effect as if such surviving
entity had been named as such; provided that, solely for purposes of computing
Cumulative Adjusted Available Cash Flow for purposes of clause (iii) of the
first paragraph of the covenant "Limitation on Restricted Payments" above, the
Cumulative Adjusted Available Cash Flow of any persons other than the Issuer
and the Restricted Subsidiaries shall only be included for periods subsequent
to the effective time of such merger, consolidation, combination or transfer
of assets.
The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provisions of this covenant and the covenants "Limitation
on Additional Indebtedness and Preferred Stock of Restricted Subsidiaries",
"Limitation on Restricted Payments" and "Limitation on Liens"), Subsidiaries
of any Surviving Entity will, upon such transaction or series of transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided
pursuant to the covenant "Limitation on Unrestricted Subsidiaries and
Unrestricted Affiliates" and all Indebtedness, and all Liens on property or
assets, of the Issuer and the Restricted Subsidiaries immediately prior to
such transaction or series of transactions will be deemed to have been
incurred upon such transaction or series of transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes when it becomes due
and payable and continuance of such default for a period of 30 days or
more; or
(ii) default in the payment of the principal of, or premium, if any, on
the Notes when due, at maturity, upon redemption or otherwise (including
pursuant to a Change of Control Offer or an Asset Sale Offer); or
(iii) failure to make a Change of Control Offer or an Asset Sale Offer,
in each case, within the time periods specified in the Indenture or default
in the performance, or breach, of any covenant described under "--
Consolidation, Merger, Sale of Assets, Etc."; or
(iv) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i), (ii) or (iii)
above), and continuance of such default or breach for a period of 30 days
after written notice to the Issuer by the Trustee or to the Issuer and the
Trustee by the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes (in each case, when such notice is deemed
received in accordance with the Indenture); or
(v) failure to perform any term, covenant, condition, or provision of one
or more classes or issues of other Indebtedness in an aggregate principal
amount of $5,000,000 (or, to the extent non-U.S. dollar denominated, the
U.S. Dollar Equivalent thereof) or more under which the Issuer or any
Restricted Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in the
acceleration of the maturity of such Indebtedness; or
(vi) any holder or encumbrancer of $5,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) or more in
aggregate principal amount of Indebtedness of the Issuer or any Restricted
Subsidiary shall commence judicial proceedings or take any other action to
foreclose upon, have
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a receiver appointed with respect to, or dispose of assets of the Issuer or
any Restricted Subsidiary having an aggregate Fair Market Value,
individually or in the aggregate, of $5,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) or more or shall
have exercised any right under applicable law or applicable security
documents to take ownership of any such assets in lieu of foreclosure; or
(vii) one or more judgments, orders or decrees for the payment of money
in the amount of $5,000,000 (or, to the extent non-U.S. dollar denominated,
the U.S. Dollar Equivalent thereof) or more, either individually or in the
aggregate, shall be entered against the Issuer or any Restricted Subsidiary
or any of their respective properties and shall not be discharged and there
shall have been a period of 60 days or more during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency, reorganization or
administration with respect to the Issuer or any Restricted Subsidiary
shall have occurred; or
(ix) on or before the tenth day following the termination, satisfaction
or release of the Australis Guarantee, failure of (x) UIH AML to distribute
all of its assets to the Issuer, or (y) the Issuer to designate UIH AML as
a Restricted Subsidiary in accordance with the terms of the Indenture.
If an Event of Default (other than an Event of Default specified in clause
(viii) above with respect to the Issuer) occurs and is continuing, then the
Trustee or the holders of at least 25% in principal amount at maturity of the
outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable
and upon any such declaration such amounts shall become immediately due and
payable. If an Event of Default specified in clause (viii) above with respect
to the Issuer occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default, other than nonpayment of the Default Amount of, and any accrued and
unpaid interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under the Indenture, except a default in the payment of
the Default Amount of, or any interest on, any outstanding Note, or in respect
of a covenant or a provision that cannot be modified or amended without the
consent of all holders of Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 30 days after receipt of such notice and the Trustee has not
within such 30-day period received directions inconsistent with such written
request by holders of a majority in principal amount at maturity of the
outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
Default Amount of, or any accrued and unpaid interest on, such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders shall have offered to such Trustee reasonable
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security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in principal amount at maturity of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust, or power conferred on the Trustee.
The Indenture provides that the Trustee will, within 30 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
provided that, except in the case of a Default in payment of principal of or
interest on any Note, the Trustee shall be protected in withholding such
notice if it determines in good faith that the withholding of such notice is
in the interest of such holders.
The Issuer is required to furnish to the Trustee annually a statement as to
compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Issuer may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes as required by the Indenture and to maintain agencies in
respect of Notes. the Issuer may at any time terminate its obligations under
certain covenants set forth in the Indenture, some of which are described
under "--Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default with respect to the Notes
("covenant defeasance"). To exercise either defeasance or covenant defeasance,
the Issuer must irrevocably deposit in trust, for the benefit of the holders
of the Notes, with the Trustee money (in United States dollars) or U.S.
government obligations (denominated in United States dollars), or a
combination thereof, in such amounts as will be sufficient to pay the
principal of, and premium, if any, and interest on the Notes to redemption or
maturity and comply with certain other conditions, including the delivery of a
legal opinion as to certain tax and other matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Notes) as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer or discharged from such trust) have been
delivered to the Trustee for cancellation; or (b)(i) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable by their terms or shall have been called for redemption and the Issuer
has irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation or redemption, for the principal amount, premium,
if any, and accrued interest to the date of such deposit; (ii) the Issuer has
paid all other sums payable by it under the Indenture; and (iii) the Issuer
has delivered irrevocable instructions to the Trustee to apply the deposited
money toward the payment of the Notes at maturity or on the redemption date,
as the case may be. In addition, the Issuer must deliver an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time the Issuer, when authorized by resolutions of its Board,
and the Trustee, without the consent of the holders of the Notes, may amend,
waive or supplement the Indenture, the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act
or making any change that does not adversely affect the rights of any holder.
Other amendments and modifications of the Indenture and the Notes may be made
by
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the Issuer and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount at maturity of the outstanding
Notes; provided that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (i) reduce
the principal amount at maturity of, extend the fixed maturity of, or alter
the redemption provisions of, the Notes or amend or modify the calculation of
the Accreted Value or the Default Amount so as to reduce the amount of the
Accreted Value or the Default Amount, (ii) change the currency in which any
Notes or any premium or the accrued interest thereon is payable, (iii) reduce
the percentage in principal amount at maturity outstanding of Notes who must
consent to an amendment, supplement or waiver or consent to take any action
under the Indenture or the Notes, (iv) impair the right to institute suit for
the enforcement of any payment on or with respect to the Notes, (v) waive a
default in payment with respect to the Notes, (vi) reduce the rate or extend
the time for payment of interest on the Notes, (vii) alter the obligation to
purchase the Notes in accordance with the Indenture following the occurrence
of a Change of Control or an Asset Sale or waive any default in the
performance thereof, or (viii) affect the ranking of the Notes in a manner
adverse to the holder of any Notes.
It is possible that an amendment or modification approved by a majority of
the holders as described above could have adverse tax consequences to the
holders.
REGARDING THE TRUSTEE
American Bank National Association will serve as Trustee under the
Indenture. The Indenture provides that, except during the continuance of an
Event of Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of Issuer, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided that if it acquires any conflicting interest (as
defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture will provide that the Indenture and the Notes will be governed
by and construed in accordance with laws of the State of New York without
giving effect to principles of conflicts of law.
REGISTRATION RIGHTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. Pursuant to the Registration Rights Agreement,
the Issuer agreed to file with the Commission the Registration Statement of
which this Prospectus is a part with respect to the Exchange Offer. If (i) the
Issuer is not permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted due to a change in applicable law or Commission policy
or (ii) any holder of Notes notifies the Issuer within a specified time period
that (a) due to a change in law or policy it is not entitled to participate in
the Exchange Offer, (b) due to a change in law or policy it may not resell the
New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this Prospectus is not appropriate or available
for such resales by such holder or (c) it is a broker-dealer and owns Notes
acquired directly from the Issuer or an affiliate of the Issuer, the Issuer
will file with the Commission the Shelf Registration Statement to cover
resales of the Transfer Restricted Notes (as defined below) by the holders
thereof. The Issuer will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Notes" means
each Note until (i) the date on which such Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
an Exchange Note, the date on which such Exchange Note is sold to a
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purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such Note is distributed to the
public pursuant to, or is eligible for sale to the public without volume or
manner of sale restrictions under Rule 144(k) promulgated under the Securities
Act (or any similar provision then in force, but not Rule 144A under the
Securities Act), (v) such Note shall have been otherwise transferred by the
holder thereof and a new Note, not bearing a legend restricting further
transfer, shall have been delivered by the Issuer and subsequent disposition
of such Note shall not require registration or qualification under the
Securities Act or any similar state law then in force or (vi) such Note ceases
to be outstanding.
Under existing Commission interpretations, the New Notes would, in general,
be freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act will be delivered upon resale by such broker-dealers in
connection with resales of the New Notes. The Issuer has agreed, for a period
of one year after consummation of the Exchange Offer, to make available a
prospectus meeting the requirements of the Securities Act to any such broker-
dealer for use in connection with any resale of any New Notes acquired in the
Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
The Registration Rights Agreement provides that unless the Exchange Offer
would not be permitted by applicable law or SEC policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to
, 1996, New Notes in exchange for all Old Notes tendered prior thereto in
the Exchange Offer and, if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the SEC as promptly as practicable after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the SEC on or
prior to , 1996. If the Company fails to consummate the Exchange Offer,
or any Shelf Registration Statement required to be filed pursuant to the
Registration Rights Agreement is not declared effective, on or prior to
, (each such event, a "Registration Default"), the Company will pay, as
liquidated damages, and not as a penalty, to each Holder, an additional amount
(the "Liquidated Damages") equal to (A) during the first 90-day period
beginning on, and including, the date of the Registration Default, an amount
equal to 0.5% per annum of the Accreted Value (as defined in the Indenture) of
Transfer Restricted Notes held by such Holder and (B) during each subsequent
90-day period immediately following the final day of the prior 90-day period,
a percentage of the Accreted Value of Transfer Restricted Notes held by such
Holder calculated at the rate per annum applicable in the immediately
preceding 90-day period plus 0.5%, provided that, the rate at which Liquidated
Damages are calculated shall not exceed 2.5% per annum, and, in all cases,
ending on, but excluding the date on which the Exchange Offer is consummated
or the date on which the applicable Registration Statement again becomes
effective, as the case may be.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"Accreted Value" means, as of any date of determination prior to May 15,
2001, the sum (rounded to the nearest whole dollar) of (a) $308.6 for each
$1,000 principal amount at maturity of Notes and (b) the portion of the excess
of the principal amount of Notes over $308.6 which shall have been accreted
thereon through such date, such amount to be so accreted on a daily basis at
the Interest Rate then in effect, compounded semi-annually on each May 15 and
November 15 from the date of issuance of the Notes through the date of
determination. It is understood that, in the event the Interest Rate increases
as provided in the proviso to the definition thereof, the principal amount of
the Notes will exceed $1,000 at some point prior to May 15, 2001 and that the
principal amount at maturity will exceed $1,000.
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"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Issuer are available multiplied by four. For
purposes of calculating "Consolidated Operating Cash Flow" for any fiscal
quarter for purposes of this definition, (i) any Subsidiary of the Issuer that
is a Restricted Subsidiary on the date of the transaction giving rise to the
need to calculate "Annualized Pro Forma Consolidated Operating Cash Flow" (the
"Transaction Date") shall be deemed to have been a Restricted Subsidiary at
all times during such fiscal quarter and (ii) any Subsidiary of the Issuer
that is not a Restricted Subsidiary on the Transaction Date shall be deemed
not to have been a Restricted Subsidiary at any time during such fiscal
quarter. In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated Operating Cash Flow" shall be calculated
after giving effect on a pro forma basis for the applicable fiscal quarter to,
without duplication, any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Issuer's or one of the Restricted Subsidiaries'
(including any person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
fiscal quarter to and including the Transaction Date (the "Reference Period"),
as if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Issuer or any
Restricted Subsidiary in any other person, or any acquisition or purchase of
Capital Stock of any other person by the Issuer or any Restricted Subsidiary,
in either case pursuant to which such person shall become a Restricted
Subsidiary or shall be merged with or into the Issuer or any Restricted
Subsidiary, or (ii) any acquisition by the Issuer or any Restricted Subsidiary
of the assets of any person which constitute substantially all of an operating
unit or line of business of such person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any person other than
the Issuer or a Restricted Subsidiary, in one transaction or a series of
related transactions, of (i) any Capital Stock of any Restricted Subsidiary
(whether through the sale of outstanding Capital Stock or the issuance of
additional Capital Stock), (ii) any transmission or broadcast license of the
Issuer or any Restricted Subsidiary pertaining to a Related Business (whether
by the sale of Capital Stock or otherwise), (iii) any assets of the Issuer or
any Restricted Subsidiary which constitute substantially all of an operating
unit or line of business of the Issuer and the Restricted Subsidiaries, (iv)
any other property or asset of the Issuer or any Restricted Subsidiary outside
of the ordinary course of business or (v) any direct or indirect interests of
the Issuer in XYZ Entertainment. For the purposes of this definition, the term
"Asset Sale" shall not include (i) any disposition of properties or assets of
the Issuer or one or more of the Restricted Subsidiaries that is governed
under "--Consolidation, Merger, Sale of Assets, Etc." above or (ii) sales of
property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Issuer or
any Restricted Subsidiary, as the case may be. For purposes of the covenant
"Disposition of Proceeds of Asset Sales," the term "Asset Sale" shall not
include (i) any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, either (x) involving assets with a Fair Market Value not in
excess of $250,000 (or, to the extent non-U.S. dollar denominated, the U.S.
Dollar Equivalent thereof) or (y) as part of a Capitalized Lease Obligation,
or (ii) any sale and leaseback of an
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asset within 180 days after the completion of construction or acquisition of
such asset; provided the lease constitutes a Capitalized Lease Obligation of
the Issuer or any Restricted Subsidiary.
"Australis Guarantee" means the guarantee by UIH AML of the obligations of
Australis Holdings Pty Limited under its bank facility pursuant to the
Guarantee Facility dated as of May 9, 1996, among Publishing and Broadcasting
Limited, Publishing and Broadcasting (Finance) Limited, Lenfest
Communications, Inc., Guinness Peat Group PLC, UIH AML and Toronto Dominion
Australia Limited, substantially as such Guarantee Facility is in effect on
the Issue Date.
"Australis Warrants" means the options to purchase Capital Stock of
Australis issued to UIH AML by Australis in connection with the making of the
Australis Guarantee.
"Average Life to Stated Maturity" means, with respect to any Indebtedness or
Preferred Stock, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal or other return of
capital (including, without limitation, any sinking fund requirements) of such
Indebtedness or Preferred Stock multiplied by (b) the amount of each such
principal or other payment by (ii) the sum of all such principal or other
payments.
"Board" means the Board of Directors of the Issuer.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Issuer, to have been duly adopted by its
respective Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) (including share appreciation rights) of,
such Person's capital stock or shares, whether outstanding on the Issue Date
or issued after the Issue Date, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or shares. "Capital
Stock" shall include any convertible notes or debentures or similar
instruments constituting a part of a person's consolidated shareholders'
equity in accordance with U.S. GAAP.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed, immovable or movable) that is
required to be classified and accounted for as a finance lease under U.S. GAAP
and, for the purpose of the Indenture, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with U.S. GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued or directly and fully guaranteed or insured by the
Commonwealth of Australia or the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
Commonwealth of Australia or the United States of America, as the case may be,
is pledged in support thereof or such Indebtedness constitutes a general
obligation of it); (ii) deposits, certificates of deposit or acceptances with
a maturity of 365 days or less of any institution which is a bank authorized
under the Banking Act 1959 to carry on banking business in Australia or any
financial institution that is a member of the Federal Reserve System, in each
case having combined capital and surplus and undivided profits (or any similar
capital concept) of not less than $250,000,000 or, to the extent non-U.S.
Dollar denominated, the U.S. Dollar Equivalent thereof; (iii) commercial paper
with a maturity of 365 days or less issued by a corporation (other than an
Affiliate of the Issuer) incorporated or organized under the laws of the
Commonwealth of Australia or any jurisdiction thereof or the United States or
any state thereof or the District of Columbia and rated at least "A-1" by S&P
or "P-1" by Moody's or their respective Australian affiliates; and (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the Commonwealth of
Australia or the United States Government or issued by any agency thereof and
backed by the full faith and
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credit of the Australian Federal Government or the United States Government,
respectively, in each case maturing within one year from the date of
acquisition.
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of the Issuer; or (b) the Issuer consolidates with, or merges with or
into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets (as determined
under applicable law) to any person, or any person consolidates with, or
merges with or into, the Issuer, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Issuer is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Issuer is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by the Issuer as a Restricted
Payment under the Indenture and (ii) no "person" or "group" (excluding
Permitted Holders) owns more than 50% of the total Voting Stock of the Issuer;
or (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of the Issuer (together with
any new directors whose election by the Board of the Issuer or whose
nomination for election by the stockholders of the Issuer was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason (other than by
action of the Permitted Holders) to constitute a majority of the Board of the
Issuer then in office; provided that to the extent that one or more regulatory
approvals are required for one or more of the events or circumstances
described above to become effective under applicable law, such events or
circumstances shall be deemed to have occurred at the time such approvals have
been obtained and become effective under applicable law. As what constitutes
"substantially all of its assets" has not been quantified under applicable
law, it may not be possible for the Trustee or a holder of the Notes to
readily determine if a sale by the Issuer of less than all of its assets
constitutes a "Change of Control" for purposes of the covenant described under
"Certain Covenants--Change of Control."
"Common Stock" means any Capital Stock other than Preferred Stock.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for corporation, local, foreign and other income taxes of the Issuer
and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Issuer and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with U.S. GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under any Currency Agreements
and Interest Rate Protection Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit, bills of exchange, promissory notes and bankers' acceptance
financing and (e) all accrued interest and (ii) all but the principal
component of Capitalized Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by such person during such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Net Income" means, with respect to any period, the
consolidated net income of the Issuer and the Restricted Subsidiaries for such
period, adjusted, to the extent included in calculating such net income, by
excluding, without duplication, (i) all extraordinary gains or losses (on an
after-tax basis) of such person (net of fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) except to the extent
dividended or otherwise distributed to the Issuer or any Restricted
Subsidiary, income of the Issuer and the Restricted Subsidiaries derived from
or in respect of all Investments in persons other than any Restricted
Subsidiary, (iii) the portion of net income (or loss) of such person allocable
to minority interests in unconsolidated persons for such period, except to the
extent actually received by the Issuer or any Restricted Subsidiary, (iv) net
income (or loss) of any other person combined with such person on a "pooling
of interests" basis attributable to any period prior to the date of
combination, (v) any gain or loss, net of taxes, realized by such person upon
the termination of any employee pension benefit plan during such period, (vi)
gains or losses
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in respect of any Asset Sales (on an after-tax basis and net of fees and
expenses relating to the transaction giving rise thereto) during such period
and (vii) the net income of any Restricted Subsidiary for such period to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary to the Issuer or any Restricted Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or constituent documents or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of the Issuer and the Restricted Subsidiaries for such
period (a) increased by (to the extent included in computing such Consolidated
Net Income) the sum of (i) the Consolidated Income Tax Expense of the Issuer
and the Restricted Subsidiaries for such period (other than taxes attributable
to extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Issuer and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with U.S. GAAP; (iv) amortization of the Issuer and the Restricted
Subsidiaries for such period, including, without limitation and without
duplication, amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with U.S. GAAP; and (v)
any other non-cash charges that were deducted in computing Consolidated Net
Income (excluding any non-cash charge which requires an accrual or reserve for
cash charges for any future period) of the Issuer and the Restricted
Subsidiaries for such period in accordance with U.S. GAAP and (b) decreased by
any non-cash gains that were included in computing Consolidated Net Income;
provided that the amounts described in clause (a) above with respect to any
Restricted Subsidiary shall be added to, and the amounts described in clause
(b) above with respect to any Restricted Subsidiary shall be deducted from
such Consolidated Net Income in computing Operating Consolidated Cash Flow
only to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income
of the Issuer and the Restricted Subsidiaries.
"consolidation" means, with respect to the Issuer, the consolidation of the
accounts of the Restricted Subsidiaries with those of the Issuer, all in
accordance with U.S. GAAP; provided that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary or Unrestricted
Affiliate with the accounts of the Issuer. The term "consolidated" has a
correlative meaning to the foregoing.
"Cumulative Consolidated Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow
realized during the period commencing on the Issue Date and ending on the last
day of the most recent fiscal quarter immediately preceding the date of
determination for which consolidated financial information of the Issuer is
available or, if such cumulative Consolidated Operating Cash Flow for such
period is negative, the negative amount by which cumulative Consolidated
Operating Cash Flow is less than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Default Amount" means (i) as of any date prior to May 15, 2001, the
Accreted Value of the Notes (plus any applicable premium thereon) as of such
date and (ii) as of any date on or after May 15, 2001, 100% of the principal
amount at maturity of the Notes (plus any applicable premium thereon).
"Designation" has the meaning set forth under the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates."
"Disinterested Director" means, with respect to any transaction or series of
transactions, a member of the Board of the Issuer other than a director who
has any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
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"Disqualified Stock" means, with respect to any person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, except to the extent exchangeable
at the option of such person subject to the terms of any debt instrument to
which such person is a party), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is exchangeable for Indebtedness, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes.
"Equity Sale" means the sale or sales by the Issuer subsequent to the Issue
Date of its Capital Stock (other than Disqualified Capital Stock) for
aggregate gross cash proceeds of at least $70 million.
"Exercise Price" means the number of dollars equal to (x) 4,500,000 divided
by (y) the number of Warrants of the Company or Warrants of Parent as the case
may be, issued as described in "--Certain Covenants--Issuance of Contingent
Warrants."
"Existing Business" means, with respect to any Restricted Subsidiary, (i)
the MMDS, cable television, satellite direct to home or telecommunications
business, as the case may be, of such Restricted Subsidiary existing on the
Issue Date and (ii) any MMDS, cable television, satellite direct to home or
telecommunications business constituting a Replacement Asset received by a
Restricted Subsidiary in consideration for a MMDS, cable television, satellite
direct to home or telecommunications business of such Restricted Subsidiary
constituting a portion of the Existing Business of such Restricted Subsidiary.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the Board acting in
good faith and shall be evidenced by a Board Resolution of the Issuer
delivered to the Trustee; provided that, for purposes of the third paragraph
of the covenant "Disposition of Proceeds of Asset Sales" and the covenant
"Limitation on Transactions with Affiliates," in the case of any transaction
or series of related transactions which involve aggregate consideration of
$10,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) or more, Fair Market Value shall also be determined by an
Independent Financial Advisor.
"Final Maturity Date" means May 15, 2006.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means, with respect to any person, without duplication, (i)
any liability, contingent or otherwise, of such person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), whether as a cash advance, bill,
overdraft or money market facility loan or (B) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or by any book-entry mechanism or (C) for the payment of money
relating to a Capitalized Lease Obligation or other obligation relating to the
deferred purchase price of property, to the extent, in each of clauses (A),
(B) and (C), such liability would appear on a balance sheet of such person
prepared in accordance with U.S. GAAP or (D) in respect of an Interest Rate
Protection Obligation or any foreign exchange contract, currency swap
agreement or other similar agreement; (ii) any liability of others of the kind
described in the preceding clause (i) which the person has guaranteed or which
is otherwise its legal liability; (iii) any obligation secured by a Lien
(other than a Lien on Indebtedness or Capital Stock of an Unrestricted
Subsidiary or Unrestricted Affiliate which represents the sole recourse of the
secured party for any default in respect of the secured obligation) to which
the property or assets of such person are subject, whether or not the
obligations
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secured thereby shall have been assumed by or shall otherwise be such person's
legal liability; (iv) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (i), (ii) or (iii); and
(v) the maximum repurchase or redemption price of any Disqualified Stock. In
no event shall "Indebtedness" include trade payables incurred in the ordinary
course of business or convertible debentures or similar instruments of any
Restricted Subsidiary of the Issuer constituting Capital Stock (other than
Disqualified Stock); provided, however, that such convertible debentures or
similar instruments, (x) provide that payments thereon are subordinated in
right of payment to all liabilities of such Restricted Subsidiary, (y) provide
that upon a winding-up or liquidation of such Restricted Subsidiary such
convertible debentures or similar instruments shall only entitle the holder
thereof to a pro rata portion of the distributions available to holders of
Common Stock of such Restricted Subsidiary upon such liquidation or winding-up
and (z) provide that interest thereon shall only be paid if a distribution is
made to holders of the Common Stock of such Restricted Subsidiary and such
interest shall be in an amount that the holder of such convertible debentures
or similar instruments would have received if all of the convertible
debentures or similar instruments of such Restricted Subsidiary had been
converted into shares of Common Stock of such Restricted Subsidiary in
accordance with the terms thereof. For purposes of the covenant "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries," in
determining the principal amount of any Indebtedness (1) to be incurred by the
Issuer or a Restricted Subsidiary or which is outstanding at any date, (x) the
principal amount of any Indebtedness which provides that an amount less than
the principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination and (y) effect shall be given to the impact of any Currency
Agreements with respect to such Indebtedness and (2) outstanding at any time
under any Currency Agreement of the Issuer or any Restricted Subsidiary shall
be the net payment obligation under such Currency Agreement at such time.
"Independent Financial Advisor" means a United States investment or merchant
banking firm or public accounting firm of national standing in the United
States (i) which does not, and whose directors and executive officers and
Affiliates do not, have an investment in the Issuer or any of its Affiliates
and (ii) which, in the judgment of the Board of the Issuer is otherwise
independent with respect to the Issuer and its Affiliates and qualified to
perform the task for which it is to be engaged. A trustee or nominee for the
true parties in interest shall not be excluded from the definition of
"Independent Financial Advisor" solely as a result of such trustee or nominee
status.
"Interest Rate" means, at any time, 14% per annum; provided, that if an
Equity Sale has not been consummated on or prior to May 15, 1997, then from
(and including) such date through (but excluding) the date of the consummation
of an Equity Sale, the "Interest Rate" shall be increased by .75% per annum.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Investment" means, with respect to any person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by
means of any guarantee) or any capital contribution to (by means of transfers
of property to others, payments for property or services for the account or
use of others, or otherwise), or any purchase of any shares, stocks, bonds,
notes, debentures or other securities of, any other person. In addition, any
foreign exchange contract, currency-swap agreement or other similar agreement
made or entered into by any person shall constitute an Investment by such
person.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
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property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all Taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Issuer or any Restricted Subsidiary) owning a beneficial interest in or having
a Lien on the assets subject to the Asset Sale, (iv) other amounts required to
be treated as Net Cash Proceeds pursuant to the covenant "Disposition of
Proceeds of Asset Sales," and (v) appropriate amounts to be provided by the
Issuer or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with U.S. GAAP against any liabilities associated with such
Asset Sale and retained by the Issuer or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension,
superannuation and other post-employment benefit liabilities, liabilities
under any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate of the Issuer delivered to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Issuer which ranks
pari passu in right of payment with the Notes.
"Permitted Holders" means (i) any of United International Holdings, Inc.,
Apollo Cable Partners, L.P., Apollo Advisors, L.P., Albert M. Carollo,
Lawrence J. DeGeorge, Amphenol Corporation (so long as it is controlled by
Lawrence J. DeGeorge), LPL Technologies, Inc. (so long as it is controlled by
Lawrence J. DeGeorge), William J. Elsner, Lawrence Flinn, Jr., L. Flinn Jr.
Family Partnership-I (so long as it is controlled by Lawrence Flinn, Jr.),
Joseph E. Giovanini, Clarice J. Giovanini, Giovanini Investments, Ltd. (so
long as it is controlled by Joseph E. or Clarice J. Giovanini), Curtis
Rochelle, Marian Rochelle, Rochelle Investments, Ltd. (so long as it is
controlled by Curtis or Marian Rochelle), Gene W. Schneider, G. Schneider
Holdings, Co. (so long as it is controlled by Gene W. Schneider), Janet S.
Schneider and Mark L. Schneider and (ii) any Affiliate of the foregoing.
"Permitted Indebtedness and Preferred Stock" means the Indebtedness set
forth in the following clauses (each of which shall be given independent
effect):
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness of the Issuer and/or of any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness of any Restricted Subsidiary to the extent the proceeds
of such Indebtedness are utilized to finance the construction of the
networks for the Existing Business of such Restricted Subsidiary (including
the purchase of equipment for use in and the installation and construction
costs related to the construction of such networks), in the licensed
service areas of such Restricted Subsidiary existing on the Issue Date or
to support the operations or working capital requirements related to any
such Existing Business; provided that the aggregate principal amount of
Indebtedness incurred after the Issue Date pursuant to this clause (c) and
clause (d) below shall not exceed the sum of (x) $85,000,000 plus (y) 200%
of the sum of (A) cash proceeds of capital contributions to the Issuer
after the Issue Date invested in such Existing Business and (B) cash
proceeds of the issuance of Capital Stock (other than Disqualified Capital
Stock) of Issuer after the Issue Date invested in such Existing Business;
(d) Indebtedness of the Issuer to the extent the proceeds of such
Indebtedness are utilized to finance the construction of the networks for
the Existing Business of a Restricted Subsidiary (including the purchase of
equipment for use in and the installation and construction costs related to
the construction of such networks) in the licensed service areas of such
Restricted Subsidiary existing on the Issue Date or to support the
operations or working capital requirements related to any such Existing
Business; provided, however, that any such Indebtedness (i) shall not
provide for any required payment of principal prior to the Final
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Maturity Date, (ii) shall not provide for any required payment of interest
prior to May 15, 2001 and (iii) shall not be guaranteed by any Restricted
Subsidiary; provided that the aggregate principal amount of Indebtedness
incurred after the Issue Date pursuant to this clause (d) and clause (c)
above shall not exceed the sum of (x) $85,000,000 plus (y) 200% of the sum
of (A) cash proceeds of capital contributions to the Issuer after the Issue
Date invested in such Existing Business and (B) cash proceeds of the
issuance of Capital Stock (other than Disqualified Capital Stock) of Issuer
after the Issue Date invested in such Existing Business;
(e) Indebtedness of the Issuer the proceeds of which are utilized to
finance an Asset Acquisition of a Related Business and Indebtedness of the
Restricted Subsidiary acquired in such Asset Acquisition or which acquired
such Related Business pursuant to such Asset Acquisition the proceeds of
which are utilized to finance the construction of the networks for the
Related Business acquired in such Asset Acquisition (including the purchase
of equipment for use in and the installation and construction costs related
to the construction of such networks) in the licensed service areas of such
Related Business or to support the working capital requirements relating to
any such Related Business; provided, however, that in no event will the
aggregate principal amount of Indebtedness incurred by the Issuer or any
Restricted Subsidiary with respect to any Asset Acquisition of a Related
Business exceed 125% of the sum of (x) cash proceeds of capital
contributions to the Issuer invested in such Related Business and (y) cash
proceeds of issuances of Capital Stock (other than Disqualified Capital
Stock) of the Issuer invested in such Related Business.
(f)(i) Indebtedness or Preferred Stock of any Restricted Subsidiary owed
or issued to and held by the Issuer or a Restricted Subsidiary and (ii)
Indebtedness of the Issuer owed to and held by any Restricted Subsidiary;
provided that a new incurrence of Indebtedness or issuance of Preferred
Stock shall be deemed to have occurred upon (x) any sale or other
disposition of any Indebtedness of the Issuer or a Restricted Subsidiary
referred to in this clause (f) to any person other than the Issuer or a
Restricted Subsidiary, (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary, or Designation of a Restricted Subsidiary as an
Unrestricted Subsidiary or Unrestricted Affiliate, which holds Indebtedness
of the Issuer or Indebtedness or Preferred Stock of another Restricted
Subsidiary such that such Restricted Subsidiary, in any such case, ceases
to be a Restricted Subsidiary or (z) any Restricted Affiliate which holds
Indebtedness of the Issuer or Indebtedness or Preferred Stock of another
Restricted Subsidiary ceases, for any reason, to constitute a Restricted
Affiliate;
(g) Interest Rate Protection Obligations of the Issuer and/or any
Restricted Subsidiary relating to (i) Indebtedness of the Issuer or any
Restricted Subsidiary (which Indebtedness (x) bears interest at fluctuating
interest rates and (y) is otherwise permitted to be incurred under the
"Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant) and/or (ii) Indebtedness for which a lender has
provided a commitment in an amount reasonably anticipated to be incurred by
the Issuer or a Restricted Subsidiary in the following 90 days after such
Interest Rate Protection Obligation has been incurred, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness
(and/or Indebtedness subject to commitments) to which such Interest Rate
Protection Obligations relate; provided in no event shall any Restricted
Subsidiary incur Indebtedness under an Interest Rate Protection Obligation
under this clause (g) relating to Indebtedness of the Issuer;
(h) Indebtedness of the Issuer and/or any Restricted Subsidiary under
Currency Agreements relating to (i) Indebtedness of the Issuer or a
Restricted Subsidiary and/or (ii) obligations to purchase or sell assets,
properties or services or license programming rights, in each case,
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary; provided that such Currency Agreements do not increase the
Indebtedness or other obligations of the Issuer and the Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder; provided, further, in no event shall any Restricted
Subsidiary incur Indebtedness under any Currency Agreement under this
clause (h) relating to Indebtedness or obligations of the Issuer;
(i) Indebtedness of the Issuer and/or any Restricted Subsidiary in
respect of performance bonds of the Issuer or any Restricted Subsidiary or
surety bonds provided by the Issuer or any Restricted Subsidiary
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incurred in the ordinary course of business in connection with the
construction or operation of a Related Business (other than with respect to
the production or acquisition of programming);
(j) issuances of Preferred Stock or Indebtedness by a Restricted
Subsidiary (which Indebtedness constitutes Capital Stock of such Restricted
Subsidiary) to the holders (or, other than in the case of the Issuer or any
Restricted Subsidiary that is a holder, the Affiliates) of the common
equity of such Restricted Subsidiary (determined on an economic basis) on a
basis that is substantially proportionate to their common equity interests
to the equivalent thereof (disregarding for this purpose any
disproportionately greater interest issued to the Issuer or any Restricted
Subsidiary); provided, however, that such Indebtedness, (x) provides that
payments thereon are subordinated in right of payment to all liabilities of
such Restricted Subsidiary, (y) provides that upon a winding up or
liquidation of such Restricted Subsidiary such Indebtedness shall only
entitle the holder thereof to a pro rata portion of the distributions
available to holders of Common Stock of such Restricted Subsidiary upon
such liquidation or winding-up and (z) provides that interest thereon shall
only be paid if a distribution is made to holders of the Common Stock of
such Restricted Subsidiary and such interest shall be in an amount that the
holder of such Indebtedness would have received if all of the Indebtedness
of such Restricted Subsidiary issued pursuant to this clause (j) had been
converted into shares of Common Stock of such Restricted Subsidiary in
accordance with the terms thereof;
(k) Indebtedness of the Issuer and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Issuer or any Restricted Subsidiary
incurred pursuant to the proviso of the covenant "Limitation on Additional
Indebtedness and Preferred Stock of Restricted Subsidiaries" or clause (a),
(b) (other than Indebtedness which is to be repaid from the net proceeds
from the sale of the Notes as described under "Use of Proceeds") or (c),
(d) or (e) of this definition; provided that (i) Indebtedness of the Issuer
may not be replaced, renewed, refinanced or extended under this clause (k)
with Indebtedness of any Restricted Subsidiary and Indebtedness of a
Restricted Subsidiary may not be replaced, renewed, refinanced or extended
under this clause (k) with Indebtedness of any other Restricted Subsidiary
and (ii) any such replacement, renewal, refinancing or extension (x) shall
not, in the case of Indebtedness of the Issuer, provide for any payments of
principal prior to the Final Maturity Date and (y) shall not exceed the sum
of the principal amount (or, if such Indebtedness provides for a lesser
amount to be due and payable upon a declaration of acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing or
extension and such reasonable fees and expenses incurred in connection
therewith; and
(l) Indebtedness of the Issuer and the Restricted Subsidiaries in
addition to that described in clauses (a) through (k) above so long as the
aggregate principal amount of all such Indebtedness incurred pursuant to
this clause (l) does not exceed $25,000,000 at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Interest Rate Protection Obligations and Currency Agreements; (d) bonds,
notes, debentures or other securities received as a result of Asset Sales
permitted under the covenant "Disposition of Proceeds of Asset Sales"; (e) any
Investment in another person in exchange for Capital Stock (other than
Disqualified Stock) of the Issuer; (f) loans and advances to employees of the
Issuer or any of the Restricted Subsidiaries in the ordinary course of
business in an aggregate amount not to exceed $1,000,000 (or, to the extent
non-U.S. dollar denominated, the U.S. Dollar Equivalent thereof) at any time
outstanding; (g) any Investment in Capital Stock or obligations of any person
made in settlement of claims by the Issuer or any Restricted Subsidiary
against such person; and (h) any investments in (i) the Australis Warrants or
any securities of Australis received by UIH AML or the Issuer upon exercise of
the Australis Warrants for aggregate consideration not exceeding the aggregate
exercise price of the Australis Warrants as in effect on the Issue Date, and
(ii) securities of Australis received by UIH AML upon the refinancing or
conversion of the Australis Guarantee in accordance with the terms thereof.
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"Permitted Liens" means (a) Liens on assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary, which indebtedness is
incurred pursuant to clause (c), (e), (k) or (l) of the definition of
"Permitted Indebtedness and Preferred Stock"; (b) Liens in favor of the Issuer
or a Restricted Subsidiary; (c) Liens on property of a person existing at the
time such person is merged into or consolidated with the Issuer or any
Restricted Subsidiary; provided that such Liens were in existence prior to the
contemplation by the Issuer of such merger or consolidation and do not extend
to any assets other than those of the person merged into or consolidated with
the Issuer; (d) Liens on property existing at the time of acquisition thereof
by the Issuer or any Restricted Subsidiary provided that such Liens were in
existence prior to the contemplation by the Issuer of such acquisition; (e)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (f) Liens existing on the Issue Date; (g) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
U.S. GAAP shall have been made therefor; and (h) Liens incurred in the
ordinary course of business of the Issuer or any Restricted Subsidiary with
respect to obligations that do not exceed $2,000,000 at any one time
outstanding and that (A) are not incurred in connection with the borrowing of
money or the obtaining of advances of credit (other than trade credit in the
ordinary course of business) and (B) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by the Issuer or such Restricted Subsidiary.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock or shares whether now outstanding, or
issued after the Issue Date.
"Pro Rata Share" means a fraction, (i) the numerator of which is the
Accreted Value of Notes outstanding on the applicable purchase date and (ii)
the denominator of which is the sum of (x) the aggregate Accreted Value or of
Notes outstanding on such date and (y) if there is Pari Passu Indebtedness
which require that Net Cash Proceeds be used to offer to purchase such Pari
Passu Indebtedness, the outstanding principal amount of such Pari Passu
Indebtedness on such date.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Issuer (or any person of
which the Issuer is a direct subsidiary) which has been registered under the
Securities Act.
"Purchase Money Financing" means Indebtedness of the Issuer or any
Restricted Subsidiary incurred to finance the purchase (other than pursuant to
an Asset Acquisition) of any assets by Issuer (or incurred within 60 days
after such purchase and secured by the assets so purchased) or any Restricted
Subsidiary that will be used in a Related Business to the extent the purchase
cost for such assets is or should be included in "additions to property, plant
and equipment" in accordance with U.S. GAAP.
"Related Business" means any business in which the Issuer or its Restricted
Subsidiaries are engaged, directly or indirectly, (i) that consists primarily
of, or is related to, operating, acquiring, developing and constructing multi-
channel television systems, programming services, wire-based or "wireless"
telephony services and related services, (ii) that uses existing or future
technology for the transmission and delivery of programming, voice or other
data or (iii) that supports or is incidental to any business listed in clause
(i) or (ii).
"Restricted Affiliate" means, with respect to the Issuer, any other person
(i) of which at least 40% of the outstanding Voting Stock shall at the time be
owned, directly or indirectly, by the Issuer, and (ii) which has been
designated in a Board Resolution as a Restricted Affiliate based on a
determination by the Board that the Issuer has, directly or indirectly, the
requisite control over such other person to prevent it from taking any action
at any time in contravention of any of the provisions of the Indenture that
are applicable to Restricted Subsidiaries. The Issuer will be required to
deliver an Officers' Certificate to the Trustee, including a copy of the Board
Resolution, upon designating any person as a Restricted Affiliate.
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"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Issuer or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Issuer (other than dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Issuer or in options, warrants or other rights to purchase Capital
Stock (other than Disqualified Stock) of the Issuer); (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of the Issuer (other than any such Capital Stock owned by the Issuer or a
Restricted Subsidiary); (iii) the making of any principal payment on, or the
purchase, redemption, defeasance or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness (other than any Subordinated
Indebtedness held by a Restricted Subsidiary); or (iv) the making of any
Investment (other than a Permitted Investment) in any person (other than an
Investment by a Restricted Subsidiary in the Issuer or an Investment by the
Issuer or a Restricted Subsidiary in either (x) a Restricted Subsidiary other
than Saturn or United Wireless or (y) a person that becomes a Restricted
Subsidiary as a result of such Investment).
"Restricted Subsidiary" means (i) any Subsidiary of the Issuer that has not
been designated by the Board of the Issuer, by a Board Resolution delivered to
the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
the covenant "Limitation on Unrestricted Subsidiaries and Unrestricted
Affiliates," and (ii) any Restricted Affiliate.
"Revocation" has the meaning set forth under the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates."
"Senior Bank Financing" means (i) any one or more agreements evidencing one
or more senior credit facilities providing for (A) the issuance of letters of
credit on behalf of the Issuer and/or any Restricted Subsidiary, (B) term
loans (including term loans provided by way of bankers' acceptances, bills of
exchange or endorsements) to the Issuer and/or any Restricted Subsidiary, (C)
revolving loans to the Issuer and/or any Restricted Subsidiary, (D) Currency
Agreements and/or (E) Interest Rate Protection Obligations and (ii) any
agreement evidencing the refinancing, modification, replacement, renewal,
restatement, deferral, extension, substitution, supplement or reissuance
thereof.
"Specified Indebtedness" means any Indebtedness of any Restricted Subsidiary
which is not expressly subordinated to any other Indebtedness of such
Restricted Subsidiary.
"Strategic Equity Investor" means any company which is, or a controlled
Affiliate of any company which is, engaged principally in a cable or
telecommunications business; provided, however, that Strategic Equity Investor
shall not include (x) any Subsidiary of the Issuer, (y) any Permitted Holder
or (z) any Person that is an Affiliate of the Issuer.
"Subordinated Indebtedness" means any Indebtedness of the Issuer which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Voting Stock having at least a majority of the votes entitled
to be cast in the election of directors shall at the time be owned, directly
or indirectly, by such person, or (ii) any other person of which at least a
majority of Voting Stock or Common Stock is at the time, directly or
indirectly, owned by such person.
"Total Consolidated Indebtedness and Subsidiary Preferred Stock" means, at
any date of determination, an amount equal to the aggregate principal amount
of (i) all Indebtedness of the Issuer and the Restricted Subsidiaries
outstanding as of the date of determination and (ii) the aggregate liquidation
preference of all Preferred Stock of Restricted Subsidiaries issued and
outstanding as of the date of determination (other than Indebtedness owing to
and Preferred Stock issued to and held by the Issuer or a Restricted
Subsidiary).
"UIH AML" means UIH AML, Inc., a Colorado corporation that immediately prior
to the Issue Date is a wholly owned, indirect subsidiary of United
International Holdings, Inc.
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"Unrestricted Affiliate" means any controlled Affiliate of the Issuer other
than a Restricted Affiliate.
"Unrestricted Subsidiary" means any Subsidiary of the Issuer designated as
such pursuant to and in compliance with the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates." Any such designation
may be revoked by a Board Resolution of the Issuer delivered to the Trustee,
subject to the provisions of such covenant. The Subsidiaries of the Issuer
that hold the Issuer's interests in Saturn and United Wireless, as well as UIH
AML, shall initially be Unrestricted Subsidiaries under the Indenture. The
Issuer's interest in XYZ Entertainment will be transferred to a Subsidiary to
be designated as an Unrestricted Subsidiary after such transfer.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the U.S. dollar, at any time for the determination
thereof, the amount of U.S. dollars obtained by converting such foreign
currency involved in such computation into U.S. dollars at the spot rate for
the purchase of U.S. dollars with the applicable foreign currency as quoted by
Reuters at approximately 11:00 a.m. (New York time) on the date not more than
two business days prior to such determination. For purposes of determining
whether any Indebtedness can be incurred (including Permitted Indebtedness),
any Investment can be made and any Affiliate Transaction can be undertaken (a
"Tested Transaction"), the "U.S. Dollar Equivalent" of such Indebtedness,
Investment or Affiliate Transaction shall be determined on the date incurred,
made or undertaken and no subsequent change in the U.S. Dollar Equivalent
shall cause such Tested Transaction to have been incurred, made or undertaken
in violation of the Indenture.
"U.S. GAAP" means generally accepted accounting principles and practices in
the United States consistently applied by a corporation or as between
corporations and over time, as in effect from time to time; provided that, for
purposes of determining compliance with the covenants "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries" and
"Limitation on Restricted Payments," U.S. GAAP shall mean such generally
accepted accounting principles and practices as adopted by the Issuer on the
Issue Date and as are consistent with those set forth in this Offering
Memorandum.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer or another
Wholly Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of an
Unrestricted Subsidiary.
"Wholly Owned Unrestricted Subsidiary" means any Unrestricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer, a Wholly
Owned Restricted Subsidiary or another Wholly Owned Unrestricted Subsidiary.
For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of an Unrestricted Subsidiary.
"XYZ Distribution Amount" means, with respect to an Asset Sale of the direct
or indirect interest of the Issuer in XYZ Entertainment, the Net Cash Proceeds
of which have been distributed to the Issuer, the sum of (i) with respect to
the first $70,000,000 of such Net Cash Proceeds 100% of the amount by which
the aggregate amount of such Net Cash Proceeds exceeds $35,000,000 and (ii)
75% of the amount by which the aggregate amount of such Net Cash Proceeds
exceeds $70,000,000.
"XYZ Entertainment" means (i) XYZ Entertainment Limited and (ii) any
Replacement Asset received in consideration for the Issuer's direct or
indirect interest in XYZ Entertainment Limited upon an Asset Sale of such
interest and (iii) any Replacement Asset received in consideration of any
Replacement Asset described in the preceding clause (ii) or this clause (iii)
upon an Asset Sale of such Replacement Asset.
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DESCRIPTION OF THE WARRANTS
The Warrants, if any, are to be issued under a Warrant Agreement (the
"Warrant Agreement") between the Issuer and American Bank National
Association, as Warrant Agent (the "Warrant Agent"). The following summaries
of certain provisions of the Warrant Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Warrants and the Warrant Agreement, including the
definitions therein of certain terms. Copies of the proposed form of Warrant
Agreement will be available to prospective purchasers of the Notes upon
request to the Issuer.
Each Warrant will entitle the registered holder thereof (the "holder"),
subject to and upon compliance with the provisions thereof and of the Warrant
Agreement, at such holder's option, prior to 5:00 p.m., Eastern time, on May
15, 2006, to purchase from the Issuer one share (or such other number as may
result from adjustments as provided in the Warrant Agreement) of Common Stock
at a purchase price per share (the "Exercise Price") equal to the fair market
value thereof. Such fair market value shall be determined assuming that the
aggregate fair market value of the Issuer's equity is $150.0 million.
The Warrants may be exercised by surrendering to the Issuer of the warrant
certificates evidencing the Warrants to be exercised with the accompanying
form of election to purchase properly completed and executed, together with
payment of the Exercise Price. Payment of the Exercise Price may be made (i)
in the form of cash or by certified or official bank check payable to the
order of the issuer or (ii) by tendering Notes having an Accreted Value at the
time of tender equal to the Exercise Price or (iii) by tendering Warrants
having a fair market value equal to the Exercise Price or (iv) any combination
of cash, Notes or Warrants. Upon surrender of the Warrant certificate and
payment of the Exercise Price, the issuer will deliver or cause to be
delivered, to or upon the written order of such holder, stock certificates
representing the number of whole shares of Common Stock to which such holder
is entitled. If less than all of the Warrants evidenced by a warrant
certificate are to be exercised, a new warrant certificate will be issued for
the remaining number of Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The Issuer will pay to the holder of each Warrant at the time of
exercise an amount in cash equal to the current market value of any such
fractional share of Common Stock less a corresponding fraction of the Exercise
Price.
The holders of the Warrants will have no right to vote on matters submitted
to the stockholders of the Issuer and will have no right to receive dividends.
The holders of the Warrants will not be entitled to share in the assets of the
Issuer in the event of liquidation, dissolution or the winding up of the
Issuer. In the event a bankruptcy or reorganization is commenced by or against
the Issuer, a bankruptcy court may hold that unexercised Warrants are
executory contracts which may be subject to rejection by the Issuer with
approval of the bankruptcy court, and the holders of the Warrants may, even if
sufficient funds are available, receive nothing or a lesser amount as a result
of any such bankruptcy case than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such case.
The certificates evidencing the Warrants may be surrendered for exercise or
exchange, and the transfer of Warrant certificates will be registrable, at the
office or agency of the Issuer maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent. The Warrant
certificates will be issued only in fully registered form in denominations of
whole numbers of Warrants. No service charge will be made for any exercise,
exchange or registration of transfer of Warrant certificates, but the Issuer
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The number of shares of Common Stock purchasable upon exercise of Warrants
and the Exercise Price will be subject to adjustment in certain events
including: (i) the payment by the Issuer of dividends (and other
distributions) on its common stock in common stock, (ii) subdivisions,
combinations and reclassifications of the Common Stock, (iii) the issuance to
all holders of Common Stock of rights, options or warrants entitling them to
subscribe for common stock or securities convertible into, or exchangeable or
exercisable for, Common Stock within sixty (60) days after the record date for
such issuance of rights, options or warrants at an offering price (or with an
initial conversion, exchange or exercise price) which is less than the current
market price per share
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(as defined) of Common Stock, (iv) the distribution to all holders of Common
Stock of any of the Issuer's assets (including cash), debt securities,
preferred stock or any rights or warrants to purchase any such securities
(excluding those rights and warrants referred to in clause (iii) above), (v)
the issuance of shares of Common Stock for a consideration per share less than
the then current market price per share of Common Stock (excluding securities
issued in transactions referred to in clauses (i) through (iv) above), (vi)
the issuance of securities convertible into or exchangeable for Common Stock
for a conversion or exchange price plus consideration received upon issuance
less than the then current market price per share of Common Stock (excluding
securities issued in transactions referred to in clauses (iii) or (iv) above)
and (vii) certain other events that could have the effect of depriving holders
of the Warrants of the benefit of all or a portion of the purchase rights
evidenced by the Warrants. The events described in clauses (v) and (vi) above
are subject to certain exemptions described in the Warrant Agreement
including, without limitation, (A) bona fide public offerings, (B) bona fide
private placements to persons that are not Affiliates of the Issuer and (C)
Common Stock (and options exercisable therefor) issued to the Issuer's
employees, consultants and directors under bona fide benefit plans in an
aggregate amount since the date of the Warrant Agreement not to exceed 10% of
the Common Stock outstanding at the time of issuance.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; provided, however, that any adjustment that is not made will
be carried forward and taken into account in any subsequent adjustment. In
addition, the Issuer may at any time reduce the Exercise Price to any amount
(but not less than the par value of the Common Stock) for any period of time
(but not less than twenty (20) business days) deemed appropriate by the Board
of Directors of the Issuer.
If the Issuer is a party to a consolidation, merger or binding share
exchange, or certain transfers of all or substantially all of its assets
occur, the right to exercise a Warrant for Common Stock may be changed into a
right to receive the same securities, cash or other assets of the Issuer or
another person that a holder of Common Stock is entitled to receive upon such
consolidation, merger, share exchange or transfer (which securities, cash or
other assets may not necessarily be of equal value to the Common Stock).
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain U.S. Income Tax Considerations."
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Issuer and
the rights of the holders of Warrants under the Warrant Agreement at any time
by the Issuer and the Warrant Agent with the consent of the holders of a
majority of the then outstanding Warrants.
At the Issuer's option, the obligation of the Issuer to enter into the
Warrant Agreement and to issue Warrants to the holders of the Notes if the
Issuer does not consummate an Equity Sale on or prior to November 15, 1997 may
be satisfied by the issuance of Warrants to purchase Common Stock by the
immediate Parent corporation of the Issuer on comparable terms. In the event
of such issuance by Parent, the Issuer shall be a wholly-owned subsidiary of
the Parent and Parent shall have no other material assets or liabilities. See
"Description of Capital Stock."
REGISTRATION RIGHTS
Subject to applicable federal and state securities laws, the Issuer has
agreed to file the Warrant Shelf Registration Statement under the Securities
Act covering the Warrant Shares and, if required under applicable law, the
Warrants and to use its best efforts to cause the Warrant Shelf Registration
Statement to be declared effective by the Commission on or prior to the date
of issuance of the Warrants (the "Warrant Issue Date").
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The Issuer will be required to pay liquidated damages to the holders of
Warrants under certain circumstances if such registration requirements are not
satisfied on or before the required filing date therefor.
The Issuer will keep the Warrant Shelf Registration Statement with respect
to the Warrant Shares as described in the immediately preceding paragraph
effective through such date as Warrant Shares may be issued thereunder.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein and any Warrants will initially be issued in the form of one or
more global securities (the "Global Securities"). The Global Securities will
be deposited on the date of original issuance thereof with, or on behalf of,
The Depository Trust Company (the "Depositary") and registered in the name of
Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Security Holder").
Securities that were: (i) originally issued to or transferred to
"institutional accredited investors" who are not "qualified institutional
buyers" (as such terms are defined under "Notice to Investors" herein) (the
"Non-Global Purchasers") or (ii) issued as described below under "--
Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer to a qualified
institutional buyer of Certificated Securities initially issued to a Non-
Global Purchaser, such Certificated Securities may, unless such Global
Security has previously been exchanged for Certificated Securities, be
exchanged for an interest in the applicable Global Security representing the
number or principal amount, as applicable, of the applicable Securities being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuer expects that pursuant to procedures established by the Depositary
(i) upon deposit of a Global Security, the Depositary will credit the accounts
of Participants designated by the Initial Purchaser with portions of the
Global Security and (ii) ownership of the Securities evidenced by the Global
Security will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect to
the interests of the Depositary's Participants), the Depositary's Participants
and the Depositary's Indirect Participants. Prospective purchasers are advised
that the laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer Securities evidenced by the Global Securities will be
limited to such extent. For certain other restrictions on the transferability
of the Securities, see "Notice to Investors."
So long as the Global Security Holder is the registered owner of any
Securities, the Global Security Holder will be considered the sole owner of
the Securities represented by such Global Security. Beneficial owners of
Securities evidenced by the Global Securities will not be considered the
owners or holders thereof under the Indenture or the Issuer's articles of
incorporation for any purpose, including with respect to the giving of any
directions, instructions or approvals to the applicable agent or trustee
thereunder. As a result, the ability of a person having a beneficial interest
in Securities represented by any Global Security to pledge such interest to
persons or entities that do not participate in the Depositary's system or to
otherwise take actions in respect of such interest may be affected by the lack
of a physical certificate evidencing such interest. Neither the Issuer, the
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Trustee nor the Warrant Agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
Securities by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Securities.
Payments in respect of the Notes registered in the name of the applicable
Global Security Holder on the applicable record date will be payable by the
Trustee to or at the direction of such Global Security Holder in its capacity
as the registered holder of such Notes. Under the terms of the Indenture and
the Warrant Agreement, the Issuer, the Trustee and the Warrant Agent may treat
the persons in whose names Securities, including the Global Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Issuer nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of the Global Note (including
principal, premium, interest and liquidated damages, if any).
The Issuer believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the Securities as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of the Global Securities will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Securities. Subject to certain conditions, any person having a
beneficial interest in any Global Security may, upon request to the Issuer or
the Trustee or Warrant Agent, as applicable, exchange such beneficial interest
for such Securities in the form of Certificated Securities. Upon any such
issuance, the Issuer or Trustee or Warrant Agent, as applicable, is required
to register such Certificated Securities in the name of, and cause the same to
be delivered to, such person or persons (or the nominee of any thereof). All
such Certificated Securities would be subject to the legend requirements
described herein under "Notice to Investors." In addition, if (i) the Issuer
notifies the Trustee or Warrant Agent in writing that the Depositary is no
longer willing or able to act as a depositary and the Issuer is unable to
locate a qualified successor within 90 days or (ii) the Issuer, at its option,
notifies the Trustee or Warrant Agent in writing that it elects to cause the
issuance of the applicable Securities in the form of Certificated Securities,
then, upon surrender by the applicable Global Security Holder of its Global
Security, Securities in such form will be issued to each person that such
Global Security Holder and the Depositary identify as being the beneficial
owner of the related Securities.
Neither the Issuer, the Trustee nor the Warrant Agent will be liable for any
delay by the Global Security Holder or the Depositary in identifying the
beneficial owners of Securities, and the Issuer, the Trustee and the Warrant
Agent may conclusively rely on, and will be protected in relying on,
instructions from the Global Security Holder or the Depositary for all
purposes.
Same-Day Settlement and Payment. The Indenture will require that payments in
respect of the Notes represented by a Global Security (including principal,
premium, interest and liquidated damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the applicable Global
Security Holder. With respect to Certificated Securities, the Issuer will make
all payments in respect of the Notes (including principal, premium, interest
and liquidated damages, if any) by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes of corporate the
issuers is generally settled in clearinghouse or next-day funds. In contrast,
the Notes represented by the Global Securities are expected to be eligible to
trade in the PORTAL Market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Issuer expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Issuer consists of 1,000 shares of
Common Stock, $0.01 par value per share. As of the date of this Offering
Memorandum, 100 shares are issued and outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including
election of directors, and, except as otherwise required by law or provided in
any resolution adopted by the Board of Directors of the Issuer with respect to
any other series or class of capital stock, the holders of such Common Stock
will exclusively possess all voting power. The Issuer's Articles of
Incorporation do not provide for cumulative voting for the election of
directors. The Common Stock is neither redeemable nor convertible, and there
are no sinking fund provisions. The holders of Common Stock are entitled to
dividends when and as declared from time to time by the Board of Directors of
the Issuer from funds legally available therefor. Upon liquidation of the
Issuer, holders of Common Stock are entitled to receive pro rata all assets of
the Issuer legally available for distribution to all holders of Common Stock.
The Issuer does not expect to pay any dividends on the Common Stock in the
forseeable future. See "Dividend Policy."
If Parent issues Warrants, the class of Common Stock of Parent with respect
to which the Warrants may be exercised ("Class A Stock") may be different from
the class of common stock of Parent held by UIH or its affiliates ("Class B
Stock"). The Class A Stock and the Class B Stock will have substantially the
same terms except that Class A Stock may have less votes per share than the
Class B Stock. Each share of Class A Stock and Class B Stock will participate
on an equal basis with respect to cash dividends declared or paid by Parent
and with respect to distributions upon liquidation. In the case of dividends
paid in the form of securities, the classes of securities distributed to
holders of Class A Stock and Class B Stock may have different voting rights.
CERTAIN U.S. INCOME TAX CONSIDERATIONS
In the opinion of Holme Roberts & Owen LLC, counsel to the Company, the
following summarizes the material federal income tax consequences expected to
result to holders of the Old Notes who exchange the Old Notes for New Notes
pursuant to this Offering, subject to the conditions and limitations described
herein. The discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations ("Regulations") and public administrative and judicial
interpretations of the Code and Regulations, all of which are subject to
change, which changes could be applied retroactively. This discussion also is
based on the information included in this registration statement and the
related documents, and on certain representations from the Company as to
factual matters. This discussion includes only the material federal income tax
consequences expected to apply to United States persons (e.g., citizens or
residents of the United States and domestic corporations) who were the initial
purchasers of Old Notes at the initial purchase price and hold the Old Notes,
and will hold the New Notes and any Warrants issued, as capital assets. This
discussion does not cover all aspects of federal taxation that may be relevant
to, or the actual tax effect that any of the matters described herein will
have on, particular holders and does not address state, local and foreign tax
consequences.
The Company has not sought and will not seek any rulings from the Internal
Revenue Service (the "Service") with respect to the Notes. There can be no
assurance that the Service will not take a different position concerning the
tax consequences of the exchange of the Old Notes for New Notes or the
ownership or disposition of the New Notes or any of the Warrants issued or
that the Service's position would not be sustained by a court.
The tax treatment of a holder of the Notes may vary depending on his
particular situation or status. Holders subject to special rules under the
Code (including insurance companies, tax-exempt organizations, mutual funds,
retirement plans, financial institutions, dealers in securities or foreign
currency, persons that hold the Notes as part of a "straddle" or as a "hedge"
against currency risk, in connection with a conversion transaction, or that
have a functional currency other than the U.S. dollar, investors in pass-
through entities and foreign entities and individuals) may be subject to
special rules not discussed below.
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THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER IS EXPECTED AND
URGED TO CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
HIM OF EXCHANGING OLD NOTES FOR NEW NOTES, OF HOLDING AND DISPOSING OF THE NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND OF POSSIBLE CHANGES IN FEDERAL INCOME TAX LAW SINCE THE DATE OF
THIS REGISTRATION STATEMENT.
The New Notes will have substantial original issue discount for federal
income tax purposes. As a result, a holder who acquires a New Note generally
will be required to include original issue discount in gross income as it
accrues, for federal income tax purposes. Therefore, inclusion in gross income
will take place in advance of the receipt of cash payments on the New Notes.
See "Taxation of Original Issue Discount" below. NOTEHOLDERS ARE URGED TO
CONSULT THEIR OWN ADVISORS REGARDING THE INCOME TAX CONSEQUENCES OF EXCHANGING
OLD NOTES FOR NEW NOTES AND, HOLDING AND DISPOSING OF THE NEW NOTES.
EXCHANGE OF NOTES
There is no direct authority as to whether the exchange of the Old Notes for
the New Notes will be treated as a taxable exchange for federal income tax
purposes. In the opinion of Holme Roberts & Owen LLC, counsel to the Issuer,
based on its analysis of applicable law, the exchange should not be treated as
a taxable exchange. Under recently issued final regulations that address when
a modification of a debt instrument constitutes an "exchange" for federal
income tax purposes, a modification that occurs by operation of the terms of
the original instrument is not treated as a modification for these purposes.
Even though the exchange of an Old Note for a New Note is pursuant to the
original Indenture, the exchange is not automatic and must be accepted by each
holder. With respect to these circumstances, the final regulations are
ambiguous and could be interpreted to treat the exchange of Notes as a
significant modification, and, as a result a taxable exchange (unless the
exchange otherwise qualifies as a nontaxable recapitalization under section
368(a)(1)(E) of the Code). If the exchange of Old Notes for New Notes were a
taxable exchange, there would be several tax consequences to the holders of
the Old Notes including: a holder would recognize gain or loss equal to the
difference between the value of the New Notes received pursuant to the
Exchange Offer (or if the New Notes are not traded on an established
securities market, their principal amount as determined under applicable
Treasury Regulations) and the holders' tax basis for the Old Notes; there
would be a recomputation of the original issue discount amounts going forward;
and the holder would have a new tax basis and holding period for the New
Notes. If the exchange of Old Notes for New Notes were an "exchange" for tax
purposes, but not a taxable exchange because it qualifies as a nontaxable
recapitalization under section 368(a)(1)(E) of the Code, no gain or loss would
be recognized and there would be no change in the holder's tax basis or
holding period, but there would be a recomputation of original issue discount
amounts going forward. Holders should consult their tax advisors on these
matters and whether, even if the exchange were otherwise a taxable exchange,
it would qualify as a nontaxable recapitalization under section 368(a)(1)(E)
of the Code.
TAXATION OF ORIGINAL ISSUE DISCOUNT
The amount of original issue discount with respect to each Note will be the
excess of the "stated redemption price at maturity" of such Note over the
"issue price." The stated redemption price at maturity of each Note will
include any payment, whether denominated as principal or interest, required to
be made thereunder through and including maturity. If the exchange of the Old
Notes for the New Notes is not an exchange for tax purposes, the "issue price"
of the New Notes will be the same as the issue price of the Old Notes (which
is the first price at which a substantial amount of the Old Notes were sold to
the public for money). If the exchange of the Old Notes for the New Notes is
an exchange for tax purposes (whether or not a taxable exchange), the issue
price of the New Notes will be their market value at the time of issue if the
New Notes are traded on an established securities market (and if not so
traded, the principal amount as determined under applicable Treasury
Regulations).
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<PAGE>
Each holder will be required to include in gross income an amount equal to
the sum of the "daily portions" of the original issue discount of the Note for
all days during the taxable year in which such holder holds the Note. The daily
portions of original issue discount will be determined by allocating to each
day during an accrual period a ratable portion of the original issue discount
attributable to that accrual period. The amount of the original issue discount
attributable to each full accrual period is equal to the product of the
"adjusted issue price" of the Note (at the beginning of the accrual period) and
the "yield to maturity" of the Notes (taking into account the length of the
particular accrual period). The accrual period with respect to a Note may be of
any length as long as (i) no accrual period is longer than one year and (ii)
each scheduled payment of interest or principal occurs on either the first or
final day of an accrual period. A Noteholder and the Company may select
different accrual periods, subject to the foregoing rules. The adjusted issue
price of a Note at the beginning of an accrual period will be the original
issue price of the Note plus the aggregate amount of original issue discount
that has accrued in all prior accrual periods and less any payments
(apparently, other than the Warrants described below) made on the Note. The
yield to maturity is the discount rate that, when used in computing the present
value of all principal and interest payments to be made on the Note, produces
an amount equal to its issue price.
The Company is required to furnish certain information to the Service
regarding the original issue discount amounts. The Company will furnish
annually to record holders of the Notes, information with respect to original
issue discount accruing during the calendar year, as well as interest paid
during that year. This information will be based upon the adjusted issue price
of the debt instrument as if the holder were the original holder of the debt
instrument. The Company will classify the Notes as debt under section 385 of
the Code.
The foregoing does not discuss special rules that may affect the treatment of
purchasers who acquired the Old Notes (or who may acquire the New Notes) at a
price that differs from the adjusted issue price of the Notes at the time of
acquisition, including those provisions of the Code relating to the treatment
of "market discount," "acquisition premium" and "amortizable bond premium."
Noteholders should consult their tax advisors regarding these matters.
CONTINGENT INTEREST
Pursuant to the terms of the Indenture, the Interest Rate on the Notes will
be increased from 14% to 14.75% if an Equity Sale is not consummated on or
before May 15, 1997. If the Equity Sale is subsequently consummated, the
Interest Rate will be reduced to 14%. The Indenture also provides that if the
Issuer does not consummate an Equity Sale prior to November 15, 1997, the
holders of the Notes will be entitled to receive the Warrants. The provision
for an adjustment in the Interest Rate and the contingent right to the Warrants
probably constitute contingent payments for purposes of computing original
issue discount.
The Company believes that the Equity Sale will be timely consummated, either
through a private placement transaction or an initial public offering, and that
it is very unlikely that the Equity Sale would not be consummated timely.
Accordingly, the Company intends to treat the contingencies as remote for
purposes of computing original issue discount, and to assume that the
contingencies will not occur. If a contingency does occur (i.e., the Equity
Sale is not completed timely), then the additional interest will be reportable
as income at that time or there will be adjustments in the computation of
original issue discount on the Notes. Also, if a contingency does occur, the
holder may be subject to special rules with respect to any gain or loss
recognized on the disposition of a contingent interest debt instrument.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF NEW NOTES
In general, the holder of a New Note will recognize gain or loss upon the
sale, retirement or other taxable disposition of such debt instrument measured
by the difference between the amount of cash and fair market value of property
received in exchange therefor and the holder's adjusted tax basis for such debt
instrument.
If the exchange of the Old Notes for New Notes is not a taxable exchange, the
holder's initial tax basis in a New Note will generally equal the holder's tax
basis in an Old Note exchanged therefor. If the exchange of the
115
<PAGE>
Old Notes for New Notes is a taxable exchange, the holder's initial tax basis
for a New Note will equal the value of the New Note at the time of issuance, if
the New Notes are traded on an established securities market (and if not so
traded, their principal amount as determined under applicable Treasury
Regulations). The holder's initial tax basis in a New Note will be increased
from time to time by the portion of original issue discount included in gross
income to the date of disposition as adjusted by acquisition premium, if any,
(and increased by the accruals of market discount, if any, that the holder has
previously elected to include in gross income on an annual basis), and
decreased by any payments (apparently, other than the Warrants described below)
received from the Company on the New Note.
Any gain or loss on the sale, retirement or other taxable disposition of a
New Note, measured as described above, will generally be capital gain or loss
(subject to special rules for market discount), provided the New Note was a
capital asset in the hands of the holder. Any capital gain or loss will be
long-term capital gain or loss if the debt instrument has been held for more
than one year at the time of disposition and otherwise will be short-term
capital gain or loss.
With respect to tax matters relating to legal defeasance and covenant
defeasance in certain circumstances, see "Description Of Notes--Defeasance."
LIMITATION ON THE COMPANY'S INTEREST DEDUCTIONS
The New Notes probably will be subject to the "applicable high yield discount
obligation" provisions of the Code. If the yield on the New Notes is at least
five percentage points above the applicable Federal rate, the Company will not
be able to deduct any original issue discount accruing with respect thereto
until such interest is actually paid. In addition, if the yield on the New
Notes is more than six percentage points above the applicable Federal rate,
then (i) a portion of such interest corresponding to the yield in excess of six
percentage points above the applicable Federal rate will not be deductible by
the Company at any time, and (ii) a corporate Holder may be entitled to treat
the portion of the interest that is not deductible by the Company as a
dividend, which may then qualify for the dividends received deduction provided
for by the Code. In such event, corporate holders of New Notes should consult
with their own tax advisors as to the applicability of the dividends received
deduction. Except as described above, treatment of the New Notes as "applicable
high yield discount obligations" will not affect the reporting of the original
issue discount as income by the noteholders.
WARRANTS
Contingent Interest. Although the treatment is not free from doubt, the
contingent right of holders of New Notes to receive Warrants would appear to be
treated for tax purposes as a right to receive a contingent payment of
interest. See the discussion under "Contingent Interest" above. The tax basis
of Warrants received by a holder would equal the fair market value of the
Warrants at the time they are issued.
Exercise of Warrants. Generally, a holder of a Warrant will not recognize any
gain or loss upon exercise of the Warrant. However, the use of a Warrant or
Note as payment of the exercise price of a Warrant probably would result in
recognition of gain or loss with respect to the Warrant or Note so used. The
tax basis of the Common Stock received generally will be equal to the holder's
tax basis, as adjusted, of the Warrant so exercised, plus the exercise price.
Sale or Exchange of Warrants. A holder's basis for federal income tax
purposes of a Warrant will be its fair market value at the time the Warrant is
issued. Upon a sale or exchange of a Warrant, a holder thereof will recognize
long-term or short-term gain or loss, depending upon whether the holding period
is more than one year. Such gain or loss generally will be a capital gain or
loss, provided that the Common Stock issuable upon exercise of the Warrant
would have been a capital asset if acquired by the holder. The amount of gain
or loss will be the difference between the amount realized and the tax basis,
as adjusted, or the Warrant sold. Any loss realized by a holder of a Warrant
due to the failure to exercise prior to its expiration date will be treated as
a capital loss provided that the Common Stock issuable upon exercise of the
Warrant would have been a capital
116
<PAGE>
asset if acquired by the holder. Such capital loss will be long-term if the
Warrant was held for more than one year.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
amount if (a) the payee fails to furnish a taxpayer identification number
("TIN") to the payor, (b) the Service notifies the payor that the TIN furnished
by the payee is incorrect, (c) the payee has failed to report properly the
receipt of a "reportable payment" and the Service has notified the payor that
withholding is required, or (d) there has been a failure of the payee to
certify under the penalty of perjury that a payee is not subject to withholding
under Section 3406 of the Code. If any one of the events discussed above
occurs, the Issuer, its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment" includes,
among other things, interest actually paid, original issue discount and amounts
paid through brokers in retirement of securities. Any amount withheld from a
payment to a holder under the backup withholding rules will be allowed as a
refund or credit against such holder's federal income tax, provided that the
required information is furnished to the Service. Certain holders (including,
among other, corporations and certain tax-exempt organizations) are not subject
to the backup withholding information reporting requirements.
EMPLOYEE BENEFIT PLANS
Prior to acquiring a Note, a prospective holder who is a fiduciary with
respect to an "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), must
comply with the fiduciary responsibility requirements of ERISA, including the
prudency and diversification requirements, in making a decision to purchase a
Note. In addition, such plans, together with plans described in Section
4975(e)(1) of the Code, must consider the prohibited transaction provisions of
ERISA and the Code and determine that UIH is not a "disqualified person" (as
defined in the Code) or a "party in interest" (as defined in ERISA) with
respect to such plan or that an exemption from the prohibited transaction
provisions of ERISA or the Code is available.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer acknowledges and each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, does not intend to
engage in, and has no arrangement or understanding with any person to
participate in a distribution of New Notes. The Issuer has agreed that starting
on the Expiration Date and ending on the close of business on the 180th day
following the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Issuer will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or
117
<PAGE>
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuer has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters regarding the securities offered hereby will be passed
upon for the Company by Holme Roberts & Owen LLC, Denver, Colorado.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto. In that report,
that firm states that with respect to the consolidated amounts from the
financial statements of Telefenua S.A. and the equity in losses from XYZ
Entertainment Pty Ltd. as of and for the year ended December 31, 1995, its
report is based on the reports of other auditors, namely Coopers & Lybrand
(with respect to Telefenua S.A.) and Deloitte Touche Tohmatsu (with respect to
XYZ Entertainment Pty Ltd.). The consolidated financial statements and report
referred to above have been included herein upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of CTV Pty Ltd. included in this
Prospectus have been audited by Arthur Andersen, independent public
accountants, as indicated in their report with respect thereto and is included
herein upon the authority of said firm as experts in giving said report.
The consolidated financial statements of STV Pty Ltd. included in this
Prospectus have been audited by Arthur Andersen, independent public
accountants, as indicated in their report with respect thereto, and is included
herein upon the authority of said firm as experts in giving said report.
The financial statements of Saturn Communications Limited (formerly Kiwi
Cable Company Ltd.) included in this Prospectus have been audited by Arthur
Andersen, independent public accountants, as indicated in their report with
respect thereto, and is included herein upon the authority of said firm as
experts in giving said report.
The financial statements of XYZ Entertainment Pty Ltd. as of December 31,
1994 and 1995 and for the years then ended included in this Prospectus have
been audited by Deloitte Touche Tohmatsu, independent auditors, as stated in
their report appearing herein. The financial statements referred to above have
been included herein upon the authority of said firm as experts in giving said
report.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UIH AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................. F- 3
Report of Independent Auditors........................................... F- 4
Report of Independent Auditors........................................... F- 5
Consolidated Balance Sheet as of December 31, 1994 and 1995 and March 31,
1996 (unaudited)... F- 6
Consolidated Statements of Operations for the Years Ended December 31,
1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996
(unaudited)............................................................. F- 7
Consolidated Statements of Stockholder's Equity for the Years Ended De-
cember 31, 1994 and 1995 and for the Three Months Ended March 31, 1996
(unaudited)............................................................. F- 8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996
(unaudited)............................................................. F- 9
Notes to Consolidated Financial Statements............................... F-10
CTV PTY LIMITED
Independent Audit Report................................................. F-24
Balance Sheet as of December 31, 1994 and 1995 and March 31, 1996 (unau-
dited).................................................................. F-25
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Three Months Ended March 31,
1995 and 1996 (unaudited)............................................... F-26
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Three Months Ended March 31,
1995 and 1996 (unaudited)............................................... F-27
Notes to the Financial Statements........................................ F-28
STV PTY LIMITED
Independent Audit Report................................................. F-38
Balance Sheet as of December 31, 1994 and 1995 and March 31, 1996 (unau-
dited).................................................................. F-39
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Three Months Ended March 31,
1995 and 1996 (unaudited)............................................... F-41
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Three Months Ended March 31,
1995 and 1996 (unaudited)............................................... F-42
Notes to the Financial Statements........................................ F-43
SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE COMPANY
LIMITED)
Auditor's Report......................................................... F-53
Statement of Financial Performance for the Years Ended December 31, 1994
and 1995 and March 31, 1996 (unaudited)................................. F-54
Statement of Movements in Equity for the Years Ended December 31, 1994
and 1995 and the Three Months Ended March 31, 1996 (unaudited).......... F-55
Statement of Financial Position as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited).............................................. F-56
Statement of Cash Flows for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited)...... F-58
Notes to and Forming Part of the Financial Statements.................... F-59
XYZ ENTERTAINMENT PTY LIMITED
Independent Auditors' Report............................................. F-65
Consolidated Statements of Operations for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the three months ended March 31, 1995 and 1996 (un-
audited)................................................................ F-66
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (unaudited).................................................... F-67
Consolidated Statements of Shareholders' Deficiency for the period from
October 17, 1994 (date of inception) to December 31, 1994 and the year
ended December 31, 1995 and for the three months ended March 31, 1995
and 1996 (unaudited).................................................... F-68
Consolidated Statements of Cash Flows for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the three months ended March 31, 1995 and 1996 (un-
audited)................................................................ F-69
Notes to the Consolidated Financial Statements........................... F-70
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United International Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of UIH
Australia/Pacific, Inc. (a Colorado corporation and wholly owned subsidiary of
UIH Asia/Pacific, Inc.) and subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, parent's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Telefenua S.A. as of and for the year ended
December 31, 1995, a subsidiary which is consolidated in the accompanying
financial statements. UIH Australia/Pacific, Inc.'s consolidated financial
statements for the year ended December 31, 1995 reflects assets, liabilities,
revenues, expenses and a net loss related to Telefenua S.A. of $10,989,000,
$9,710,000, $1,882,000, $5,806,000 and $3,924,000, respectively. We did not
audit the financial statements of XYZ Entertainment Pty Ltd. ("XYZ") for the
year ended December 31, 1995, an investment which is reflected in the
accompanying financial statements on the equity method of accounting. UIH
Australia/Pacific, Inc.'s consolidated statement of operations reflects equity
in losses related to XYZ of $11,729,000 for the year ended December 31, 1995
and Note 4 to the consolidated financial statements includes summarized
financial data for XYZ. The financial statements of Telefenua S.A. and XYZ as
of and for the year ended December 31, 1995, were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to the summarized financial data for XYZ included in Note 4 to the
consolidated financial statements and to the amounts included in the
accompanying consolidated financial statements for Telefenua S.A. and XYZ, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of UIH Australia/Pacific, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
May 8, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the shareholders of TELEFENUA SA.
We have audited the balance sheet of TELEFENUA SA as of december 31, 1993,
1994 and 1995 and the related statement of income and changes in financial
position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in France, which do not differ substantially from generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of TELEFENUA SA as of december
31, 1993 1994 and 1995 and the results of its operations and changes in its
financial position for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
The accounting practices of the Company used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United States of America, but do not fully conform with accounting
principles generally accepted in France. As a consequence those financial
statements differ from statutory financial statements that will be submitted
to the approval of the company's shareholders in conformity with local
corporate laws.
A description of the significant differences between such principles and
those accounting principles generally accepted in the United States, and the
effect of those differences on net income, total assets and shareholder's
equity are set forth in Note 2.a of the notes to the financial statements.
Coopers & Lybrand
Papeete,
february 16, 1996
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheet of XYZ
Entertainment Pty Ltd as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 1995 and the period from October 17, 1994
(date of inception) to December 31, 1994, which are expressed in Australian
dollars. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
period from October 17, 1994 (date of inception) to December 31, 1994, in
conformity with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as stockholders' deficiency
and net loss as at and for the year ended December 31, 1995 and from the
period from October 17, 1994 (date of inception) to December 31, 1994 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-5
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ---------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $ -- $ 8,730 $ 1,791
Receivables, including related party re-
ceivables of $1,035, $1,623, and $0, re-
spectively................................ -- 2,045 2,187
Investments in and advances to affiliated
companies, accounted for under the equity
method.................................... 22,296 2,829 4,308
Property, plant and equipment, net of accu-
mulated depreciation of $2,863, $1,217 and
$0, respectively.......................... 1 27,125 44,789
Acquisition, transaction and development
costs, net................................ 1,787 -- --
License fees, net of accumulated amortiza-
tion of $442 in 1995...................... -- 10,693 11,678
Goodwill................................... -- 45,324 44,703
Other assets, net.......................... -- 2,549 3,725
------- ------- --------
Total assets............................. $24,084 $99,295 $113,181
======= ======= ========
LIABILITIES AND PARENT'S EQUITY
Accounts payable and accrued liabilities... $ 11 $ 6,407 $ 10,783
Accrued funding obligation................. -- 1,834 699
Due to parent.............................. -- 12,583 26,534
Capital lease obligations.................. -- 890 1,685
------- ------- --------
Total liabilities........................ 11 21,714 39,701
------- ------- --------
Minority interest in subsidiaries............ -- 2,515 1,894
Commitments (Note 7)
Parent's Equity:
Common stock, $.01 par value, 1,000 shares
authorized, 100 issued.................... -- -- --
Contributed capital........................ 25,342 93,782 97,649
Cumulative translation adjustments......... 405 191 1,508
Accumulated deficit........................ (1,674) (18,907) (27,571)
------- ------- --------
Total Parent's equity.................... 24,073 75,066 71,586
------- ------- --------
Total liabilities and Parent's equity.... $24,084 $99,295 $113,181
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-6
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31 MARCH 31,
--------------------- --------------------
(UNAUDITED)
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service revenue.................. $ -- $ 1,883 $ 96 $ 1,934
Operating expense, including $85
of related party expenses in
1996............................ -- (3,230) (191) (5,083)
General and administrative ex-
pense........................... (659) (3,402) (389) (2,336)
Depreciation and amortization.... -- (1,003) (85) (2,748)
--------- ---------- ------- -----------
Net operating loss............. (659) (5,752) (569) (8,233)
Equity in losses of affiliated
companies....................... (1,015) (16,379) (1,494) (1,033)
Gain on sale of investment in af-
filiated company................ -- 4,132 -- --
Interest income.................. -- 157 -- 57
Interest expense................. -- (30) -- --
Other............................ -- 219 (2) (181)
--------- ---------- ------- -----------
Net loss before minority inter-
est........................... (1,674) (17,653) (2,065) (9,390)
Minority interest in subsidiary.. -- 420 53 726
--------- ---------- ------- -----------
Net loss....................... $ (1,674) $ (17,233) $(2,012) $ (8,664)
========= ========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF PARENT'S EQUITY
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------- CONTRIBUTED TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
------ ------ ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1994................... -- $-- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 100 -- -- -- -- --
Capital contributions
from parent............ -- -- 25,342 -- -- 25,342
Cumulative translation
adjustment............. -- -- -- 405 -- 405
Net loss................ -- -- -- -- (1,674) (1,674)
--- ---- ------- ------ -------- --------
Balances, December 31,
1994................... 100 -- 25,342 405 (1,674) 24,073
Capital contributions
from parent............ -- -- 68,440 -- -- 68,440
Change in cumulative
translation
adjustment............. -- -- -- (214) -- (214)
Net loss................ -- -- -- -- (17,233) (17,233)
--- ---- ------- ------ -------- --------
Balances, December 31,
1995................... 100 -- 93,782 191 (18,907) 75,066
Capital contributions
from parent
(unaudited)............ -- -- 3,867 -- -- 3,867
Cumulative translation
adjustment
(unaudited)............ -- -- -- 1,317 -- 1,317
Net loss (unaudited).... -- -- -- -- (8,664) (8,664)
--- ---- ------- ------ -------- --------
Balances, March 31, 1996
(unaudited)............ 100 $-- $97,649 $1,508 $(27,571) $ 71,586
=== ==== ======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31 MARCH 31,
--------------------- ----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................ $ (1,674) $ (17,233) $ (2,012) $ (8,664)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Depreciation and amortization..... -- 1,003 85 2,748
Equity in losses of affiliate com-
panies, net...................... 1,015 16,379 1,494 1,033
Gain on sale of investment in af-
filiated company................. -- (4,132) -- --
Minority interest share of loss-
es............................... -- (420) (53) (726)
Increase in receivables........... -- -- (192) (50)
Increase in goodwill.............. -- -- -- (226)
Increase in other assets.......... -- (1,211) 39 (1,968)
Increase in accounts payable, ac-
crued liabilities and other...... 11 238 (320) 4,874
--------- ---------- ---------- ----------
Net cash flows from operating activ-
ities.............................. (648) (5,376) (959) (2,979)
--------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in and advances to af-
filiated companies and other in-
vestments.......................... (22,841) (22,472) (11,862) (3,538)
Purchase of additional 40% interest
in CEtv, net of cash acquired...... -- (8,017) -- --
Proceeds from sale of investment in
affiliated company................. -- 4,132 -- --
Acquisition, transaction and devel-
opment costs incurred.............. (1,852) (781) (781) --
Purchase of property and equipment.. (1) (7,143) (3,909) (17,762)
--------- ---------- ---------- ----------
Net cash flows from investing activ-
ities.............................. (24,694) (34,281) (16,552) (21,300)
--------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent... 25,342 38,600 18,103 3,867
Borrowings on bridge loan payable to
parent............................. -- 9,927 -- 12,600
Borrowing on other debt............. -- -- -- 725
--------- ---------- ---------- ----------
Net cash flows from financing activ-
ities.............................. 25,342 48,527 18,103 17,192
--------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATES ON CASH.... -- (140) 145 148
--------- ---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVA-
LENTS.............................. -- 8,730 737 (6,939)
--------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- -- -- 8,730
--------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ -- $ 8,730 $ 737 $ 1,791
========= ========== ========== ==========
NON-CASH INVESTING AND FINANCING AC-
TIVITIES
Non-cash capital contribution of
preferred stock from parent uti-
lized in purchase of additional
40% interest in CEtv............. $ -- $ 29,840 $ 29,840 $ --
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BACKGROUND
UIH Australia/Pacific, Inc. (the "Company"), a wholly-owned subsidiary of
UIH Asia/Pacific, Inc., which is in turn a wholly-owned subsidiary of United
International Holdings, Inc. ("UIHI"), was formed on October 14, 1994. In
connection with a contemplated offering (the "Offering") of senior discount
notes, UIHI merged into the Company UIHI's subsidiaries that hold interests in
certain operating properties and early stage projects in Australia and the
South Pacific. The accompanying financial statements have been prepared on a
basis of reorganization accounting as though the Company had performed all
foreign development activities and made all acquisitions of UIHI's foreign
multi-channel television, programming and mobile data interests in Australia,
Tahiti and New Zealand since inception. The Company commenced operations in
January 1994 when UIHI began its development related activities in the
Asia/Pacific region. The Company reflected all of the transfers from UIHI as a
capital contribution from parent in the accompanying consolidated financial
statements. The accompanying consolidated financial statements have been
prepared as though the Company made investments in the following entities on
the original date UIHI or certain of its wholly-owned subsidiaries made the
investment:
. The Company acquired, through directly and indirectly held interests, an
effective 50.0% economic interest in two companies that form CEtv in
1994. In December 1995, the Company increased its effective economic
interest in CEtv to 90.0%. The companies that comprise CEtv (CTV Pty Ltd.
("CTV") and STV Pty Ltd ("STV")) have acquired Multi-point Microwave
Distribution Systems ("MMDS") licenses to supply subscription television
services to television households in the north, northeastern and southern
regions of Australia outside of the country's largest cities and are
currently constructing multi-channel television systems to service many
of the television homes in their license areas. Those homes that cannot
be served by MMDS will be serviceable by a direct to home satellite
service marketed by CEtv.
. The Company acquired an effective 90.0% economic interest in Telefenua
S.A. ("Telefenua") in January 1995. The Company's economic interest will
decrease to 75.0% and 64.0% once the Company has received a 20.0% and
40.0% internal rate of return on its investment in Telefenua,
respectively. Telefenua operates, since March 1995, the only multi-
channel subscription television system on the islands of Tahiti and
Moorea in French Polynesia.
. In July 1994, the Company acquired a 50.0% interest in Kiwi
Communications Ltd., which recently changed its name to Saturn
Communications Limited ("Saturn"). Saturn is constructing a wireline
multi- channel television system in New Zealand, primarily in the greater
Wellington area.
. XYZ Entertainment Pty Ltd ("XYZ Entertainment") is an Australian
proprietary company incorporated in New South Wales. Century United
Programming Ventures Pty Limited, an Australian corporation ("CUPV"),
owned equally by the Company and Century Communications Corp.
("Century"), holds a 50.0% interest in XYZ Entertainment. In October
1994, the Company acquired an initial 50.0% interest in XYZ
Entertainment. In September 1995, a third party purchased a 50.0%
interest in XYZ Entertainment, thereby diluting the Company's indirect
interest in XYZ Entertainment to 25.0%.
. The Company acquired a 100.0% interest in August 1995 in United Wireless
Pty Limited ("United Wireless"), a provider of wireless mobile data
services in Australia, primarily Sydney and Melbourne, and is the initial
stages of deploying its distribution network and marketing its services.
The Company accounted for its acquisition using the purchase method of
accounting. The Company has granted Microage Australian Pty Limited
("Microage"), an Australian supplier of telecommunications equipment, the
option to acquire a 49.9% interest in United Wireless at a price equal to
the Company's investment in United Wireless plus 10.0%. Microage in
return has granted the Company an option to require Microage to acquire
up to 100.0% of United Wireless at a price equal to the Company's
F-10
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
investment in United Wireless plus 10.0%. These options expire on June 5,
1996. At this time, the Company does not anticipate that either Microage
or the Company will exercise such options.
The Company has no operating activities of its own. The Company has been
funded by capital contributions and loans from UIHI which enabled it to make
its investments in the entities described above. The Company will continue to
be dependent on UIHI for its capital requirements until the completion of the
Offering discussed above. In the event the Offering is not completed, the
Company will require continued financial support from UIHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control. During
the year ended December 31, 1995, the Company consolidated Telefenua, and
subsequent to August 31, 1995, United Wireless. Due to the Company's
acquisition of the majority economic interest in CEtv in late December 1995,
the accompanying December 31, 1995 consolidated balance sheet consolidates the
accounts of CTV and STV as of December 31, 1995. The Company recognized equity
losses from its investments in CTV and STV through December 31, 1995. The
Company will consolidate the operations of CTV and STV beginning January 1,
1996. All significant intercompany accounts and transactions have been
eliminated in consolidation. Exchange rates used are as of December 31, 1995,
unless otherwise noted.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
F-11
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in companies in which the Company's interest is 20% to
50%, or for investments where the Company's interest is less than 20% in which
the Company exerts significant influence through board representation and
management authority, the equity method of accounting is used. Under this
method, the investment, originally recorded at cost, is adjusted to recognize
the Company's proportionate share of net earnings or losses of the affiliates,
limited to the extent of the Company's investment in and advances to the
affiliates, including any debt guarantees or other funding commitments. The
Company's proportionate share of net earnings or losses of affiliates includes
the amortization of the excess of cost over net tangible assets acquired.
Investments in and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Australia (CEtv)........ $19,738 $ (551) $344 $19,531
Saturn.................. 2,539 (365) 60 2,234
XYZ Entertainment....... 629 (99) 1 531
------- -------- ---- -------
$22,906 $(1,015) $405 $22,296
======= ======== ==== =======
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES(1) ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Saturn.................. $ 4,520 $ (1,803) $112 $ 2,829
XYZ Entertainment....... 11,718(2) (11,828) 110 --
------- -------- ---- -------
$16,238 $(13,631) $222 $ 2,829
======= ======== ==== =======
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATED COMPANIES AFFILIATE COMPANIES ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Saturn.................. $ 6,290 $ (2,204) $222 $4,308
XYZ Entertainment....... 12,350 (12,460) 110 --
------- -------- ---- -------
$18,640 $(14,664) $332 $4,308
======= ======== ==== =======
</TABLE>
- ---------------------
(1) Does not include cumulative equity in losses for CEtv of $3,763, as CEtv's
balance sheet is consolidated as of December 31, 1995.
(2) Includes $4,132 of proceeds received for the sale of 50% of the Company's
interest. As the Company had recorded equity in losses from XYZ
Entertainment in an amount equal to its invested capital, the Company
recognized a gain of $4,132 on this transaction. In addition, the Company
accrued an additional funding obligation of $1,834 as of December 31,
1995.
The Company recognized $11,729 of equity losses from XYZ Entertainment for
the year ended December 31, 1995, including $1,834 of additional equity losses
associated with the Company's accrued funding obligation to XYZ Entertainment.
The Company does not have a contractual funding obligation to XYZ
Entertainment, however the Company would face significant and punitive
dilution if it did not make the scheduled fundings. Subsequent to year end,
the Company funded $1,511 of the funding obligation accrued.
F-12
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Additions, replacements and major
improvements are capitalized and costs for normal repair and maintenance of
property, plant and equipment are charged to expense as incurred. Depreciation
expense is computed by the straight-line method over their estimated useful
lives as shown below.
<TABLE>
<CAPTION>
AVERAGE YEARS
-------------
<S> <C>
Cable plant................................... 5-10
Other fixed assets............................ 3-5
Furniture and fixtures........................ 10
Leasehold improvements........................ 6-10
</TABLE>
LEASED ASSETS
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
ACQUISITION, TRANSACTION AND DEVELOPMENT COSTS
The Company capitalizes direct and incremental costs incurred relative to
pursuing potential investments. If an investment is made, these costs are
either reimbursed to the Company by the affiliated company or capitalized as
part of the cost basis of the Company's investment. If the potential
investment is abandoned, these costs are expensed. The majority of the balance
as of December 31, 1994 was related to Telefenua. Upon closing of the
Telefenua acquisition, the Company contributed $2,039 of equipment to
Telefenua (which was included in acquisition, transaction and development
costs as of December 31, 1995).
LICENSE FEES
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($8,890), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. They are renewable every 5 years. In Tahiti, the license rights,
totaling $2,225 are amortized over a 10-year period.
GOODWILL
The Company's acquisition of an additional 40% economic interest in CTV and
STV was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at
that date. Accordingly, goodwill of $44,790 will be amortized over 15 years
beginning January 1, 1996.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of all tangible and intangible assets are reviewed at
least annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all tangible and intangible assets have been determined
using net cash flows which have not been discounted to their present values.
F-13
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
REVENUE RECOGNITION
Monthly service and installation fees are recognized as revenue in the
period the related services are provided to the subscribers.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax assets and liabilities for
the expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Net deferred tax assets are then reduced by a valuation allowance
for amounts which do not satisfy the realization criteria of SFAS 109.
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities
of foreign subsidiaries are translated at the exchange rates in effect at year
end and the statements of operations are translated at the average exchange
rates during the period. Exchange rate fluctuations on translating foreign
currency financial statements into U.S. dollars result in unrealized gains or
losses referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of parent's equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported on the Consolidated
Statements of Cash Flows will not agree to changes in the corresponding
balances on the Consolidated Balance Sheets. The effects of exchange rate
changes on cash balances held in foreign currencies is reported as a separate
line below cash flows from financing activities.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
not adopted the principles of this statement within the accompanying
consolidated financial statements; however, the Company does not believe that
the provisions of SFAS 121 will have a material effect on the Company's
reported results.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1995. The Company does not believe that the
provisions of SFAS 123 will have a material effect on the Company's reported
results.
F-14
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
3. ACQUISITIONS
In January 1995, the Company acquired an initial 90% economic interest in
Telefenua in exchange for a cash contribution into Telefenua of $6,060, the
contribution of a note and accrued interest due UIHI of $817 and equipment
leased to Telefenua totaling $2,039. Details of the net assets acquired are as
follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets........... $ 4,213
Intangible assets......... 1,835
Other..................... 107
Cash...................... 6,181
Accounts payable and ac-
crued liabilities........ (783)
Due to affiliate.......... (2,110)
Minority shareholders' in-
terest................... (527)
-------
Total consideration..... $ 8,916
=======
</TABLE>
The purchase price was allocated to the net assets acquired based on
relative fair market values.
The Company's cumulative investment as of December 31, 1995 in Telefenua
includes the cash and notes contributed of $6,877, an equipment lease of
$2,285 and bridge loans in the amount of $4,527. The Company's consolidated
assets, liabilities, revenues, expenses and net loss after intercompany
eliminations related to Telefenua for the year ended December 31, 1995 totaled
$10,989, $9,710, $1,882, $5,806 and $3,924, respectively.
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently canceled a decree authorizing MMDS systems in French
Polynesia and similar French territories. The cancellation could provide a
legal basis to cancel a required authorization already granted to Telefenua by
the communications agency, the CEA, because the authorization was based in
part on the decree. A law recently enacted by the French Parliament gives
Telefenua a legal basis to ask for a new authorization from the communications
agency, should the existing authorization be nullified. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained or, if a new authorization is obtained, that it
would not differ from the existing authorization.
F-15
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
In December 1995, the Company acquired an additional 40% effective economic
interest in CEtv from other shareholders increasing its effective economic
interest to 90%. The Company paid $15,241 in cash and contributed 170,513
shares of UIHI's convertible preferred stock having an initial liquidation
value and fair value of $29,840 for the additional 40% effective economic
interest. Details of the net assets are as follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets.......................... $ 18,268
Intangible assets........................ 8,643
Receivables, prepaids and other.......... 2,704
Cash..................................... 7,222
Accounts payable and accrued liabili-
ties.................................... (6,140)
Other debt............................... (890)
Minority shareholders' interest.......... (2,363)
Net investment prior to acquisition of
40%..................................... (27,153)
--------
291
Goodwill................................. 44,790
--------
Total consideration.................... $ 45,081
========
</TABLE>
The Company's cumulative investment as of December 31, 1995 in CEtv includes
cash invested of $19,903, bridge loans of $5,400, the purchase of a 10%
interest from another shareholder for $5,613 and the purchase of the 40%
interest from another shareholder for $45,081. The Company's equity in losses
from CEtv for the years ended December 31, 1994 and 1995 are $551 and $3,212,
respectively.
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
Investments in and advances to affiliated companies accounted for under the
equity method amount to $22,296 and $2,829 as of December 31, 1994 and 1995,
respectively.
Condensed financial information for the Company's significant equity
investees is presented below.
CTV
In September 1994, the Company began to fund its 40.0% economic interest in
CTV, an Australian company that currently holds MMDS licenses in Australia.
The Company then acquired an additional 10.0% economic interest in CTV from
another shareholder for $5,613. As of December 31, 1994, the Company's paid-in
interest was 37.2%. As noted above, in December 1995, the Company purchased an
additional 40% economic interest in CTV which increased its economic interest
to 90% and accordingly, the Company has consolidated the balance sheet of CTV
as of December 31, 1995.
F-16
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $15,023
Property, plant and equipment, net............................ 2,130
Intangible assets, net........................................ 3,896
Other assets.................................................. 577
-------
Total assets................................................ $21,626
=======
Accounts payable and accrued liabilities...................... $ 2,159
Shareholders' equity, including shareholder debentures........ 19,467
-------
Total liabilities and shareholders' equity.................. $21,626
=======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................ $ -- $ 433 $ -- $ 980
Operating, selling, general and
administrative expenses....... (243) (4,804) (301) (3,820)
Depreciation and amortization.. (3) (1,113) (9) (1,343)
-------- ---------- --------- -----------
Net operating loss........... (246) (5,484) (310) (4,183)
Interest, net.................. 246 914 329 (67)
Other.......................... -- 245 -- 324
-------- ---------- --------- -----------
Net loss..................... $ -- $(4,325) $ 19 $(3,926)
======== ========== ========= ===========
</TABLE>
- ---------------------
(1) CTV began operations during 1994.
STV
In October 1994, the Company began to fund its 50.0% economic interest in
STV, an Australian company that holds MMDS licenses in Australia. As of
December 31, 1994, the Company's paid in interest was 10.71%. In December
1995, the Company purchased an additional 40.0% economic interest in STV which
increased its economic interest to 90.0%, and accordingly, the Company has
consolidated the balance sheet of STV as of December 31, 1995.
Condensed financial information for STV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $7,816
Property, plant and equipment, net............................ 409
Intangible assets, net........................................ 3
Other assets.................................................. 50
------
Total assets................................................ $8,278
======
Accounts payable and accrued liabilities...................... $ 617
Shareholders' equity, including shareholder debentures........ 7,661
------
Total liabilities and shareholders' equity.................. $8,278
======
</TABLE>
F-17
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT DATA
Revenue........................ $ -- $ 10 $ -- $ 89
Operating, selling, general and
administrative expenses....... (197) (2,670) (272) (1,617)
Depreciation and amortization.. (3) (158) (9) (264)
-------- ---------- --------- -----------
Net operating loss........... (200) (2,818) (281) (1,792)
Interest, net.................. 107 315 145 5
-------- ---------- --------- -----------
Net loss..................... $ (93) $(2,503) $ (136) $(1,787)
======== ========== ========= ===========
</TABLE>
- ---------------------
(1) STV began operations during 1994.
XYZ
Condensed financial information for XYZ Entertainment stated in U.S.
dollars, which is derived from financial statements audited by Deloitte Touche
Tohmatsu, is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------
1994(1) 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash........................................................... $ 520 $ 2,309
Property, plant and equipment, net............................. 45 2,499
Intangible assets, net......................................... -- 1,871
Other assets................................................... 25 1,933
----- -------
Total assets................................................. $ 590 $ 8,612
===== =======
Accounts payable and accrued liabilities....................... $ -- $16,068
Shareholder loans.............................................. 771 21,597
Shareholders' equity........................................... (181) (29,053)
----- -------
Total liabilities and shareholders' equity................... $ 590 $ 8,612
===== =======
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue....................... $ -- $ 1,266 $ -- $ 1,820
Operating, selling, general
and administrative expenses.. (183) (27,511) (1,911) (4,287)
Depreciation and amortiza-
tion......................... -- (2,662) -- (468)
-------- ----------- ---------- ----------
Net operating loss.......... (183) (28,907) (1,911) (2,935)
Interest, net................. 2 145 10 175
-------- ----------- ---------- ----------
Net loss.................... $(181) $(28,762) $(1,901) $(2,760)
======== =========== ========== ==========
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
F-18
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
SATURN
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------
1994 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash............................................................. $ 469 $ 248
Property, plant and equipment, net............................... 1,278 1,478
Other assets..................................................... 272 303
------ ------
Total assets................................................... $2,019 $2,029
====== ======
Accounts payable and accrued liabilities......................... $ 184 $2,802
Shareholders' equity............................................. 1,835 (773)
------ ------
Total liabilities and shareholders' equity..................... $2,019 $2,029
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- ----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue......................... $ 43 $ 148 $ 21 $ 52
Operating, selling, general and
administrative expenses........ (976) (2,365) (407) (690)
Depreciation and amortization... (351) (385) (90) (92)
--------- --------- ---------- ----------
Net operating loss............ (1,284) (2,602) (476) (730)
Other........................... 69 (55) 1 40
--------- --------- ---------- ----------
Net loss...................... $(1,215) $(2,657) $(475) $(690)
========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------
1994 1995
<S> <C> <C>
Leasehold improvements............................................ $-- $ 1,582
Plant and equipment............................................... -- 22,683
Capitalized network construction expenditures..................... -- 2,776
Other............................................................. 1 1,301
--- -------
1 28,342
Accumulated depreciation and amortization......................... -- (1,217)
--- -------
Net property, plant and equipment................................. $ 1 $27,125
=== =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
6. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit
against its federal income tax expense for foreign income taxes paid or
accrued. Because the Company must calculate its foreign tax credit separately
for dividends received from each foreign corporation in which the Company owns
10% to 50% of the voting stock and because of certain other limitations, the
Company's ability to claim a foreign tax credit may be limited, particularly
with respect to dividends paid out of earnings subject to a high rate of
foreign income tax. This limitation and the inability of the Company to offset
losses in one foreign jurisdiction against income earned in another foreign
jurisdiction could result in a high effective tax rate on the Company's
earnings. The Company
F-19
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
has an ownership interest in Telefenua, which is located in Tahiti, a self-
governing territory of France, with which the United States does not have an
income tax treaty. As a result, the Company may be subject to increased
withholding taxes on dividend distributions and other payments from Telefenua
and also may be subject to double taxation with respect to income generated by
Telefenua.
The Company is included as a member of UIHI's consolidated tax return and,
after the Offering, will remain a member of the UIHI consolidated group (as
long as non-UIHI ownership of the Company does not exceed 20%). UIHI and the
Company are parties to a tax sharing agreement that defines the parties'
rights and obligations with respect to tax liability and benefits relating to
the Company and its operations as part of the consolidated group of UIHI . In
general, UIHI is responsible for filing consolidated tax returns and paying
the associated taxes and the Company will reimburse UIHI for the portion of
the tax cost relating to the Company and its operations. For financial
reporting purposes, the Company accounts for income taxes in accordance with
SFAS 109 as if it filed separate income tax returns in accordance with the
fundamental provisions of the tax sharing agreement. The primary differences
between taxable income (loss) and net income (loss) for financial reporting
purposes relate to accounting for equity in income (losses) of affiliated
companies and the non-consolidation of its consolidated subsidiaries for U.S.
tax purposes. Because the Company holds certain of its foreign investments
through affiliates which hold investments, accounted for under the equity
method, in foreign corporations, taxable income (loss) generated does not flow
through to the Company for United States federal and state tax purposes even
though the Company records its allocable share of affiliate income (losses)
for financial reporting purposes. Accordingly, due to the indefinite reversal
of such amounts in future periods, no deferred tax assets have been
established for tax basis in excess of the Company's book basis (approximately
$238 and $5,940 at December 31, 1994 and 1995, respectively) in investments in
affiliated companies who, in turn have equity investments in foreign
corporations.
The Company's United States net operating loss, totaling approximately
$3,049 at December 31, 1995, expires beginning in 2009 through 2011.
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1994 1995
<S> <C> <C>
Company's United States tax net operating loss carryforward... $ 257 $ 1,189
Tax net operating loss carryforward of consolidated foreign
subsidiaries................................................. -- 4,165
----- -------
Deferred tax asset............................................ 257 5,354
Valuation reserve............................................. (257) (5,354)
----- -------
Deferred tax asset, net....................................... $ -- $ --
===== =======
For Australian income tax purposes, the net operating loss carryforward may
be limited in the event of a change in control of CEtv or a change in the
business.
The difference between income tax expense provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
--------------
1994 1995
----- -------
<S> <C> <C>
Expected income tax expense (benefit) at statutory rates...... $ (34) $(3,628)
Tax effect of permanent and other differences:
Other....................................................... -- 39
Amortization of licenses.................................... -- 157
Non-deductible Entertainment................................ 12 222
Effect of net operating losses not recognized............... 22 3,210
----- -------
Total income tax expense (benefit)............................ $ -- $ --
===== =======
</TABLE>
F-20
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
7. COMMITMENTS
CEtv has license fees payable annually as follows:
<TABLE>
<S> <C>
1996............................................................. $ 3,194
1997............................................................. 3,194
1998............................................................. 3,194
1999............................................................. 1,868
2000............................................................. --
-------
$11,450
=======
</TABLE>
CEtv has capital lease obligations as follows:
<TABLE>
<S> <C>
1996............................................................. $ 235
1997............................................................. 261
1998............................................................. 575
1999............................................................. 17
2000............................................................. --
-------
1,088
Future finance charges........................................... (198)
-------
$ 890
=======
</TABLE>
CEtv has operating lease obligations as follows:
<TABLE>
<S> <C>
1996............................................................. $ 474
1997............................................................. 474
1998............................................................. 474
1999............................................................. 475
2000............................................................. 475
After............................................................ 504
-------
$ 2,876
=======
</TABLE>
CEtv entered into franchise agreements with Australis Media Limited
("Australis"). The franchise agreements provide for CEtv to have access to
Australis programming in the franchise area and be the sole Australis
franchisee in the region on all medium, being MMDS, satellite and cable. CEtv
acquires a significant portion of its programming from Australis. (See Note
10)
Under the agreements, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number of
subscribers.
8. RELATED PARTY
In connection with the corporate reorganization discussed in Note 1, the
Company and UIHI will execute a 10-year management services agreement (the
"UIHI Management Agreement"), pursuant to which UIHI will continue to perform
certain administrative, accounting, financial reporting and other services for
the Company, which has no separate employees of its own. For the years ended
December 31, 1994 and 1995, UIHI allocated approximately $659 and $918 to the
Company for such services. Pursuant to the UIHI Management Agreement, UIHI
will be paid a management fee of $750 for the first year of such agreement,
which fees shall increase on the first anniversary date of the UIHI Management
Agreement and each anniversary date thereafter by 8% per year. In addition,
the Company shall reimburse UIHI for any out-of-pocket expenses incurred by
UIHI in
F-21
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
performance of its duties under the UIHI Management Agreement, including
travel, lodging and entertainment expenses.
UIHI has executed technical assistance agreements with CTV and STV pursuant
to which it will provide various management and technical services. Under the
agreements, UIHI receives a management fee equal to 5% of CTV and STV's total
revenue for the first two years, 4% for the next six years, 3% for the
following two years and 2% thereafter. In addition, UIHI is reimbursed for all
direct costs associated with services it provides for CEtv. CEtv's managing
director, chief operating officer and marketing director are employees of UIHI
that have been seconded to CEtv. In addition, UIHI has appointed five other
management personnel and five of six directors.
UIHI and Telefenua have executed a technical services agreement whereby UIHI
has agreed to provide technical, administrative and operational assistance to
Telefenua encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, selling and
advertising, (iii) accounting, billing and subscriber management systems, and
(iv) personnel management and training for a
fee equal to 5.5% of Telefenua's gross revenue through 1996, 3.5% of gross
revenue for the following 12 months, and 2.5% thereafter. The fees payable to
UIHI under its technical service agreement with an indirect majority owned
subsidiary are 5%, 3% and 2% of Telefenua's gross revenues over the same
periods. UIHI is also reimbursed for all direct and indirect costs associated
with the services it provides. UIHI has appointed two of its employees to
serve as managing director and the technical director of Telefenua. UIHI pays
these employee's salaries and benefits.
Saturn and UIHI have executed a technical services agreement pursuant to
which UIHI provides technical, administrative and operational assistance to
Saturn encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, pricing and packaging
of services, (iii) selection of programming and negotiations with suppliers
and (iv) accounting, billing and subscriber management systems. UIHI receives
a management fee equal to 5% of Saturn's gross revenue through July 1999. UIHI
is also reimbursed for all direct and indirect costs associated with these
services. The managing director and construction manager are employees of UIHI
that have been seconded to Saturn pursuant to the terms of the technical
services agreement.
Included in the due to parent payable as of December 31, 1995 is the
following:
<TABLE>
<S> <C>
CTV Bridge loan(1)................................................ $ 5,400
Telefenua Bridge loan, including accrued interest of $231(2)...... 4,527
CEtv technical assistance agreement obligations................... 1,488
Telefenua technical assistance agreement obligations.............. 1,168
-------
$12,583
=======
</TABLE>
- ---------------------
(1) The loan extended to CTV is at an interest rate of 9.25% and has no terms
of repayment. The Company has the option to convert the bridge loan into
equity of CTV.
(2) The loan extended to Telefenua is at an interest rate of 14% and is
compounded annually and has no terms of repayment. The Company has the
option to convert the bridge loan into equity of Telefenua.
Upon completion of the Offering discussed in Note 1, approximately $25,000
of the proceeds will be used to acquire certain bridge loans made by UIHI to
CTV and Telefenua noted above, including $15,073 advanced to CEtv and
Telefenua subsequent to year end.
F-22
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
9. PRO FORMA INFORMATION
The following unaudited pro forma information for the year ended December
31, 1995 gives effect to the acquisitions of the additional 40% economic
interests in CEtv and the disposition of the 25% interest in XYZ Entertainment
as if each had occurred on January 1, 1995. The pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable under current circumstances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------
ACTUAL CETV(1) XYZ(2) PRO FORMA
<S> <C> <C> <C> <C>
Consolidated Condensed Statement of
Operations:
Service revenue................... $ 1,883 $ 443 $ -- $ 2,326
Operating expense................. (3,230) (793) -- (4,023)
General and administrative
expense.......................... (3,402) (6,681) -- (10,083)
Depreciation and amortization
expense.......................... (1,003) (4,259) -- (5,262)
--------- --------- -------- ---------
Net operating loss.............. (5,752) (11,290) -- (17,042)
Equity in losses of affiliated
companies, net................... (16,379) 3,212 4,132 (9,035)
Interest, net..................... 127 1,230 -- 1,357
Other, net........................ 4,771 927 (4,132) 1,566
--------- --------- -------- ---------
Net loss........................ $ (17,233) $ (5,921) $ -- $ (23,154)
========= ========= ======== =========
</TABLE>
- ---------------------
(1) Represents the consolidation of CEtv and the elimination of the previously
recorded equity in losses. Included in depreciation and amortization
expense is $2,987 of amortization related to the goodwill recorded in
connection with the acquisition of an additional 40% effective economic
interest, amortized over 15 years on a straight line basis.
(2) Represents the elimination of the gain on sale of XYZ and 25% of the
equity in losses previously recognized.
10. SUBSEQUENT EVENT
On April 19, 1996, a group of investors, including UIHI, committed to make
or procure guarantees totalling $125,000 under Australis' existing bank
facility to facilitate new bank financing for Australis, a principal supplier
of CEtv's programming. UIHI has agreed that a newly-formed subsidiary will
make or procure a guarantee of $10,000 of the bank financing. UIHI plans to
contribute $10,000 to the new subsidiary, which cash will be used to
collateralize such guarantee. The Company will use $10,000 of the net proceeds
of the Offering to purchase such new subsidiary from UIHI. As consideration,
Australis has granted warrants to acquire 4,171,460 ordinary shares or
convertible notes, at a price of A$0.20 per share or note, to the new
subsidiary, which number is subject to adjustment. The warrants expire on
December 31, 1998. This transaction is subject to execution of final
documentation and other conditions and is scheduled to close by April 30,
1996.
Australis has indicated its intention to refinance its existing bank
facility prior to its maturity through the sale of debt and/or equity
securities and/or the sale of assets to existing shareholders or third
parties. There can be no assurance that Australis will be able to secure
adequate long term financing on satisfactory terms or, if such financing is
secured, how long such financing will satisfy Australis' working capital
needs. The Company believes that if CEtv is no longer able to obtain the
programming provided by Australis on an exclusive basis and it was required to
seek replacement programming, it would have access to the same programming
directly from the suppliers of Australis' programming or sufficient
alternative programming on competitive terms. However, there can be no
assurance that this would be the case and the inability of CEtv to procure the
same or suitable alternative programming at competitive rates and on an
exclusive basis in its service areas could have a material adverse effect on
the Company.
F-23
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of
CTV Pty Limited
We have audited the accompanying consolidated financial statements of CTV
Pty Limited and its subsidiaries for the period ended 31 December 1994 and the
year ended 31 December 1995. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on those consolidated financial statements based on our audit.
We conducted our audit in accordance with Australian Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated financial position
of CTV Pty Limited as of 31 December 1994 and 1995, and the consolidated
results of the group's operations and consolidated cash flows for the periods
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-24
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
DECEMBER 31, MARCH 31, 1996
--------------------- ----------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets:
Cash............................ 19,371,145 9,712,936 --
Receivables..................... 3 718,939 4,538,627 3,579,676
Inventory....................... -- 679,628 2,222,668
Other........................... 4 25,582 830,133 235,564
---------- ---------- -----------
Total current assets.......... 20,115,666 15,761,324 6,037,908
---------- ---------- -----------
Non-current assets
Investments..................... 5 2 2 2
Property, plant and equipment... 6 2,746,809 17,955,579 33,019,025
Intangibles..................... 7 5,021,630 7,906,674 8,571,490
---------- ---------- -----------
Total non-current assets...... 7,768,441 25,862,255 41,590,517
---------- ---------- -----------
Total assets................ 27,884,107 41,623,579 47,628,425
---------- ---------- -----------
Current liabilities
Creditors and borrowings........ 8 2,747,734 15,477,769 21,486,121
Provisions...................... -- -- 166,894
---------- ---------- -----------
Total current liabilities..... 2,747,734 15,477,769 21,653,015
---------- ---------- -----------
Non-current liabilities
Creditors and borrowings........ 9 36,165 684,945 6,428,882
Provisions...................... 10 -- 156,267 --
---------- ---------- -----------
Total non-current liabili-
ties......................... 36,165 841,212 6,428,882
---------- ---------- -----------
Total liabilities........... 2,783,899 16,318,981 28,081,897
---------- ---------- -----------
Net assets........................ 25,100,208 25,304,598 19,546,528
========== ========== ===========
Shareholders' equity
Share capital................... 11 42,729 42,729 42,729
Reserves........................ 13 5,116,536 5,116,536 5,116,536
Retained profits/(accumulated
losses)........................ 206 (5,795,404) (11,553,474)
---------- ---------- -----------
5,159,471 (636,139) (6,394,209)
Convertible debentures.......... 12 19,940,737 25,940,737 25,940,737
---------- ---------- -----------
Total shareholders' equity.. 25,100,208 25,304,598 19,546,528
========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-25
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ECONOMIC ENTITY 1995 1996
------------------------ --------- -----------
PERIOD ENDED YEAR ENDED
31 DECEMBER 31 DECEMBER
1994 1995 (UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C>
Revenue:
Service................... -- 579,690 -- 1,288,162
-------- ---------- -------- -----------
-- 579,690 -- 1,288,162
-------- ---------- -------- -----------
Expenses:
General and administra-
tion..................... 321,494 6,406,782 401,123 4,969,915
Depreciation and
amortisation............. 4,055 1,491,456 12,118 1,769,604
Management fees........... -- 29,651 -- 70,231
-------- ---------- -------- -----------
325,549 7,927,889 413,241 6,809,750
-------- ---------- -------- -----------
Operating loss.............. (325,549) (7,348,199) (413,241) (5,521,588)
-------- ---------- -------- -----------
Non-operating income (ex-
pense)
Interest income........... 327,355 1,227,029 439,849 55,197
Interest expense and costs
of finance............... (1,600) (2,180) (195) (142,679)
Other, net foreign ex-
change gains--non-specu-
lative trading........... -- 327,740 -- (149,000)
-------- ---------- -------- -----------
325,755 1,552,589 439,654 (236,482)
-------- ---------- -------- -----------
Net profit (loss) before
tax........................ 206 (5,795,610) 26,413 (5,758,070)
Income tax attributable to
net profit/(loss).......... -- -- -- --
-------- ---------- -------- -----------
Net loss.................... 206 (5,795,610) 26,413 (5,758,070)
-------- ---------- -------- -----------
Retained
profits/(accumulated
losses) at beginning of
period..................... -- 206 206 (5,795,404)
-------- ---------- -------- -----------
Retained
profits/(accumulated loss-
es) at end of period....... 206 (5,795,404) 26,619 (11,553,474)
======== ========== ======== ===========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-26
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ECONOMIC ENTITY 1995 1996
------------------------ ---------- -----------
PERIOD ENDED YEAR ENDED
31 DECEMBER 31 DECEMBER
NOTE 1994 1995 (UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities
Receipts from custom-
ers.................. -- 522,211 -- 2,247,115
Payments to suppliers
and employees........ (297,332) (3,973,333) (22,457) (1,152,927)
Interest received..... 327,355 1,227,029 439,849 55,197
Interest and other
costs of finance
paid................. (1,600) (2,180) (195) (142,679)
---------- ----------- ---------- -----------
Net operating cash
flows................ 28,423 (2,226,273) 417,197 1,006,706
---------- ----------- ---------- -----------
Cash flows from invest-
ing activities
Purchase of
subsidiaries, net of
cash acquired........ (12) (10) -- --
Payments for plant and
equipment............ (55,871) (15,326,279) (87,289) (16,833,050)
Payments for MDS and
broadcast licenses... (5,021,630) (3,437,458) (1,099) (15,646)
Loans granted......... (718,939) (3,768,962) -- --
Payments for invest-
ments................ -- (2) -- --
---------- ----------- ---------- -----------
Net investing cash
flows................ (5,796,452) (22,532,711) (88,388) (16,848,696)
---------- ----------- ---------- -----------
Cash flows from financ-
ing activities
Proceeds from share
issues............... 5,159,265 -- -- --
Proceeds from issue of
convertible
debentures........... 19,940,737 6,000,000 -- --
Proceeds from short
term loans........... 39,781 8,818,202 -- --
Proceeds from loan
from related body
corporate............ -- -- 6,000,000 5,405,405
Repayment of finance
lease principal...... (609) (45,167) -- 338,532
---------- ----------- ---------- -----------
Net financing cash
flows................ 25,139,174 14,773,035 6,000,000 5,743,937
---------- ----------- ---------- -----------
Net increase/(decrease)
in cash held........... 19,371,145 (9,985,949) 6,328,809 (10,098,053)
Cash at beginning of pe-
riod................... -- 19,371,145 19,371,145 9,712,986
Effect of different ex-
change rate............ -- 327,740 -- (149,000)
---------- ----------- ---------- -----------
Cash at the end of the
period................. 8, 16 19,371,145 9,712,936 25,699,954 (534,067)
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-27
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the
historical cost convention using the accounting policies described below. They
do not take account of changes in either the general purchasing power of the
dollar or in the prices of specific assets.
The Company was incorporated on 21 April 1994. The comparative financial
statements have been prepared for the period 21 April 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, CTV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognised in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realisation of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalised.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortised over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalised and rental payments are charged against
operating profit in the period in which they are incurred.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
F-28
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Property, plant and equipment, excluding freehold land, are depreciated or
amortised at rates based upon their expected useful lives using the straight
line method.
<TABLE>
<S> <C>
Leasehold improvements......................................... 6 years
Computer equipment............................................. 3 years
Motor vehicles................................................. 5 years
Furniture and fittings......................................... 10 years
</TABLE>
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licenses, acquired for a 5 year period, will be
amortised over the remaining license period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amount of all non-current assets are reviewed at least annually
to determine whether they exceed their recoverable amount. The recoverable
amounts of all non-current assets have been determined using net cash flows
which have not been discounted to their present values.
PROVISION FOR ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
NOTE 2. INCOME TAX
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995
$A $A
<S> <C> <C>
Operating profit/(loss)..................... 206 (5,795,610)
Prima facie tax thereon @ 36%............... 74 (2,086,420)
Tax effect of permanent and other differ-
ences:
--Timing differences...................... (14,367) (339,527)
--Amortisation of licences................ -- 198,873
--Entertainment non-deductible............ 14,293 165,618
--Effect of tax losses not brought to ac-
count.................................... -- 2,061,456
------- ----------
Total income tax attributable to operating
profit/(loss).............................. -- --
======= ==========
</TABLE>
F-29
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $5,795,404 available to offset against future years' taxable
income. The benefit of these losses of $2,061,456 has not been brought to
account as realisation is not virtually certain. The benefit will only be
obtained if:
(i) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realised;
(ii) the company continues to comply with the conditions for
deductibility imposed by the law;
(iii) no changes in tax legislation adversely affect the company in
realising the benefit from the deductions for the losses; and
(iv) any change in the business or control of the company does not affect
the ability to utilise the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Trade debtors............................... -- 57,479 209,124
Less: provision for doubtful debts.......... -- (5,792) (32,302)
------- --------- ---------
-- 51,687 176,822
Related parties:
--United International Holdings Inc....... 95,865 140,217 394,363
--Other................................... -- 712,554 712,554
--Related body corporate--STV Pty Ltd...... 623,074 3,627,044 2,288,162
Other persons............................... -- 7,125 7,775
------- --------- ---------
718,939 4,538,627 3,579,676
======= ========= =========
NOTE 4. OTHER ASSETS (CURRENT):
Prepaid expenses............................ 10,465 787,916 130,107
Security deposits........................... 15,117 42,217 104,957
------- --------- ---------
Total other assets (current)................ 25,582 830,133 235,564
======= ========= =========
NOTE 5. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
18)........................................ 2 2 2
======= ========= =========
</TABLE>
F-30
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.............................. -- 151,200 152,934
--Accumulated depreciation............. -- (8,705) (15,122)
--------- ---------- ----------
Total leasehold improvements, net........ -- 142,495 137,812
--------- ---------- ----------
Plant and equipment:
--At cost.............................. 55,881 15,737,143 19,700,289
--Accumulated depreciation............. (4,055) (872,818) (1,446,834)
--------- ---------- ----------
Total plant and equipment, net........... 51,826 14,864,325 18,253,455)
--------- ---------- ----------
Plant and equipment under lease:
--At capitalised cost.................. 44,506 912,820 2,818,854
--Accumulated depreciation............. -- (61,563) (195,882)
--------- ---------- ----------
Total leased plant and equipment, net.... 44,506 851,257 2,122,972
--------- ---------- ----------
Capitalised network construction expendi-
tures:
--At cost.............................. 2,650,477 2,097,502 13,183,386
--Accumulated amortisation............. -- -- (678,600)
--------- ---------- ----------
Total capitalised development expendi-
tures, net:............................. 2,650,477 2,097,502 12,504,786
--------- ---------- ----------
Total property, plant and equipment,
net:.................................... 2,746,809 17,955,579 33,019,025
========= ========== ==========
NOTE 7. INTANGIBLE ASSETS (NON-CURRENT):
MDS licenses:
--At cost.............................. 5,018,215 8,196,618 9,237,130
--Accumulated amortisation............. -- (544,093) (920,344)
--------- ---------- ----------
Total MDS licenses net:.................. 5,018,215 7,652,525 8,316,786
--------- ---------- ----------
Program Rights fees at cost: -- 250,000 250,000
--Accumulated amortisation............. -- (8,333) (8,333)
Other at cost............................ -- -- 1,570
Organisation costs at cost:.............. 3,415 12,482 11,467
--------- ---------- ----------
Total intangible assets, net............. 5,021,630 7,906,674 8,571,490
========= ========== ==========
NOTE 8. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Overdraft.............................. -- -- 534,067
Trade creditors........................ 1,684 5,727,304 9,382,945
Unearned Income........................ -- 29,062 22,117
Accrued Expenses....................... 2,698,537 728,113 1,881,694
Due to related body corporate--United
International Holdings Inc............ 39,781 8,857,983 9,414,564
Secured:
Finance lease liability (Note 15)...... 7,732 135,307 250,734
--------- ---------- ----------
Total current creditors and borrowings... 2,747,734 15,477,769 21,486,121
========= ========== ==========
</TABLE>
F-31
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Unsecured:
Finance lease liability (Note 15).... -- -- 1,023,477
Loan from related body corporate..... -- -- 5,405,405
----------- ----------- -----------
Secured
Finance lease liability (Note 15).... 36,165 684,945 --
----------- ----------- -----------
Total non-current creditors and
borrowings............................ 36,165 684,945 6,428,882
=========== =========== ===========
NOTE 10. PROVISIONS (NON-CURRENT):
Annual leave........................... -- 156,267 166,894
=========== =========== ===========
NOTE 11. SHARE CAPITAL:
Authorised capital:
--100,000,000 ordinary shares of $1
each................................ 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorised capital as at 31 De-
cember 1995........................... 100,000,000 100,000,000 100,000,000
Issued and paid up capital:
--42,729 ordinary shares of $1 each.. 42,729 42,729 42,729
----------- ----------- -----------
Total issued and paid up capital....... 42,729 42,729 42,729
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
1994 1994 1995 1995
<S> <C> <C> <C> <C>
Opening number of shares.............. 3 -- 42,729 --
Issued during the year................ 42,726 13 -- --
Redeemed.............................. -- 13 -- --
------ --- ------ ---
Closing number of shares.............. 42,729 -- 42,729 --
====== === ====== ===
</TABLE>
NOTE 12. CONVERTIBLE DEBENTURES:
During the year, the company issued 162,643 convertible debentures for
$A6,000,000. These debentures confer rights upon the holders as creditors of
the company. They do not confer any right to attend or vote at general
meetings. Interest is payable to the holders equal to the amount of the
distribution that the holder would have received if, as at the date the
entitlement to the distribution was determined, all of the debentures of that
holder and all other holders had been converted into shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
F-32
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 13. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
1994 1995
$A $A
<S> <C> <C>
Share premium opening balance............................... -- 5,116,536
Premium on issues of shares................................. 5,116,536 --
Redemption of preference shares............................. -- --
--------- ---------
Total reserves.............................................. 5,116,536 5,116,536
========= =========
</TABLE>
NOTE 14. EMPLOYEE ENTITLEMENTS:
SUPERANNUATION COMMITMENTS
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund; and
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-33
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------
1994 1995
$A $A
<S> <C> <C>
(a) Annual licence fees are payable as follows:
Not later than one year.............................. 1,212,627 3,068,099
Later than one year but not later than two years..... 1,212,627 3,068,099
Later than two years but not later than five years... 3,637,881 5,121,828
Later than five years................................ -- --
--------- ----------
6,063,135 11,258,026
========= ==========
(b) Finance lease expenditure contracted for is payable as
follows:
Not later than one year.............................. 12,429 215,798
Later than one year but not later than two years..... 12,429 233,412
Later than two years but not later than five years... 30,044 553,335
Later than five years................................ -- --
--------- ----------
54,902 1,002,545
Future finance charges............................... 11,005 182,293
--------- ----------
Net finance lease liability.......................... 43,897 820,252
========= ==========
Reconciled to:
Current liability (Note 8)........................... 7,732 135,307
Non-current liability (Note 9)....................... 36,165 684,945
--------- ----------
43,897 820,252
========= ==========
(c) Operating lease expenditure contracted for is payable
as follows:
Not later than one year.............................. 137,500 467,767
Later than one year but not later than two years..... 137,500 467,767
Later than two years but not later than five years... 412,500 1,405,357
Later than five years................................ -- 529,372
--------- ----------
687,500 2,870,263
========= ==========
</TABLE>
(d) On 24 July 1994, CTV Pty Limited entered into a franchise agreement with
Australis Media Limited. The franchise provides for CTV Pty Limited to
have access to Australis Media Limited programming in the franchise area
and be the sole Australis franchisee in the region on all medium, being
MDS, satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-34
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. NOTES TO THE STATEMENT OF CASH FLOWS:
(a)Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash
at the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
--------------------------------- -----------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash............................. 73,377 (261,963) (534,067)
Short term money market depos-
its............................. 19,297,768 9,974,899 --
---------- ---------- ----------
19,371,145 9,712,936 (534,067)
========== ========== ==========
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
--------------------------------- -----------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Operating profit (loss) after in-
come tax:....................... 206 (5,795,610) (5,758,070)
Adjustments for non-cash income
and expense items:
Depreciation and amortisation
expense....................... 4,055 1,491,456 1,769,604
Bad debts expense and provision
for doubtful debts............ -- 5,792 10,627
Transfers to provisions:
Annual leave................... -- 156,267 --
Unrealised foreign exchange
gain............................ -- (327,740) 149,000
Increase in other receivables.... -- (57,479) 958,953
Increase in trade creditors...... 49,744 3,785,221 4,825,063
Increase in inventory............ -- (679,628) (1,543,040)
Increase in other assets......... (25,582) (804,552) 594,569
---------- ---------- ----------
Net cash from operating activi-
ties............................ 28,423 (2,226,273) 1,006,706
========== ========== ==========
</TABLE>
(c)Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as
follows:
<TABLE>
<CAPTION>
FAIR VALUE OF
NET TANGIBLE
ASSETS
--------------
1994 1995
ENTITY $A $A
<S> <C> <C>
Jacolyn Pty Limited............................................. 2 --
Yanover Pty Limited............................................. 2 --
Keansburg Pty Limited........................................... 2 --
Orloff Pty Limited.............................................. 2 --
Maxi-Vu Pty Limited............................................. 2 --
Vinatech Pty Limited............................................ 2 --
Palara Vale Pty Limited......................................... -- 2
Auldana Pty Limited............................................. -- 2
Grovern Pty Limited............................................. -- 2
Lystervale Pty Limited.......................................... -- 2
Minorite Pty Limited............................................ -- 2
------ ------
Fair value of net identifiable assets........................... 12 10
Goodwill on acquisition......................................... -- --
------ ------
Total consideration............................................. 12 10
====== ======
</TABLE>
F-35
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(d) Non-cash financing and investing activities
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A821,522 (1994: $A44,506) by means of finance
leases. These transactions are not reflected in the statement of cashflows.
NOTE 17. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
PARENT CONSOLIDATED
ENTITY'S % OF RESULT FOR THE
INVESTMENT SHARES HELD PERIOD
-------------- ------------ ----------------
PLACE OF
NAME OF CONTROLLED INCORPORATION DATE OF TYPE OF 1994 1995 1994 1995 1994 1995
ENTITY FORMATION (A) ACQUISITION SHARES $A $A % % $A $A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacolyn Pty Limited..... Australia 14/6/94 Ordinary 2 100 --
Yanover Pty Limited..... Australia 21/7/94 Ordinary 2 100 --
Keansburg Pty Limited... Australia 14/6/94 Ordinary 2 100 --
Orloff Pty Limited...... Australia 14/6/94 Ordinary 2 100 --
Maxi-Vu Pty Limited..... Australia 4/8/94 Ordinary 2 100 --
Palara Vale Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Auldana Beach Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Grovern Pty Limited..... Australia 24/4/95 Ordinary 2 100 --
Lystervale Pty Limited.. Australia 24/4/95 Ordinary 2 100 --
Vinatech Pty Limited.... Australia 29/7/94 Ordinary 2 100 --
Minorite Pty Limited.... Australia 24/4/95 Ordinary 2 100 --
------ -------
22 --
====== =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 18. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
---------- ---------
NAME OF
ASSOCIATED PRINCIPAL ACTIVITY OF BALANCE
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of subscription
Entertainment television services to
Australia Pty regional Australia. 31
Limited 50% 50% December -- --
Ilona Investments Delivery of subscription
Pty Limited television services to 30
regional Australia 50% 50% June -- --
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................... 2 2
------- -------
Aggregate amount of investments in associated companies, as
determined under the equity method of accounting............ 2 2
======= =======
</TABLE>
F-36
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. RELATED PARTY DISCLOSURES:
(a) Other director transactions
Crase Partners, a director-related firm of J. K. Crase, provided general
accounting services to the company during the year. These services were
provided at an arms length basis.
J. K. Crase, a director, purchased equipment from the company during the
year. The purchase was made on an arms length basis.
(b) Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
(c) Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 20. US GAAP INFORMATION:
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per balance
sheet............................. 25,100,208 25,304,598 19,546,528
Adjustments to reported equity:
Convertible debentures........... (19,940,737) (25,940,737) (25,940,737)
----------- ----------- -----------
Shareholder's equity in accordance
with
US GAAP........................... 5,159,471 (636,139) (6,394,209)
=========== =========== ===========
</TABLE>
F-37
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of STV Pty Limited
We have audited the accompanying consolidated financial statements of STV
Pty Limited and its subsidiaries for the period ended 31 December 1994 and the
year ended 31 December 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those consolidated financial statements based on our audit.
We conducted our audit in accordance with Australian Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated financial position
of STV Pty Limited as of 31 December 1994 and 1995, and the consolidated
results of the group's operations and consolidated cash flows for the periods
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-38
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets
Cash................................ 10,078,250 2,236 1,353,266
Receivables......................... 3 63,934 1,325,563 1,386,056
Prepayments......................... -- 382,866 387,409
---------- ---------- ----------
Total current assets.................. 10,142,184 1,710,665 3,126,731
---------- ---------- ----------
Non-current assets
Investments......................... 4 2 2 2
Property, plant and equipment....... 5 527,373 6,085,042 12,347,647
Intangibles......................... 6 3,562 3,727,654 3,811,775
---------- ---------- ----------
Total non-current assets.............. 530,937 9,812,698 16,159,424
---------- ---------- ----------
Total assets.......................... 10,673,121 11,523,363 19,286,155
---------- ---------- ----------
Current liabilities
Creditors and borrowings............ 7 759,411 4,673,587 14,592,142
---------- ---------- ----------
Total current liabilities............. 759,411 4,673,587 14,592,142
---------- ---------- ----------
Non-current liabilities
Creditors and borrowings............ 8 36,165 313,981 699,016
Provisions.......................... 9 -- 11,495 87,335
---------- ---------- ----------
Total non-current liabilities......... 36,165 325,476 786,351
---------- ---------- ----------
Total liabilities..................... 795,576 4,999,063 15,378,493
---------- ---------- ----------
Net assets............................ 9,877,545 6,524,300 3,907,662
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-39
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Shareholders' equity
Share capital...................... 10 133,296 133,296 133,296
Reserves........................... 12 1,426,959 1,426,959 1,426,959
Accumulated losses................. (122,457) (3,475,702) (6,092,340)
--------- ---------- ----------
1,437,798 (1,915,447) (4,532,085)
Convertible debentures............... 11 8,439,747 8,439,747 8,439,747
--------- ---------- ----------
Total shareholders' equity........... 9,877,545 6,524,300 3,907,662
========= ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-40
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31,
------------------------ --------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 31 DECEMBER
NOTE 1994 1995 1995 1996
(UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C> <C>
Revenue:
Service................ -- 13,819 -- 116,512
-------- ---------- -------- ----------
-- 13,819 -- 116,512
-------- ---------- -------- ----------
Expenses:
General and administra-
tion.................. 258,991 3,576,688 362,736 2,231,580
Depreciation and amor-
tization.............. 4,055 212,635 11,974 346,531
Management fees........ -- -- -- 5,825
-------- ---------- -------- ----------
263,046 3,789,323 374,710 2,583,936
-------- ---------- -------- ----------
Operating loss........... (263,046) (3,775,504) (374,710) (2,467,424)
-------- ---------- -------- ----------
Non-operating income (ex-
pense)
Interest income........ 142,189 422,563 193,457 7,204
Interest expense and
costs of finance...... (1,600) (304) (50) (250)
-------- ---------- -------- ----------
140,589 422,259 (181,303) 6,954
-------- ---------- -------- ----------
Other, net foreign
exchange gains
(losses)................ -- -- -- (156,169)
Net loss before tax...... (122,457) (3,353,245) (181,303) (2,616,639)
Income tax attributable
to net loss............. -- --
-------- ---------- -------- ----------
Net loss................. (122,457) (3,353,245) (181,303) (2,616,639)
-------- ---------- -------- ----------
Accumulated losses at
beginning of period..... -- (122,457) (122,457) (3,475,701)
-------- ---------- -------- ----------
Accumulated losses at end
of period............... (122,457) (3,475,702) (303,760) (6,092,340)
======== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-41
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31,
------------------------------------- -----------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 31 DECEMBER
NOTES 1994 1995 1995 1996
$A $A (UNAUDITED)
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS) $A
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities:
Receipts from
customers............ -- 74,749 -- 56,019
Payments to suppliers
and employees........ (210,202) (3,876,242) (334,157) (2,673,328)
Interest received..... 78,255 422,563 192,653 7,204
Interest and other
costs of finance
paid................. (1,600) (304) (50) (250)
---------- ----------- ---------- -----------
Net operating
cashflows.............. (133,547) (3,379,234) (141,554) (2,610,355)
---------- ----------- ---------- -----------
Cashflows from investing
activities:
Purchase of
subsidiaries, net of
cash acquired........ (2) (12) -- --
Payments for plant,
equipment and
construction in
process.............. (486,922) (5,381,613) (125,109) (6,609,137)
Payments for MDS
licenses............. (3,562) (3,757,962) -- (84,120)
Payments for
investments.......... -- (2) -- --
Loans granted......... -- (1,322,587) -- --
---------- ----------- ---------- -----------
Net investing
cashflows.............. (490,486) (10,462,176) (125,109) (6,693,257)
---------- ----------- ---------- -----------
Cashflows from financing
activities:
Proceeds from issues
of shares............ 1,560,255 -- -- --
Proceeds from short-
term loans........... 702,890 3,787,493 460,402 10,810,810
Proceeds from
debenture issues..... 8,439,747 -- -- --
Repayment of finance
lease principal...... (609) (22,097) (1,087) --
---------- ----------- ---------- -----------
Net financing
cashflows.............. 10,702,283 3,765,396 459,315 10,810,810
---------- ----------- ---------- -----------
Net increase (decrease)
in cash held........... 10,078,250 (10,076,014) 192,652 1,507,198
Cash at the beginning of
the period............. -- 10,078,250 10,078,244 2,236
Effect of different
exchange rate.......... 15(c) -- -- -- (156,168)
---------- ----------- ---------- -----------
Cash at the end of the
period................. 15(a) 10,078,250 2,236 10,270,896 1,353,266
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-42
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the
historical cost convention using the accounting policies described below.
Further, they do not take account of changes in either the general purchasing
power of the dollar or in the prices of specific assets.
The Company was incorporated on 28 June 1994. The comparative financial
statement have been prepared for the period 28 June 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, STV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognized in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realization of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalized.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortized over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalized and rental payments are charged against
operating profit in the period in which they are incurred.
F-43
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
<TABLE>
<S> <C>
Leasehold improvements............................................ 6 years
Computer equipment................................................ 3 years
Motor vehicles.................................................... 5 years
Furnitures and fixtures........................................... 10 years
</TABLE>
Property, plant and equipment, excluding freehold land, are depreciated or
amortized at rates based upon their expected useful lives using the straight
line method.
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licences, acquired for a 5 year period, will be
amortized over the remaining licence period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all non-current assets have been determined using net
cashflows which have not been discounted to their present values.
ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
F-44
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. INCOME TAX
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995
$A $A
<S> <C> <C>
Operating loss........................... (122,457) (3,353,245)
Prima facie tax thereon @ 36%............ (44,085) (1,207,168)
Tax effect of permanent and other differ-
ences
--Timing differences.................... -- (133,683)
--Entertainment non deductible.......... 1,585 133,397
--Amortisation of licenses.............. -- 12,193
--Effect of losses not brought to ac-
count.................................. 42,500 1,195,261
-------- ----------
Total income tax attributable to operat-
ing profit.............................. -- --
======== ==========
</TABLE>
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $A 3,475,702 available to offset against future years' taxable
income. The benefit of these losses of $A 1,237,761 has not been brought to
account as realization is not virtually certain. The benefit will only be
obtained if:
(a) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realized;
(b) the company continues to comply with the conditions for deductibility
imposed by the law;
(c) no changes in tax legislation adversely affect the company in
realizing the benefit from the deductions for the losses; and
(d) any change in the business or control of the company does not affect
the ability to utilize the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
---------------- -----------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Accounts Receivable Trade.................... -- 3,004 64,662
--Allowance for Bad Debts................... -- (28) (1,193)
Non-trade amounts owing by:
Related parties
--Wholly owned group....................... -- -- --
--Associated companies..................... -- 1,322,587 1,322,587
Other persons............................... 63,934 -- --
------ --------- ---------
Total current receivables.................... 63,934 1,325,563 1,386,056
====== ========= =========
NOTE 4. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
17)......................................... 2 2 2
====== ========= =========
</TABLE>
F-45
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1995
------------------ --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.............................. -- 128,274 128,273
--Accumulated amortization............. -- (7,801) (13,268)
------- --------- ----------
Total leasehold improvements, net....... -- 120,473 115,005
------- --------- ----------
Plant and equipment:
--At cost.............................. 55,881 4,093,944 11,166,223
--Accumulated depreciation............. (4,055) (149,677) (446,725)
------- --------- ----------
Total plant and equipment, net.......... 51,826 3,944,267 10,194,498
------- --------- ----------
Plant and equipment under lease:
--At capitalized cost.................. 44,506 408,832 733,650
--Accumulated depreciation............. -- (25,343) (47,616)
------- --------- ----------
Total lease plant and equipment, net.... 44,506 383,489 686,034
------- --------- ----------
Capitalized network construction
expenditures:
--At cost.............................. 431,041 1,636,813 827,109
--Accumulated amortization............. -- -- --
------- --------- ----------
Total capitalized development
expenditures, net...................... 431,041 1,636,813 827,109
------- --------- ----------
Total property, plant and equipment,
net.................................... 527,373 6,085,042 12,347,647
======= ========= ==========
NOTE 6. INTANGIBLE ASSETS (NON-CURRENT):
MDS licences............................ 1,570 3,501,285 3,605,669
--Accumulated Amortization............. -- (25,536) (47,280)
Other licenses.......................... -- 251,570 251,570
--Accumulated Amortization............. -- (8,333) (8,333)
Other................................... 1,992 8,668 10,149
------- --------- ----------
Total intangible assets, net............ 3,562 3,727,654 3,811,775
======= ========= ==========
NOTE 7. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Trade creditors........................ 1,689 120,561 99,925
Accrued expenses....................... 47,100 -- --
Due to associated company--CTV Pty
Limited............................... 623,074 3,627,044 2,288,162
Due to related body corporate--United
International Holdings Inc............ 79,816 863,341 12,023,967
Secured:
Secured:Finance lease liability (Note
14)................................... 7,732 62,641 180,088
------- --------- ----------
759,411 4,673,587 14,592,142
======= ========= ==========
</TABLE>
F-46
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------------- --------------
1994 1995 (UNAUDITED)
----------- ----------- --------------
$A $A $A
<S> <C> <C> <C>
Secured:
Finance lease liability (Note 14).. 36,165 313,981 699,016
----------- ----------- -----------
Total non-current creditors and
borrowings......................... 36,165 313,981 699,016
=========== =========== ===========
NOTE 9. PROVISIONS (NON-CURRENT):
Annual leave........................ -- 11,495 87,335
NOTE 10. SHARE CAPITAL:
Authorized capital:
--100,000,000 ordinary shares of $1
each.............................. 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorized capital............ 100,000,000 100,000,000 100,000,000
=========== =========== ===========
Issued and paid up capital:
--133,296 ordinary shares of $1.00
each.............................. 133,296 133,296 133,296
----------- ----------- -----------
Total issued and paid up capital.... 133,296 133,296 133,296
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
--------- ---------- --------- ----------
1994 1994 1995 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Opening number of shares.......... -- -- 133,296 --
Issued during the year (a)........ 133,296 2 -- --
Redeemed.......................... -- 2 -- --
------- --- ------- ------
Closing number of shares.......... 133,296 -- 133,296 --
======= === ======= ======
</TABLE>
NOTE 11. CONVERTIBLE DEBENTURES:
During the year, the company had outstanding 986,707 convertible debentures
for $A 8,439,747. These debentures confer rights upon the holders as creditors
of the company. They do not confer any right to attend or vote at general
meetings. Interest is payable to the holders equal to the amount of the
distribution that the holder would have received if, as at the date the
entitlement to the distribution was determined, all of the debentures of that
holder and all other holders had been converted into shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
F-47
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 12. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
1994 1995
--------- ---------
$A $A
--------- ---------
<S> <C> <C>
Share premium opening balance............................ -- 1,426,959
Premium on issue of shares............................... 1,426,959 --
--------- ---------
Total reserves........................................... 1,426,959 1,426,959
========= =========
</TABLE>
NOTE 13. EMPLOYEE ENTITLEMENTS:
Superannuation commitments
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund.
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-48
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
(a) Annual licence fees are payable as follows:
Not later than one year.................................. -- 1,227,291
Later than one year but not later than two years......... -- 1,227,291
Later than two years but not later than five years....... -- 1,686,787
Later than five years.................................... -- --
------ ---------
-- 4,141,369
====== =========
(b) Finance lease expenditure contracted for is payable as
follows:
Not later than one year.................................. 12,429 99,657
Later than one year but not later than two years......... 12,429 117,272
Later than two years but not later than five years....... 30,043 243,506
Later than five years.................................... -- --
------ ---------
54,901 460,435
====== =========
Future finance charges..................................... 11,004 83,813
------ ---------
Net finance lease liability................................ 43,897 376,622
====== =========
Reconciled to:
Current liability (Note 7)............................... 7,732 62,641
Non-current liability (Note 8)........................... 36,165 313,981
------ ---------
43,897 376,622
====== =========
(c) Operating lease expenditure contracted for is payable as
follows
Not later than one year.................................. -- 169,642
Later than one year but not later than two years......... -- 169,642
Later than two years but not later than five years....... -- 510,984
Later than five years.................................... -- 148,112
------ ---------
-- 998,380
====== =========
</TABLE>
(d) On 12 October 1995, STV Pty Ltd entered into a Franchise Agreement with
Australis Media Limited. The franchise provides for STV Pty Ltd to have
access to Australis Media Limited programming in the franchise area and be
the sole Australis franchisee in the region on all mediums, being MDS,
satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-49
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. NOTES TO THE STATEMENT OF CASH FLOWS:
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash at
the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
---------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash......................................... 5,994 2,236 1,353,266
Short-term money market deposits............. 10,072,256 -- --
---------- ----- ---------
10,078,250 2,236 1,353,266
========== ===== =========
</TABLE>
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------------------- --------------
PERIOD ENDED YEAR ENDED (UNAUDITED)
31 DECEMBER 1994 31 DECEMBER 1995
$A $A
<S> <C> <C> <C>
Operating loss after in-
come tax................. (122,457) (3,353,245) (2,616,639)
Adjustments for non-cash
income and expense items:
Depreciation and amorti-
zation expense......... 4,055 212,635 346,531
Bad debts expense and
provision for doubtful
debts.................. -- 28 1,165
Unrealised foreign
exchange gain.......... -- -- 156,169
Transfers to provisions:
Annual leave............ -- 11,495 75,841
Increase in other re-
ceivables.............. (63,934) 60,930 (60,493)
Increase (decrease) in
trade creditors........ 48,789 71,789 (508,386)
Increase in other as-
sets................... -- (382,866) (4,543)
-------- ---------- ----------
Net cash from operating
activities............. (133,547) (3,379,234) (2,610,355)
======== ========== ==========
</TABLE>
(c) Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as follows:
<TABLE>
<CAPTION>
FAIR VALUE
OF NET TANGIBLE
ASSETS ACQUIRED
----------------
ENTITY 1994 1995
------ $A $A
<S> <C> <C>
Selectra Pty Limited....................................... 2 --
Vermint Grove Pty Ltd--cash................................ -- 2
Kidilla Pty Limited--cash.................................. -- 2
Dovevale Pty Limited--cash................................. -- 2
Carryton Pty Limited--cash................................. -- 2
Xtek Bay Pty Limited--cash................................. -- 2
Windytide Pty Limited--cash................................ -- 2
------- -------
Fair value of net identifiable assets...................... 2 12
Goodwill on acquisition.................................... -- --
------- -------
Total consideration........................................ 2 12
======= =======
</TABLE>
F-50
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(d) Non-cash financing and investing activities.
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A 354,822 (1994: $A 44,506) by means of finance
leases. These transactions are not reflected in the Statement of cash flows.
NOTE 16. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
CONTRIBUTION TO
BOOK VALUE OF CONSOLIDATED
PARENT ENTITY'S % OF RESULT FOR THE
PLACE OF INVESTMENT SHARES HELD YEAR
NAME OF INCORPORATION/ DATE OF TYPE OF ---------------- ------------ ----------------
CONTROLLED ENTITY FORMATION(A) ACQUISITION SHARES 1994 1995 1994 1995 1994 1995
% %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vermint Grove Pty Lim-
ited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Kidilla Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Dovevale Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Carryton Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Xtek Bay Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Selectra Pty Limited Australia 29/7/94 Ordinary 2 2 100 100 -- --
Windytide Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
------- ------- ------- -------
2 14 -- --
======= ======= ======= =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 17. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
NAME OF ASSOCIATED PRINCIPAL ACTIVITY OF --------- BALANCE ------------
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of
Entertainment subscription
Australia Pty television services
Limited to regional
Australia 50% 50% 31 December -- --
Chippawa Pty Limited Delivery of
subscription
television services
to regional
Australia 50% 50% 30 June -- --
----- -----
-- --
===== =====
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................ 2 2
------- -------
Aggregate amount of investment in associated companies, as
determined under the equity method of accounting......... 2 2
======= =======
</TABLE>
F-51
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. RELATED PARTY DISCLOSURES:
A. Other director transactions
Crase Partners, a director-related firm of J. K. Crase, a director, provided
general accounting services to the company during the period. These services
were provided at an arms length basis.
B. Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
C. Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 19. US GAAP INFORMATION
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ---------------
1994 1995 1996
---------- ---------- ----------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per balance
sheet............................. 9,877,545 6,524,300 3,907,662
Adjustments to reported equity:
Convertible debentures........... (8,439,747) (8,439,747) (8,439,747)
---------- ---------- ----------
Shareholder's equity in accordance
with US GAAP...................... 1,437,798 (1,915,447) (4,532,085)
========== ========== ==========
</TABLE>
F-52
<PAGE>
AUDITORS' REPORT
To the shareholders of Saturn Communications Limited (formerly Kiwi Cable
Company Limited):
We have audited the accompanying financial statements of Saturn
Communications Limited (formerly Kiwi Cable Company Limited) for the year
ended 31 December 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those financial statements based on our audits.
We conducted our audits in accordance with New Zealand Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of Saturn Communications
Limited as of 31 December 1994 and 1995, and the results of the Company's
operations for the years then ended in accordance with New Zealand Accounting
Standards.
There are certain differences between New Zealand Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these financial statements.
Arthur Andersen
Wellington, New Zealand
20 February 1996
F-53
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS MONTHS ENDED
ENDED 31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Programming Revenue..... 70,389 169,223 26,064 61,901
Other Revenue........... -- 57,835 7,969 74,615
---------- ---------- -------- ----------
Total Revenue........... 70,389 227,058 34,033 136,516
Expenses
Programming Expenses.... 203,901 448,243 130,732 65,417
Selling, general & ad-
ministration........... 684,811 1,306,969 206,752 578,670
Management fee expense
to related party....... 309,426 17,209 3,560 7,448
Other operating ex-
penses................. 845,791 2,506,326 436,325 504,456
---------- ---------- -------- ----------
Deficit before taxation
for the year........... 2 (1,973,540) (4,051,689) (743,336) (1,019,475)
Income tax expense...... 11 -- -- -- --
---------- ---------- -------- ----------
Net deficit for the
year................... (1,973,540) (4,051,689) (743,336) (1,019,475)
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-54
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1995
<TABLE>
<CAPTION>
NZ$
----------
<S> <C>
Balance, at December 31, 1993....................................... (2,314,485)
Contributions from owners........................................... 7,155,259
Net deficit......................................................... (1,973,540)
----------
Balance, at December 31, 1994....................................... 2,867,234
Net deficit......................................................... (4,051,689)
----------
Balance, at December 31, 1995....................................... (1,184,455)
Net deficit (unaudited)............................................. (1,019,475)
----------
Balance, at March 31, 1996 (unaudited).............................. (2,203,930)
==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-55
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- 31 MARCH,
NOTE 1994 1995 1996
NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
OWNER'S EQUITY
Share capital [Shares issued: 347,368
(1994: 347,368)].................... 3 347,368 347,368 347,368
Reserves............................. 3 6,981,575 6,981,575 6,981,575
Retained earnings.................... (4,461,709) (8,513,398) (9,532,873)
---------- ---------- ----------
2,867,234 (1,184,455) (2,203,930)
NON-CURRENT LIABILITIES
Related party loan................... 8 -- 3,076,199 5,687,059
CURRENT LIABILITIES
Accounts Payable & Accruals
Trade creditors.................... 103,584 135,894 2,141,271
Other.............................. 110,868 122,207 11,865
---------- ---------- ----------
214,452 258,101 2,153,136
Employee Entitlements................ 24,554 62,747 63,178
Converter Deposits................... 24,356 -- --
Current-portion finance lease liabil-
ity................................. 9 23,701 14,270 10,878
Related party payables............... 8 -- 879,336 29,998
---------- ---------- ----------
287,063 1,214,454 2,257,190
---------- ---------- ----------
TOTAL LIABILITIES AND EQUITY......... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-56
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION--(CONTINUED)
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- MARCH 31,
NOTE 1994 1995 1996
$ $ $
(UNAUDITED)
<S> <C> <C> <C> <C>
NON-CURRENT ASSETS
Property, plant and equipment
Cost................................ 3,297,551 4,150,307 5,463,293
Accumulated depreciation............ (1,300,597) (1,887,172) (2,021,183)
---------- ---------- ----------
4 1,996,954 2,263,135 3,442,110
Investments--Unlisted Shares.......... -- 5,000 5,000
---------- ---------- ----------
1,996,954 2,268,135 3,447,110
CURRENT ASSETS
Cash.................................. 733,407 379,547 9,842
Accounts receivables
Customers........................... -- 21,746 4,583
Employees........................... 34,472 32,545 32,545
Others.............................. 17,143 21,236 232,256
Provision for doubtful debts........ -- (10,000) (10,000)
---------- ---------- ----------
51,615 77,754 259,384
Inventories........................... 170,709 160,074 1,796,288
Prepayments........................... -- 29,351 24,131
Related party receivables............. 8 201,612 191,337 203,564
---------- ---------- ----------
1,157,343 838,063 2,283,367
---------- ---------- ----------
TOTAL ASSETS.......................... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-57
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash was provided from:
Customers................ 22,031 171,749 24,900 130,879
Cash was disbursed to:
Payments to suppliers and
employees............... (1,496,891) (3,624,051) (768,193) (949,120)
---------- ---------- -------- ----------
Net cash flows from operat-
ing activities............ 10 (1,474,860) (3,452,302) (743,293) (818,241)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash was provided from:
Proceeds from sale of
fixed assets............ 142,306 69,829 -- --
Cash was applied to:
Purchase of fixed as-
sets.................... (726,123) (932,018) (119,441) (1,312,986)
Purchase of investments.. -- (5,000) -- --
---------- ---------- -------- ----------
Net cash flows from invest-
ing activities............ (583,817) (867,189) (119,441) (1,312,986)
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash was provided from:
Share issue.............. 3 7,155,259 -- -- --
Related party loans...... -- 3,965,811 163,956 1,761,552
Cash was applied to:
Related party loan repay-
ment.................... (4,402,250) -- -- --
---------- ---------- -------- ----------
Net cash flow from financ-
ing activities............ 2,753,009 3,965,811 163,956 1,761,552
Net increase/(decrease) in
cash held................. 694,332 (353,680) (698,778) (369,705)
Add opening cash brought
forward................... 39,075 733,407 733,407 379,547
---------- ---------- -------- ----------
Ending cash carried for-
ward...................... 733,407 379,547 34,629 9,842
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-58
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
1. STATEMENT OF ACCOUNTING POLICIES
A) The reporting entity changed its name subsequent to year end from Kiwi
Cable Company Limited to Saturn Communications Limited. These financial
statements have been prepared under the requirements of the Companies Act 1955
and the Financial Reporting Act 1993.
The measurement base adopted is that of historical cost.
B) CURRENCY
These financial statements have been prepared in New Zealand dollars.
C) FIXED ASSETS
All fixed assets are recorded at cost. Additions, retirements and major
improvements are capitalized and costs for normal repair and maintenance are
charged to expense as incurred.
D) DEPRECIATION
Depreciation is provided on a straight line basis on all tangible fixed
assets at rates calculated to allocate the assets' cost, less estimated
residual value, over their estimated useful lives.
Major depreciation rates are:
<TABLE>
<S> <C>
Plant and equipment............................................... 10-20%
Leasehold improvements............................................ 20%
Office equipment.................................................. 20%
Motor vehicles.................................................... 20%
</TABLE>
E) INCOME TAX
The income tax expense charged to the statement of financial performance
includes both the current year liability and the income tax effects of timing
differences after allowing for non-assessable income and non-deductible
expenses.
Deferred taxation is calculated using the liability method on a
comprehensive basis. Debit balances in the deferred tax account arising from
net accumulated timing differences and future income tax benefits arising from
income tax losses carried forward are only recognised if realisation is more
likely than not.
F) INVENTORIES
Inventories are valued at lower of actual cost or net realisable value.
G) LEASES
Finance leases, which effectively transfer to the entity substantially all
of the risks and benefits incident to ownership of the leased item, are
capitalised at the lower of the fair value of the leased property, and the
present value of the minimum lease payments. The leased assets and
corresponding liabilities are disclosed and the leased assets are amortised
over the period the entity is expected to benefit from their use.
Operating lease payments, where the lessors effectively retain substantially
all the risks and benefits of ownership of the leased items, are included in
the determination of the operating surplus in equal instalments over the lease
term.
F-59
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
H) EXPENDITURE CARRIED FORWARD
Significant items of expenditure having a benefit or relationship to more
than one period are written off over the period to which they relate.
I) REVENUE RECOGNITION
Monthly service are recognised as revenue in the period the related services
are provided to the subscribers. Installation fees are recognised as revenue
to the extent of direct selling costs.
J) FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the New Zealand rate of
exchange ruling at the date of transaction.
At balance date foreign monetary assets and liabilities are translated at
the closing rate, and exchange variations arising from these translations are
included in the statement of financial performance as operating items.
ADDITIONAL UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES
K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
L) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
M) NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
not adopted the principles of this statement within the accompanying financial
statements; however, the Company does not believe that the provisions of SFAS
121 will have a material effect on the Company's reported results.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 "Accounting for the Stock-Based
Compensation" ("SFAS 123") which is required to be adopted by affected
companies for fiscal years beginning after December 15, 1995. The Company does
not believe that the provisions of SFAS 123 will have a material effect on the
Company's reported results.
N) CHANGES IN ACCOUNTING POLICIES
There have been no material changes in accounting policies during the year.
All policies have been applied on consistent bases with previous years.
O) INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
F-60
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
2. DEFICIT BEFORE TAXATION
Has been determined
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
After charging:
Audit fees and expenses.................................... 15,080 6,000
Depreciation............................................... 570,904 586,575
Interest................................................... 8,151 82
Rental and leasing costs................................... 71,804 77,489
</TABLE>
3. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
Issued 347,368 ordinary shares of $1.00 each (1994 347,368
shares)
fully paid................................................ 347,368 347,368
------- -------
347,368 347,368
======= =======
</TABLE>
On 8 July 1994 United International Holdings, Inc, (UIH), a publicly listed
company incorporated in the USA, acquired a 50% interest in the company via
the issue of 173,684 shares by the company.
The shares were purchased by UIH at a price of $US 14.39 ($NZ 24.12), giving
rise to a share premium reserve at balance date of $US 2,389,509 ($NZ
4,005,883).
Also on the 8 July 1994 the balance of the Todd International loan account,
being $US 1,775,000 ($NZ 2,975,692) after forgiveness of $US 50,176 ($NZ
84,117) and repayment of $US 900,000 ($NZ 1,508,801), converted to equity.
4. FIXED ASSETS
<TABLE>
<CAPTION>
1994
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 121,516 (49,341) 72,175
Office Equipment (including Finance Lease As-
sets)....................................... 227,909 (74,638) 153,271
Plant and equipment.......................... 2,895,750 (1,159,362) 1,736,388
Motor vehicles............................... 52,376 (17,256) 35,120
--------- ---------- ---------
3,297,551 (1,300,597) 1,996,954
========= ========== =========
<CAPTION>
1995
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 127,912 (74,197) 53,715
Office Equipment (including Finance Lease As-
sets)....................................... 445,160 (143,085) 302,075
Plant and equipment.......................... 3,477,675 (1,640,460) 1,837,215
Motor vehicles............................... 99,560 (29,430) 70,130
--------- ---------- ---------
4,150,307 (1,887,172) 2,263,135
========= ========== =========
</TABLE>
F-61
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
MARCH 31, 1996
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............ 156,452 (77,908) 78,544
Office Equipment (including fi-
nance leases).................... 462,653 (162,940) 299,713
Plant and equipment............... 4,686,708 (1,745,928) 2,940,780
Motor vehicles.................... 157,480 (34,407) 123,073
--------- ---------- ---------
5,463,293 (2,021,183) 3,442,110
========= ========== =========
</TABLE>
5. CONTINGENT LIABILITIES
There are no contingent liabilities outstanding at year end (1994: nil).
6. CAPITAL EXPENDITURE COMMITMENTS
Estimated capital expenditure contracted for at balance date but not
provided for NZ$659,235 (1994: nil).
7. OPERATING LEASE COMMITMENTS
At balance date the Company had the following operating lease commitments
for office space and certain vehicles:
<TABLE>
<CAPTION>
1995 1994
NZ$ NZ$
<S> <C> <C>
Payable:
within 1 year............................................ 449,982 84,985
between 1 and 2 years.................................... 457,468 82,535
between 2 and 3 years.................................... 357,915 80,031
between 3 and 4 years.................................... 233,425 52,487
between 4 and 5 years.................................... 233,425 52,487
greater than 5 years..................................... 571,989 393,653
--------- -------
2,304,204 746,178
========= =======
</TABLE>
8. RELATED PARTIES
During the year ended December 31, 1995, Saturn Communications Limited were
involved in the following related party transactions:
<TABLE>
<S> <C>
United International Holdings, Inc (significant
shareholder)
Received funding.............................. NZ$3,910,256 (1994: Nil)
</TABLE>
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
<TABLE>
<S> <C>
An affiliate of Todd International Limited
(significant shareholder)
Received funding............................. NZ$45,279 (1994: nil)
Todd provided funding allowing Saturn to meet its day to day obligations.
An affiliate of United International Holdings
Received payment of prior year balance
Cash Received.................................. NZ$22,195 (1994: nil)
Balance Receivable............................. NZ$12,227 (1994: $34,422)
</TABLE>
F-62
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
Saturn also have a receivable balance owing from:
<TABLE>
<S> <C>
Todd International Limited (significant
shareholder) Receivable................ NZ$191,337(1994: NZ$201,613)
The receivable from Todd International is denominated in US dollars and is
on interest free terms.
During the quarter ended March 31, 1996, Saturn Communications Limited were
involved in the following related party transactions:
United International Holdings, Inc
(significant shareholder) Received
funding................................ NZ$1,761,522 (1994: NZ$163,956)
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
United International Holdings--Tahiti
(subsidiary of United International
Holdings, Inc) Received payment of prior
year balance
Cash Received........................... NZ$ Nil (1994: $22,195)
Balance Receivable...................... NZ$ 12,227 (1994: $12,227)
Saturn also have the following balances with:
Todd International Limited (significant
shareholder)
Receivable.............................. NZ$191,337(1994: $201,612)
Payable................................. NZ$ 45,279(1994: Nil)
</TABLE>
The receivable from Todd International is denominated in US dollars and is
on interest free terms. The payable is denominated in New Zealand dollars and
is interest free repayable on demand.
9. FINANCE LEASES
At 31 December the following finance lease existed:
<TABLE>
<CAPTION>
ASSET LEASE
VALUE LIABILITY
NZ$ NZ$
<S> <C> <C>
Canon photocopier and fax
1995........................................................ 19,263 14,270
1994........................................................ 24,400 23,701
</TABLE>
The finance lease payment commitments as at balance date were payable:
<TABLE>
<S> <C> <C>
1995 1994
NZ$ NZ$
within 1 year.................................................. 7,752 9,431
between 1 and 2 years.......................................... 6,518 7,752
between 2 and 3 years.......................................... 6,718
------ ------
14,270 23,701
====== ======
</TABLE>
F-63
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
10. RECONCILATION OF NET DEFICIT AFTER TAXATION TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------------
1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
Net deficit after taxation..... (1,973,540) (4,051,509) (743,336) (1,019,475)
Add non-cash items:
Depreciation................. 570,905 586,575 140,954 134,011
Provision for doubtful
debts....................... -- 10,000 -- --
Add/(less) movements in work-
ing capital items
(Increase) in receivables and
prepayments................. (48,358) (65,489) (9,133) (5,637)
(Increase)/decrease in inven-
tories...................... (170,709) 10,635 26,869 (1,636,214)
Increase/(decrease) in ac-
counts payable and
accruals.................... 134,897 19,293 (158,647) 1,708,643
Increase in employee entitle-
ments....................... 11,945 38,193 -- 431
---------- ---------- --------- -----------
Net cash outflow from
operations................ (1,474,860) (3,452,302) (743,293) (818,241)
========== ========== ========= ===========
</TABLE>
11. INCOME TAXATION
The Company has accumulated tax losses of approximately NZ$7,500,000 (1994:
NZ$3,785,650), tax effect NZ$2,475,000 (1994:NZ$1,249,330), carried forward
and available to offset against future assessable income. The benefit of these
losses has not been brought to account. The ability to utilise these losses
will not expire, subject to the company maintaining continuity of ownership
and meeting other requirements of income tax legislation.
The Company's net deferred tax asset is as follows:
<TABLE>
<CAPTION>
AS AT 31
DECEMBER
1994 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforward......................... 1,249,330 2,475,000
Valuation allowance..................................... (1,249,330) (2,475,000)
---------- ----------
Net deferred tax asset.................................. -- --
========== ==========
</TABLE>
F-64
<PAGE>
XYZ ENTERTAINMENT PTY LTD
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheets of XYZ
Entertainment Pty Ltd as of December 31, 1994 and 1995 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the period from October 17, 1994 (date of inception) to December 31, 1994
and the financial year ended December 31, 1995, which are expressed in
Australian dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1994 and 1995 and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as shareholders' deficiency
and net loss as at and for the period from October 17, 1994 (date of
inception) to December 31, 1994 and the year ended December 31, 1995 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-65
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1994 1995 1995 1996
NOTE AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Channel supply.............. Nil 1,117,091 Nil 2,117,748
Other....................... Nil 592,149 Nil 459,930
Interest.................... 2,829 196,291 16,815 59,124
------- ---------- --------- ---------
2,829 1,905,531 16,815 2,636,802
------- ---------- --------- ---------
Operating expenses
Cost of services............ Nil 24,677,575 2,646,188 4,534,088
Selling, general and
administrative............. 236,703 12,475,597 140,375 1,132,708
Depreciation and
amortization............... 2 Nil 3,594,737 Nil 619,405
------- ---------- --------- ---------
Cost of operations............ 236,703 40,747,909 2,786,503 6,286,201
------- ---------- --------- ---------
Net loss before income taxes.. 233,874 38,842,378 2,769,748 3,649,399
------- ---------- --------- ---------
Income taxes.................. 3 Nil Nil Nil Nil
------- ---------- --------- ---------
Net loss...................... 2 233,874 38,842,378 2,769,748 3,649,399
------- ---------- --------- ---------
Net loss per share............ 116,937 19,421,189 1,384,874 1,824,700
======= ========== ========= =========
Weighted average number of or-
dinary shares outstanding
during the period............ 2 2 2 2
======= ========== ========= =========
</TABLE>
The accompanying notes form part of these financial statements.
F-66
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
NOTE AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... 670,754 3,105,803 7,049,820
Receivables......................... 33,000 1,006,241 1,786,861
Amounts due from stockholder........ Nil 21,219 1,708,113
Program material rights (net of ac-
cumulated amortization of
A$1,430,000, A$nil and
A$1,990,289)....................... Nil 2,298,935 4,758,521
-------- ----------- -----------
Total current assets.............. 703,754 6,432,198 15,303,315
-------- ----------- -----------
Non-current assets
Property, plant and equipment....... 4 57,448 3,361,070 3,112,297
Investment in associated company.... 6 Nil 245,518 Nil
Amounts due from related party...... 8 Nil 1,326,578 Nil
Program material rights (net of ac-
cumulated amortization of $A180,000
and A$nil)......................... Nil 217,916 Nil
-------- ----------- -----------
Total non-current assets.......... 57,448 5,151,082 3,112,297
-------- ----------- -----------
Total assets.................... 761,202 11,583,280 18,415,612
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFI-
CIENCY
Current liabilities
Creditors, trade.................... Nil 20,792,868 18,850,866
Other creditors and accruals........ Nil 75,656 4,160,441
-------- ----------- -----------
Total current liabilities......... Nil 20,868,524 23,011,307
-------- ----------- -----------
Non-current liabilities
Creditors, trade.................... Nil 743,086 196,772
Amounts due to stockholders......... 8 995,074 29,047,920 37,933,182
-------- ----------- -----------
Total non-current liabilities..... 995,074 29,791,006 38,129,954
-------- ----------- -----------
Total liabilities............... 995,074 50,659,530 61,141,261
-------- ----------- -----------
Commitments and Contingencies (See
Notes)
Stockholders' deficiency
Redeemable preferences shares, par
value A $1.00 per share:
Authorised 100,000 shares, none is-
sued and outstanding............... Nil Nil Nil
Ordinary shares, par value A$1.00
per share:
Authorised 900,000 shares, 2 issued
and outstanding.................... 9 2 2 2
Accumulated deficit................. (233,874) (39,076,252) (42,725,651)
-------- ----------- -----------
Total stockholders' deficiency.. (233,872) (39,076,250) (42,725,649)
-------- ----------- -----------
Total liabilities and stockhold-
ers' deficiency................ 761,202 11,583,280 18,415,612
======== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-67
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ORDINARY ACCUMULATED TOTAL
AUD $ AUD $ AUD $
<S> <C> <C> <C>
Balance at October 17, 1994.................. Nil
Issue of ordinary shares..................... 2 2
Net loss..................................... (233,874) (233,874)
--- ----------- -----------
Balance at December 31, 1994................. 2 (233,874) (233,872)
--- ----------- -----------
Net loss..................................... (38,842,378) (38,842,378)
--- ----------- -----------
Balance at December 31, 1995................. 2 (39,076,252) (39,076,250)
--- ----------- -----------
Net loss (unaudited)......................... (3,649,399) (3,649,399)
--- ----------- -----------
Balance at March 31, 1996 (unaudited)........ 2 (42,725,651) (42,725,649)
=== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-68
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activ-
ities
Cash receipts in the course of
operations................... Nil 370,348 Nil 1,375,391
Cash payments in the course of
operations................... (269,703) (17,351,047) (1,229,710) (3,883,611)
Interest received............. 2,829 196,291 13,000 59,124
-------- ----------- ---------- ----------
Net cash used in operating ac-
tivities..................... (266,874) (16,784,408) (1,216,710) (2,449,096)
-------- ----------- ---------- ----------
Cash flows from investing activ-
ities
Payments for property, plant
and equipment................ (57,448) (4,999,012) (2,807,786) 10,017
Proceeds from sale of program
material rights.............. Nil 2,304,795 Nil (127,340)
Payment for investment........ Nil (1) Nil Nil
Payments for program material
rights....................... Nil (7,164,583) (1,066,074) (2,044,898)
-------- ----------- ---------- ----------
Net cash used in investing ac-
tivities..................... (57,448) (9,858,801) (3,873,860) (2,162,221)
-------- ----------- ---------- ----------
Cash flows from financing activ-
ities
Proceeds from issues of
shares....................... 2 Nil Nil Nil
Proceeds from stockholder
loans........................ 995,074 29,078,258 7,301,795 8,555,334
-------- ----------- ---------- ----------
Net cash provided by financing
activities................... 995,076 29,078,258 7,301,795 8,555,334
-------- ----------- ---------- ----------
Net increase in cash and cash
equivalents held............... 670,754 2,435,049 2,211,225 3,944,017
Cash and cash equivalents at the
beginning of the period........ Nil 670,754 670,754 3,105,803
-------- ----------- ---------- ----------
Cash and cash equivalents at the
end of the period.............. 670,754 3,105,803 2,881,979 7,049,820
======== =========== ========== ==========
Reconciliation of Net Loss to
Net Cash Used in Operating Ac-
tivities
Net loss...................... (233,874) (38,842,378) (1,623,319) (3,649,399)
Add non-cash items:
Amounts set aside to provi-
sions...................... Nil 1,771,817 Nil 7,238
Depreciation and amortiza-
tion....................... Nil 3,594,737 Nil 619,405
Gain on disposal of program
material rights............ Nil (189,213) Nil (171,667)
Loss on disposal of program
material rights............ Nil 1,511,315 Nil 168,358
Gain on disposal of fixed
assets..................... Nil (168,358) Nil Nil
Loss on disposal of fixed
assets..................... Nil 9,690 Nil Nil
-------- ----------- ---------- ----------
Net cash used in operating
activities before change in
assets and liabilities....... (233,874) (32,312,390) (1,623,319) (3,026,065)
Change in assets and liabili-
ties:
Increase in trade receiv-
ables...................... (33,000) (994,460) Nil (811,008)
(Increase) decrease in other
receivables................ Nil (1,518,255) (956,994) 245,518
Increase in creditors....... Nil 18,040,697 1,363,603 1,142,459
-------- ----------- ---------- ----------
Net cash used in operating
activities............... (266,874) (16,784,408) (1,216,710) (2,449,096)
======== =========== ========== ==========
</TABLE>
The accompanying notes form part of these financial statements.
F-69
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 1--STATEMENT OF ACCOUNTING POLICIES
The significant policies which have been adopted in the preparation of these
consolidated financial statements are:
(A) BASIS OF PREPARATION
This statement of significant accounting policies is given to assist in the
understanding of the consolidated financial statements. For the purposes of
these consolidated financial statements, XYZ Entertainment Pty Ltd (the
"Company") and its controlled entities (subsidiaries) (collectively, "XYZ")
are defined under Australian law as the Economic Entity. This term is used
throughout these Notes to the consolidated financial statements. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Australia (Australian GAAP),
include disclosures required by the United States Securities and Exchange
Commission and are presented in Australian dollars (A$ or AUD). The accounting
principles differ in certain respects from accounting principles generally
accepted in the United States (US GAAP). The significant differences and the
approximate related effect on the consolidated financial statements are set
out in Note 12. Although the company is financially dependent on related
bodies corporate for its ongoing viability, the financial statements have been
prepared on a going concern basis, after considering undertakings by related
bodies corporate to provide ongoing financial support. The financial
statements have been prepared on the basis of historical costs and do not take
into account changing money values. Consistent accounting policies have been
employed in the preparation and presentation of the consolidated financial
statements.
The company was incorporated on October 17, 1994 and commenced trading from
that date. Through its controlled entities, the company provides programming
for four of eight channels of the multi-channel base programming package (the
"Galaxy package") offered and distributed by the Satellite A and B licence
holders in Australia. The Galaxy package is distributed via satellite,
microwave multipoint distribution system and other transmission technologies
by the Satellite B licence holder through distribution facilities in the six
largest capital cities in Australia and regional Western Australia, and by
franchisees to substantially all of the population in Australia.
The Company's programming for the four channels was first aired on April 23,
1995 by the Satellite A and B licence holders. Regional distribution commenced
in New South Wales in August 1995 and in other states in October 1995.
Programming provided by the Company as at the date of this report includes
Red, a music video channel; Arena, a general entertainment channel;
Nickelodeon, a children's/family/classic channel; and Discovery, a documentary
channel.
(B) PRINCIPLES OF CONSOLIDATION
The accounts have been prepared by consolidating the financial statements of
all the entities that comprise the Economic Entity, being the Company (the
chief entity) and its controlled entities. A list of controlled entities
appears in Note 7.
The purchase method of accounting has been used to account for subsidiaries
acquired during the period. The Company undertakes a valuation of the net
assets acquired in purchase transactions in accordance with generally accepted
accounting principles. Accordingly, the Company has stated the net assets
acquired from purchased companies at their estimated fair values at the date
of acquisition. The consolidated accounts include the information and results
of each controlled entity from the date on which the Company obtains control
and until such time as the Company ceases to control such entity.
F-70
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
In preparing the consolidated accounts, the intercompany balances and
transactions, and any unrealised profits arising within the Economic Entity
have been eliminated in full.
(C) REVENUE AND REVENUE RECOGNITION
Sales revenue comprises licence fees earned from a related entity for
development and production of channels of programming for subscription
television broadcasting services. Revenue is recognised at the time
subscription services are provided to customers.
(D) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed to determine
whether they are in excess of their recoverable amount as of the balance sheet
date. If the carrying amount of a non-current asset exceeds the recoverable
amount, the asset is written down to the lower amount. In assessing
recoverable amounts, the relevant net cash inflows arising from the continued
use and subsequent disposal of non-current assets have not been discounted to
their present value unless otherwise indicated.
(E) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange existing at the dates of the transactions. Amounts
receivable and payable in foreign currencies at the balance sheet date are
translated at the rates of exchange existing on that date.
Exchange differences relating to amounts payable and receivable in foreign
currencies are recorded in the profit and loss account as exchange gains or
losses in the financial year in which the exchange rates change.
(F) TAXATION
XYZ adopts the liability method of tax effect accounting. The tax effect of
temporary differences which arise from items recorded in different periods for
income tax and accounting purposes, are carried forward on the balance sheet
as deferred tax assets and deferred tax liabilities, as applicable. Deferred
tax assets arising from temporary differences are not recorded unless
realisation of the asset is assured beyond a reasonable doubt. Deferred tax
assets which include tax losses are only recorded when their realisation is
virtually certain.
The recovery of deferred tax assets (both recognised and unrecognised) is
contingent upon sufficient taxable income being earned in future periods,
continuation of the relevant tax laws and each relevant company continuing to
comply with the appropriate legislation.
(G) PLANT AND EQUIPMENT
Acquisition
Items of plant and equipment are recorded at historical cost and depreciated
as outlined below.
Depreciation
Items of plant and equipment are depreciated over their estimated useful
lives on a straight-line basis. The estimated useful lives of such items range
from four to ten years. Items of plant and equipment are depreciated from the
date the asset commences earning revenue.
Leases
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the lease term, except
where an alternative basis is more representative of the pattern of benefits
to be derived from the leased property.
F-71
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
(H) SUPERANNUATION
XYZ contributes to one defined contribution fund for all employee groups.
Contributions of A$135,675 were made to the fund during the year as a
percentage of salaries based on statutory requirements.
(I) PROGRAM MATERIAL RIGHTS
Program material rights are recognised as an asset and stated at the lower
of unamortized cost and net realisable value. The rights represent the ability
to use television programs over a specified period of time, as set out in the
licence agreements. Program material rights acquired under licence agreements
are recognised when the licence period begins and all of the following
conditions are met:
(i) The cost of each licence fee for each program is known or is
reasonably determinable;
(ii) The program material has been accepted by the licensee in accordance
with the terms of the licence agreement; and,
(iii) The licensor can deliver the program material rights, and the
licensee can exercise the rights.
Amortization of the cost of program material rights is charged to the
statement of operations based on the regular assessment of the benefit of
individual licence agreements, over the term of the agreement. If the benefits
are reasonably determinable through the number of times a particular program
is aired, then costs are charged to the statement of operations accordingly.
An accelerated method of amortization is used when the first broadcast of a
program is estimated to be more valuable than its reruns. Costs are allocated
on a straight-line basis over the period of the agreement if each broadcast is
expected to produce approximately the same amount of revenue.
Program material rights are classified as current assets if they are
expected to be used within one year.
(J) STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, cash and cash equivalents
includes bank overdrafts and all highly liquid investments which are readily
convertible to cash at the Company's option.
(K) LOSS PER SHARE
Loss per share is calculated by dividing net loss by the weighted average
number of issued ordinary shares outstanding during the period.
(L) PROVISIONS
Employee Entitlements
Provision is made for benefits accruing to employees in respect of wages and
salaries, annual leave, long service leave, and sick leave when it is probable
that settlement will be required and are capable of being measured reliably.
Provisions made in respect of wages and salaries, annual leave, sick leave,
and other employee entitlements expected to be settled within twelve months,
are measured at their nominal values.
Provisions made in respect of other employee entitlements which are not
expected to be settled within twelve months are measured as the present value
of the estimated future cash outflows to be made by the economic entity in
respect of services provided by employees up to the reporting date.
(M) DATE OF INCORPORATION
The company was incorporated on October 17, 1994 and accordingly comparative
figures cover the period from inception.
F-72
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
1994 AND THE YEAR ENDED DECEMBER 31, 1995
(N) INVESTMENTS
Associated Companies
The Company equity accounts for its investments in associated companies in
equity supplementary financial statements. Investments in which the Company
has a material interest and over which it exercises significant influence, but
does not control, are considered to be associated companies. The ability to
exercise significant influence over the strategic operating, investing and
financing policies of a company may be indicated by, for example,
representation on the board of directors, participation in policy-making
processes, material intercompany transactions, interchange of management
personnel or provision of technical information.
Investments in associated companies are carried at the lower of cost and
recoverable amount. Dividends are recorded in the profit and loss account
after they have been declared by the associated company in a general meeting.
During the year, the Company entered into an agreement with Nickelodeon
Australia, Inc to produce Nickelodeon Australia, a children's channel. The
Company jointly controls Nickelodeon Australia Management Pty Limited with
Nickelodeon Australia, Inc, and as such has the capacity to significantly
influence decision-making in these companies. The term of the joint venture is
15 years.
Selected disclosures under the equity method of accounting relating to the
entity in which the Company is able to exercise significant influence are
provided in Note 6.
None of the shares in associated companies are listed on the Australian
Stock Exchange.
(O) INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of normal recurring nature.
NOTE 2--EXPENDITURES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 31,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Expenses included in the net loss
were:
Depreciation and amortization:
--plant and equipment.............. Nil 828,647 Nil 238,756
--program material rights.......... Nil 2,766,090 Nil 380,649
--- --------- --- --------
Total depreciation and
amortization.................... Nil 3,594,737 Nil 619,405
=== ========= === ========
Amounts set Aside to Provision:
--employee entitlements--annual
leave............................. Nil 75,656 Nil 7,237
--provision for doubtful debts..... Nil 1,696,160 Nil --
--- --------- --- --------
Nil 1,771,816 Nil 7,237
=== ========= === ========
Exchange (gain) loss, net, on foreign
currency transactions:
Exchange gain on foreign currency
transactions...................... Nil (368,670) Nil (767,175)
--- --------- --- --------
Exchange (gain) loss, net.......... Nil (368,670) Nil (767,175)
=== ========= === ========
</TABLE>
F-73
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 3--INCOME TAXES
At December 31, 1995 XYZ had accumulated tax losses carried forward of
approximately A$7,997,055 (1994: A$71,840). The losses may be carried forward
indefinitely under Australian income tax legislation.
The tax effects of temporary differences, at the Australian statutory rate
of 36%, which give rise to significant portions of deferred tax assets or
liabilities and the corresponding valuation allowance at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Deferred tax assets
Tax loss carryforward....................................... 77,978 9,816,188
Accrued expenses and other.................................. Nil 266,479
------ ----------
77,978 10,082,667
Deferred tax liabilities
Depreciation and amortization............................... Nil 1,897,111
------ ----------
Net deferred tax assets..................................... 77,978 8,185,556
Less valuation allowance.................................... 77,978 8,185,556
------ ----------
Nil Nil
====== ==========
</TABLE>
Tax losses of A$1,897,111 (1994: A$nil) have been brought to account and
fully applied against deferred tax liabilities.
XYZ has provided a valuation allowance for the total amount of net deferred
tax assets since realization of these assets is not assured, principally due
to the Economic Entity being in the start-up phase of operations. For US GAAP
purposes as described in Note 12, a valuation allowance for the total amount
of the net deferred tax assets has also been provided.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C>
Plant and equipment--at cost...................... 57,448 4,026,837 4,019,211
Less: accumulated depreciation.................... Nil (665,767) (906,914)
------ --------- ---------
Total property, plant and equipment............. 57,448 3,361,070 3,112,297
====== ========= =========
</TABLE>
There have been no current valuations included in the above amounts.
F-74
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 5--COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Contracts for Expenditure for Program Material Rights
--Not later than one year....................................... Nil 174,082
--Later than one year but not later than two years.............. Nil Nil
--Later than two years but not later than three years........... Nil Nil
--Later than three years but not later than four years.......... Nil Nil
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 174,082
=== =======
Commitments Under Non-cancellable Operating Leases
--Not later than one year....................................... Nil 11,794
--Later than one year but not later than two years.............. Nil 12,362
--Later than two years but not later than three years........... Nil 10,976
--Later than three years but not later than four years.......... Nil 568
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 35,700
=== =======
</TABLE>
CONTINGENCIES
The Company and its controlled entities are party to matters involving
certain claims which arise in the normal course of business, none of which, in
the opinion of management, is expected to have a materially adverse effect on
the Company's consolidated financial position or results of operation.
REGULATION
Management asserts that no communication of any kind has been received from
the Australian Broadcasting Authority ("ABA"), the Australian Competition and
Consumer Commission of Australia ("ACCC"), or the Foreign Investment Review
Board of Australia ("FIRB"), or any other agency indicating that the Company
and/or its controlled entities is or may be in violation of any law or
regulation of the Commonwealth of Australia or any subdivision or agency
thereof.
NOTE 6--INFORMATION ABOUT INVESTMENTS IN ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
EQUITY-
OWNERSHIP CARRYING ACCOUNTED
INTEREST AMOUNT AMOUNT
--------- ------------- -------------
NAME OF COMPANY PRINCIAL ACTIVITY 1994 1995 1994 1995 1994 1995
PERCENT AUD $ AUD $ AUD $ AUD $
<S> <C> <C> <C> <C> <C> <C> <C>
Nickelodeon Australia Production and
Management Pty Development of the
Limited Nickelodeon Channel N/A 50 Nil 245,518 Nil 245,518
</TABLE>
The balance date of the associate is June 30.
F-75
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
The carrying amount of the investment in the associated company is as
follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associate company........ 1
Amounts due from associated company at the balance date ............ 1,941,677
Provision for non-recoverability.................................... (1,696,160)
----------
245,518
==========
</TABLE>
The carrying amount of the investment equates to the equity-accounted amount
at December 31 , 1995 as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associated company..... 1
XYZ's maximum obligation to contribute to the operating losses of
the associated company........................................... (1,696,160)
----------
(1,696,159)
Amounts due from associated company at the balance date........... 1,941,677
----------
245,518
==========
</TABLE>
NOTE 7--PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
INVESTMENT CONSOLIDATED LOSS
----------------------- ------------------------------
CLASS INTEREST MARCH 31, MARCH 31,
OF HELD 1994 1995 1996 1994 1995 1996
SHARE PERCENT AUD $ AUD $ AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chief Entity
XYZ Entertainment Pty
Ltd.................. 233,874 38,842,378 3,649,399
Corporate Bodies Corpo-
rate
XYZ Programming Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Arena Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Quest Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Max Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Red Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
------- ---------- ---------
Consolidated net
loss................. 233,874 38,842,378 3,649,399
======= ========== =========
</TABLE>
Each of the controlled entities are incorporated in, and carry on business
in, Australia.
NOTE 8--RELATED PARTY DISCLOSURES
OWNERSHIP INTERESTS IN RELATED PARTIES
Information in relation to ownership interests in controlled entities is
provided in Note 7.
F-76
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
REMUNERATION OF DIRECTORS
The directors of the Company during the period were:
D F Hagans (appointed 12/12/94)
A Tow (appointed 11/5/95)
R J Freudenstein (appointed 6/9/95)
R J Birrel (appointed 17/10/94, resigned 11/5/95)
M W Booth (appointed 17/10/94, resigned 12/12/94, reappointed 6/9/95)
D Garry (appointed 17/10/94, resigned 17/10/94)
L M Head (appointed 17/10/94, resigned 17/10/94)
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Total income received, or due and receivable, by directors of
the Company from the Company and any related body corporate,
and by all directors of each entity in the Economic Entity from
corporations of which they are directors, or related bodies
corporate or an entity controlled by the chief entity.......... 52,500 363,786
====== =======
The number of directors of the Company whose total income falls
within the following bands: No No
A$Nil -- A$9,999............................................... 4 7
====== =======
</TABLE>
LOANS TO DIRECTORS
There were no loans in existence at balance date (or at December 31, 1994)
made, guaranteed or secured by the Company to directors of a corporation in
the Economic Entity or a related body corporate, their spouses, relatives or
relatives of spouses.
LOANS FROM DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD $ AUD $
(UNUADITED)
<S> <C> <C> <C> <C> <C>
Loans advanced from
stockholder............ Non-interest Century United D Hagans and
bearing, no set Programming A Tow
terms of repayment Ventures Pty
Limited 14,523,960 18,966,591
Loans advanced from
stockholder............ Non-interest Foxtel Management R Freudenstein
bearing, no set Pty Limited and M Booth
terms of repayment 14,523,960 18,966,591
---------- ----------
29,047,920 37,933,182
========== ==========
</TABLE>
Loans from Director Related Entities at December 31, 1994 amounted to
$995,074. Of this amount, $820,074 had been advanced by UIH Australia
Programming Inc. and $175,000 by Century Programming Ventures Corp., both
being joint and equal stockholders in the Company at that date.
F-77
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
1994AND THE YEAR ENDED DECEMBER 31, 1995
LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loans advanced to
stockholder............ Century United D Hagans and
Non-interest Programming A Tow
bearing, no set Ventures Pty 881,633 1,708,113
terms of repayment Limited
======= =========
</TABLE>
There were no loans to Director Related Entities at December 31, 1994.
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Establishment and
restructuring fees Normal commercial UIH Australia D Hagans
paid................... terms and Programming Inc.
conditions 250,000 --
Establishment and
restructuring fees Normal commercial Century Programming A Tow
paid................... terms and Ventures Corp.
conditions 250,000 --
Establishment, operating
and management fees.... Normal commercial Century United D Hagans and A
terms and Programming Tow
conditions Ventures Pty
Limited 860,444 --
Channel supply licence
fee revenue............ Normal commercial Continental Century
terms and Pay Television Pty
conditions Limited A Tow 943,358 973,816
Cable distribution
licence fee revenue.... Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions 330,753 399,040
</TABLE>
There were no other transactions with Director Related Parties at December
31, 1994.
LOANS TO OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Loans advanced to Non-interest Nickelodeon Australia
associated company bearing, no set Management Pty
terms of repayment Limited 1,941,677 --
Loans advanced to Non-interest Nickelodeon Australia
related party bearing, no set Inc.
terms of repayment 1,326,578 --
</TABLE>
There were no loans to Other Related Entities at December 31, 1994.
F-78
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Subscriptions payable... Normal commercial Nickelodeon
terms and Australia
conditions Management Pty
Limited 113,219 118,077
</TABLE>
There were no other transactions with other related entities at December 31,
1994.
TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP
During the financial period, the company provided management services to
other entities in the wholly- owned group at no charge. In addition, the
company paid licence fees and reimbursed certain costs to other entities in
the wholly-owned group in the ordinary course of business and on normal terms
and conditions.
CONTROLLING ENTITIES
The chief (parent) entity in the economic entity is XYZ Entertainment Pty
Ltd.
The ultimate holding company in the wholly-owned group is XYZ Entertainment
Pty Ltd.
The chief entity, at the year end, was jointly controlled by Century United
Programming Ventures Pty Limited ("CUPV") and Foxtel Management Pty Limited.
Both companies are incorporated in Australia.
CUPV is jointly owned by UIH Australia Programming Inc. ("UIH") and Century
Programming Ventures Corp. ("CPVC"). The ultimate parent entity of UIH is
United International Holdings Inc........ The ultimate parent entity of CPVC is
Century Communications Corporation.
Foxtel Management Pty Limited is jointly owned by The News Corporation
Limited and Telstra Corporation Limited.
NOTE 9--SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Authorised Capital
900,000 ordinary shares of A $1.00 each................... 900,000 900,000
100,000 redeemable preference shares of A $1.00 each...... 100,000 100,000
--------- ---------
1,000,000 1,000,000
--------- ---------
Issued and Paid-Up Capital
2 ordinary shares of A $1.00 each......................... 2 2
========= =========
</TABLE>
Upon incorporation the Company issued two fully paid ordinary shares of $1
each.
NOTE 10--FINANCIAL REPORTING BY SEGMENTS
The Company predominantly operates in Australia and in one industry, being
programming for subscription television services.
F-79
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 11--NON-HEDGED FOREIGN CURRENCY BALANCES
The Australian dollar equivalent of foreign currency balances included in
the accounts which are not effectively hedged are as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
US Dollars
Liabilities
Current.................................................... Nil 1,719,055
Non-current................................................ 995,074 743,085
------- ---------
Total.................................................... 995,074 2,462,140
======= =========
Assets
Current.................................................... Nil 25,729
======= =========
Sterling
Liabilities
Current.................................................... Nil 10,949
======= =========
</TABLE>
NOTE 12--SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN AUSTRALIA AND THE UNITED STATES
As stated in note 1, the consolidated financial statements of XYZ have been
prepared in accordance with accounting principles generally accepted in
Australia, which differ in certain significant respects from those generally
accepted in the United States. A description of the major differences between
Australian GAAP and US GAAP affecting the Company follows:
(A) STATEMENT OF CASH FLOWS
Under US GAAP, a Statement of Cash Flows would not provide a subtotal for
"net cash used in operating activities before changes in assets and
liabilities" as shown in Reconciliation of Net Loss to Net Cash Used in
Operating Activities.
(B) DEFERRED TAXATION
Australian GAAP adopts the full liability method of tax effect accounting
whereby deferred tax assets and liabilities arising from timing differences
are recorded in the balance sheet at the rate of tax expected to be applicable
at the time those timing differences reverse. A deferred tax asset in relation
to available tax losses may be recognized to the extent that there is virtual
certainty of its recovery against future taxable income.
Under US GAAP, deferred taxes are provided on all temporary differences.
Temporary differences encompass timing differences and other events that
create differences between the tax basis of an asset or liability and its
reported amount in the financial statements. A deferred tax asset is recorded
in a loss period and is reduced by a valuation allowance to the extent it is
more likely than not that the deferred tax asset will not be realised.
No deferred tax asset has been recognised in these accounts.
(C) INVESTMENTS IN AND ADVANCES TO ASSOCIATED COMPANIES
The Economic Entity equity accounts for its investments in associated
companies in equity supplementary financial statements. Corporations in which
the Economic Entity has a material interest and over which the
F-80
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
Economic Entity exercises significant influence, but does not control, are
considered to be associated companies. The ability to exercise significant
influence over the strategic operating, investing and financing policies of a
company may be indicated by, for example, representation on the board of
directors, participation in policy-making processes, material intercompany
transactions, interchange of management personnel or provision of technical
information.
Investments in associated companies are carried at the lower of cost and
recoverable amount. Dividends are recorded in the profit and loss account
after they have been declared by the associated company in a general meeting.
Under US GAAP, the equity method of accounting is used for investments in
which the Company exerts significant influence. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the
Company's share of net earnings or losses of the associates, limited to the
extent of the Company's investment in and advances to the associates,
including any debt guarantees or other contractual funding commitments.
Investments in and advances to associated companies are as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Investment............................................................ 1
Amounts due from associated company (net of provision for non-
recoverability of $A1,696,160)....................................... 245,517
-------
245,518
=======
</TABLE>
(D) RECONCILIATION OF NET LOSS AND STOCKHOLDERS' DEFICIENCY AS REPORTED UNDER
AUSTRALIAN GAAP TO US GAAP
A reconciliation of net loss and stockholders' deficiency as reported under
Australian GAAP to US GAAP is not required as there is no difference between
the results reported under Australian GAAP and UA GAAP at the balance date.
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair value
because of the short maturity of these instruments--cash at bank, promissory
notes, trade and other receivables, and trade creditors and accruals
(including amounts owing to related entities).
New Accounting Principles
The US Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121")
which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1995. The Company does not believe that the
provisions of SFAS 121 will have a material effect on the Company's reported
results.
F-81
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 13--REPORTING OF SIX MONTH PERIODS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
AUD $ AUD $
<S> <C> <C>
Revenue
Channel Supply................................ 100,747 1,016,344
Other......................................... Nil 592,149
Interest...................................... 62,587 133,704
---------- ----------
163,334 1,742,197
Operating Expenses
Cost of services.............................. 15,732,400 8,945,175
Selling, general and admininstrative ......... 7,162,916 5,312,681
Depreciation and amortization................. 1,366,875 2,227,862
---------- ----------
24,262,191 16,485,718
NET LOSS........................................ 24,098,857 14,743,521
========== ==========
</TABLE>
F-82
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information................................................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 17
The Exchange Offer....................................................... 26
Use of Proceeds.......................................................... 32
Dividend Policy.......................................................... 32
Exchange Rate Data....................................................... 32
Capitalization........................................................... 33
Pro Forma Consolidated Condensed Financial Information................... 34
Selected Consolidated Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 43
Regulation............................................................... 62
Corporate Organizational Structure....................................... 69
Management............................................................... 75
Certain Relationships.................................................... 80
Australis Transaction.................................................... 80
Security Ownership....................................................... 81
Description of the Securities............................................ 82
Description of Capital Stock............................................. 113
Certain U.S. Income Tax Considerations................................... 113
Plan of Distribution..................................................... 117
Legal Matters............................................................ 117
Experts.................................................................. 118
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$443,000,000
UIH
(ART) AUSTRALIA/
PACIFIC, INC.
14% SENIOR DISCOUNT NOTES
DUE 2006, SERIES B
----------------
PROSPECTUS
----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the prospectus contained in this Registration Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
3.1* Articles of Incorporation of the Issuer, as amended.
3.2* By-laws of the Issuer.
4.1* Indenture dated as of May 14, 1996, between the Issuer and American
Bank National Association (the "Indenture").
4.2 The form of New Note is included as Exhibit A-2 to the Indenture.
4.3 The Articles of Incorporation, as amended, and By-laws of the Issuer
are included as Exhibits 3.1 and 3.2.
5.1* Opinion of Holme Roberts & Owen llc as to the legality of the New
Notes.
8.1* Opinion of Holme Roberts & Owen llc as to certain other matters.
10.1 The Indenture is included as Exhibit 4.1.
10.2* Registration Rights Agreement dated May 14, 1996, among the Issuer,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
10.3* Purchase Agreement dated May 8, 1996, among the Issuer, DLJ and
Merrill Lynch.
10.4* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement, among United International Holdings,
Inc. ("UIHI"), UIH Australia, Inc. ("UIHA"), Salstel Media Holdings
Pty Limited ("SMH"), Australis Media Limited ("Australis") and CTV
Pty Ltd ("CTV").
10.5* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement dated October 12, 1994, among UIHI, UIH
Australia II, Inc. ("UIHA II"), Salstel Media Investment Pty Limited
("SMI"), Australis and STV Pty Ltd ("STV").
10.6* Memorandum of Variation dated April 4, 1996 to the CTV
Securityholders Agreement, among UIHI, UIHA, Australis, SMH and CTV.
10.7* Memorandum of Variation dated April 4, 1996 to the STV
Securityholders Agreement, among UIHI, UIHA II, Australis, SMI and
STV.
10.8* Security Purchase Agreement dated December 21, 1995, between Media
International Holdings Limited ("MHL") and UIHA.
10.9* Security Purchase Agreement dated December 21, 1995, between MIHL and
UIHA II.
10.10* Agreement dated December 21, 1995, among UIHI, UIHA and SMH.
10.11* Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIHI, UIHA and SMH.
10.12* Agreement dated December 21, 1995, among UIHI, UIHA II and SMI.
10.13* Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II and SMI.
10.14* Share Acquisition Agreement dated September 9, 1995, between
Australia New System L.P. and United Wireless, Inc. ("UWI").
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.15* Option Agreement dated September 5, 1995, between UWI and Prodelin
Corporation (Australia) Pty Limited.
10.16* XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Venturers Pty Limited ("CUPV"), Foxtel Management
Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited ("XYZ"),
Century United Programming Ventures ("CPVC") and the Issuer.
10.17* Shareholders Deed dated June 30, 1995, among Century Communications
Corp., CPVC, UIHI, the Issuer and CUPV.
10.18* Subscription and Investment Agreement dated July 8, 1994, among UIH
New Zealand, Inc. ("UIHNZ"), Todd International Ltd. ("Todd") and
Kiwi Cable Co. Ltd. ("Kiwi").
10.19* Shareholders Agreement dated July 8, 1994, between Todd and UIHNZ.
10.20* UIH-SFCC L.P. Amended and Restated Agreement of Limited Partnership
dated January 6, 1995, among UIH-SFCC Inc. and the limited partners
named therein.
10.21* Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and
Societe Francaise des Communications et du Cable S.A. ("Societe").
10.22* Shareholders' Agreement dated January 11, 1995, among UIH-SFCC, L.P.
and the shareholders named therein.
10.23* Franchise Agreement dated October 12, 1994, between Australis and
CTV.
10.23A Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy Communications Pty Limited ("Galaxy") re: CTV Franchise
Agreement.
10.24* Franchise Agreement dated October 12, 1994, between Australis and
STV.
10.24A Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy re: STV Franchise Agreement.
10.25* Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
East Coast Pay Television Pty Limited ("ECT").
10.26* Technical Assistance Agreement dated October 12, 1994, between CTV
and United International Management, Inc. ("UIMI").
10.27* Technical Assistance Agreement dated October 12, 1994, between STV
and UIMI.
10.28* Stock Purchase Agreement dated July 3, 1996, among Kiwi Cable Company
BVI, Inc., the Issuer and United Australasian Communications, Inc.
10.29* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
UIHI.
10.30* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
Todd.
10.31* Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe.
10.32* Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIMI.
10.33* Management Agreement dated May 1, 1996, between UIH Management, Inc.
and the Issuer.
10.34* Tax Allocation Agreement dated May 8, 1996, among UIHI, United
Australasian Communications, Inc. and the Issuer.
10.35* Employment Letter Agreement dated February 21, 1995, between UIHI and
Robert G. McRann.
10.36* Securities Purchase Agreement dated June 19, 1996, between Australis
and the Issuer (CTV securities).
10.37* Securities Purchase Agreement dated June 19, 1996, between Australis
and the Issuer (STV securities).
12.1 Statement re: Ratio of Earnings to Fixed Charges.
21.1* List of Subsidiaries.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
Consent of Independent Public Accountants--Arthur Andersen LLP (UIH
23.1 Australia/Pacific, Inc.).
Consent of Independent Public Accountants--Arthur Andersen (CTV Pty
23.2 Ltd).
Consent of Independent Public Accountants--Arthur Andersen (STV Pty
23.3 Ltd).
23.4 Consent of Independent Public Accountants--Arthur Andersen (Saturn
Communication Limited).
23.5 Consent of Independent Public Accountants--Deloitte Touche Tohmatsu
(XYZ Entertainment Pty Ltd).
Consent of Independent Public Accountants--Coopers & Lybrand
23.6 (Telefenua S.A.)
23.7 The consent of Holme Roberts & Owen LLC is included in Exhibit 5.1.
24.1* Powers of Attorney.
25.1* Statement of eligibility of Trustee.
</TABLE>
---------------------
* Previously filed.
(b) Index to Financial Statement Schedules
None.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
DENVER, STATE OF COLORADO, ON THIS 7TH DAY OF AUGUST, 1996.
UIH Australia/Pacific, Inc., A
Colorado corporation
By: /s/ Bernard G. Dvorak
-----------------------------------
BERNARD G. DVORAK
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES ON THE DATES INDICATED.
SIGNATURE TITLE POSITION HELD
WITH THE REGISTRANT
DATE
* Chairman of the
- ------------------------------------- Board, Chief August 7, 1996
GENE W. SCHNEIDER Executive Officer
and Director
* President and
- ------------------------------------- Director August 7, 1996
MICHAEL T. FRIES
/s/ Bernard G. Dvorak Chief Financial
- ------------------------------------- Officer and August 7, 1996
BERNARD G. DVORAK Director
* Director
- ------------------------------------- August 7, 1996
MARK L. SCHNEIDER
* Controller
- ------------------------------------- (Principal August 7, 1996
VALERIE L. COVER Accounting Officer
*/s/ Bernard G. Dvorak
- -------------------------------------
BERNARD G. DVORAK
ATTORNEY-IN-FACT
II-4
<PAGE>
Exhibit 10.23A
[Letterhead of Australis Media Limited]
19 June 1996
The Directors
UIH Australia/Pacific Inc.
4643 South Ulster Street
Suite 1300
Denver Colorado 80237
USA
Dear Sirs
CTV FRANCHISE AGREEMENT
We refer to the Franchise Agreement between us and CTV Pty Limited dated 12
October 1994 ("Franchise Agreement"). Words used in this letter, and the
attached Schedule of Terms, have the same definition as in the Franchise
Agreement. "AML" means the Australis Group. "CTV" means the Franchisee Group.
"UIH" means UIH Australia/Pacific, Inc and its subsidiaries.
The Franchise Agreement entitles CTV to enjoy on an exclusive basis in the
Regions certain rights and benefits in connection with AML's activities. These
rights include, but are not limited to, all rights to or benefits of the
Franchisor's Services, the Programs, the Equipment, other Services, the
Franchisor's Delivery System, and the Franchisor's Proprietary Rights, which
rights are held by AML, AML having used its best endeavours in relation to
rights to Transmit the Programs to acquire such rights on an exclusive basis in
the Regions.
Subsequent to the Franchise Agreement, AML entered into programming agreements
("Programming Agreements") for certain of the Franchisor's Services. AML
maintains that the Programming Agreements required AML to sell rights in respect
of certain of those Franchisor's Services to other arms-length operators in
addition to the Australis Group and the Franchisee Group.
<PAGE>
2
[LOGO APPEARS HERE]
Subsequent to the Franchise Agreement, on 9 March 1995, AML made the TNC Heads
of Agreement with Foxtel, a joint venture or partnership formed between Telstra
Corporation Limited ("Telstra") and The News Corporation Limited ("News"), and
others, in which AML granted to Foxtel the right to distribute certain of the
Franchisor's Services by cable, including in the Regions. Foxtel has commenced
distribution of those Franchisor's Services in the Regions.
UIH and CTV have been provided with redacted copies of the Programming
Agreements for the "B" Licence Services and the TNC Heads of Agreement.
UIH maintains that AML's execution and performance of the TNC Heads of Agreement
breaches the Franchise Agreement and the agreement ("CTV Securityholders
Agreement") between AML, UIH, CTV and others dated 12 October 1994 (as amended).
UIH also maintains that CTV and UIH have suffered loss as a result of AML's
alleged breach of the Franchise Agreement and the CTV Securityholders Agreement.
AML has requested CTV to relinquish its rights to cable exclusivity in the
Regions in respect of the "B" Licence Services and other Services that form part
of the Franchisor's Services, to the extent to which AML is required to provide
those Services to Foxtel under the TNC Heads of Agreement. AML has also
requested CTV to relinquish certain other consequential rights, including rights
in and to the Programs and the Franchisor's Proprietary Rights. AML has made
those requests to enable Foxtel to have the exclusive right to distribute those
Services by cable in the Regions. UIH and CTV are not prepared to relinquish
those rights.
In consideration of, among other things, the sum of A$10 paid by each of
Australis Media Limited and Galaxy Communication Pty Limited to UIH
Australia/Pacific, Inc. and by UIH Australia/Pacific, Inc. to each of Australis
Media Limited and Galaxy Communication Pty Limited (receipt of which is
acknowledged), UIH Australia/Pacific, Inc and each of Australis Media Limited
and Galaxy Communication Pty Limited have agreed to the matters in this letter
and the terms set out in the Schedule of Terms attached to this letter and:
(a) UIH Australia/Pacific, Inc. has agreed to procure that all subsidiaries of
UIH Australia/Pacific, Inc., CTV and all subsidiaries of CTV, are bound by
and comply with this letter and the attached Schedule of Terms; and
(b) Australis Media Limited and Galaxy Communication Pty Limited have agreed to
procure that all persons in the Australis Group are bound by and comply
with, and do all things consistent (and refrain from doing anything
inconsistent) with, this letter and the attached Schedule of Terms.
UIH and CTV maintain that the Schedule of Terms does not adequately compensate
CTV or UIH for the alleged loss of CTV's exclusive rights and other loss caused
by AML's alleged breach of the Franchise Agreement and CTV Securityholders
Agreement. CTV and UIH are seeking to mitigate their alleged loss and damage by,
amongst other things, reaching agreement with Telstra and Foxtel on programming,
carriage, distribution and other arrangements in the Regions.
AML undertakes to UIH that it will not impose, nor attempt to impose, any terms
on CTV which are inconsistent with the terms of this letter and the attached
Schedule of Terms.
<PAGE>
3
[LOGO APPEARS HERE]
At the request of AML, UIH has agreed, subject to the conditions set out below,
that it will ensure that CTV does not make any objection to or claim against AML
or any other person (including Foxtel), and that CTV will waive and release all
of its rights arising out of or in connection with AML's execution and
performance of the TNC Heads of Agreement (and any longform agreement which is
entered into in substantially the same terms in replacement thereof), and any
loss or damage caused to CTV thereby, on the basis that AML and UIH have agreed
to the terms set out in the Schedule of Terms attached to this letter.
UIH and CTV are not bound to waive and release all of their rights arising out
of or in connection with AML's execution and performance of the TNC Heads of
Agreement (and any longform agreement which is entered into in substantially the
same terms in replacement thereof) until all of the conditions set out below are
satisfied or waived by UIH. Nothing in this letter affects the right of any
person to object to or claim against any other person in respect of any matter
arising after the date of this letter which is not expressly waived and released
by CTV in accordance with this letter.
AML fully indemnifies and must continue to fully indemnify UIH against any
claim, damage, loss, liability and expense which CTV pays, suffers, incurs or is
liable for in respect of a breach by AML of this letter or the attached Schedule
of Terms ("CTV's Loss").
If, for any reason, this indemnity does not result in UIH being paid an amount
equal to CTV's Loss, AML must pay to UIH, on demand, as a separate and
independent payment obligation, such amount as is necessary to result in UIH
having received from AML an amount equal to CTV's Loss.
UIH declares, and AML acknowledges, that UIH holds the benefit of this letter
and the Schedule of Terms on trust for itself and for all other Securityholders
of CTV from time to time. In addition, UIH has the right to assign the benefit
of this letter and the Schedule of Terms to any person who acquires securities
in CTV from time to time, but AML may require any such person to enter into a
letter or agreement undertaking to AML to be bound by applicable terms of this
letter and the Schedule of Terms.
Nothing in this letter or any accompanying document (including the Schedule of
Terms) shall be taken to be an admission by AML, CTV or UIH of any breach of the
Franchise Agreement or CTV Securityholders Agreement or any acceptance by AML,
CTV or UIH of any position maintained by the other in respect of the Franchise
Agreement or CTV Securityholders Agreement.
CONDITIONS
The Schedule of Terms (except for paragraph 5, which is of immediate legal
effect) is subject to, and conditional upon:
1.
(a) AML receiving equity subscriptions for shares and/or convertible notes
in the amount of not less than US$50 million as required by Salomon
Bros., of which at least US$10 million must come from Pay TV Options
Pty Limited or its related body corporate, to enable Salomon Bros. to
commence an offering in the USA in
<PAGE>
4
[LOGO APPEARS HERE]
an amount which, together with the aggregate of actual equity
subscriptions, will not be less than US$250 million ("US Offering");
and
(b) Salomon Bros. successfully completing the US Offering.
2. Receipt by UIH of a written acknowledgment from Pay TV Options Pty Limited
in the terms described in the penultimate paragraph of this letter.
AML acknowledges and agrees that the above conditions are for the benefit of UIH
and may only be waived by UIH, and that:
(a) the Schedule of Terms (except for paragraph 5) is not binding until the
date that all of the conditions in paragraphs 1 and 2 above are satisfied;
and
(b) UIH is at liberty to agree that the Schedule of Terms will become binding
notwithstanding that all of the conditions in paragraphs 1 and 2 have not
been satisfied, and may at its option waive any or all of those conditions.
If the conditions referred to in paragraphs 1 and 2 above are not satisfied, or
waived (in whole or in part) by UIH on or before 1 October 1996, or such later
date agreed to under the Guarantee Facility Agreement between AML, Publishing
and Broadcasting (Finance) Limited, Lenfest Communications Inc., Guinness Peat
Group plc, UIH AML Inc. and others, dated 9 May 1996, then this letter and the
attached Schedule of Terms (including paragraph 5 of the Schedule of Terms) are
of no further force and effect.
OTHER MATTERS
AML and UIH agree to document mandatory procedures to be followed between AML
and CTV in relation to the matters set out in paragraphs (a), (b) and (c) below
within 60 days after delivery by UIH to AML of a detailed proposal for those
procedures:
(a) the operational relationship between Franchisor and Franchisee;
(b) agreed methods to calculate amounts due pursuant to the Franchise
Agreement; and
(c) the participation by CTV (or a person nominated by CTV who is at the
relevant time and remains after the relevant time a related body corporate
of CTV as defined under the Corporations Law) in any activities or
negotiations conducted by AML in relation to the delivery of Programs or
Services by satellite.
UIH and AML agree to maintain the terms of this letter in confidence in
accordance with clause 18 of the Franchise Agreement (as if UIH were named in
the Franchise Agreement as the Franchisee). UIH and AML agree that all
information exchanged for the purposes of the provisions of this letter and to
effectuate its intent shall be considered to be Confidential Information for
these purposes. Without limitation, AML and UIH acknowledge that disclosure of
the terms of this letter is permitted to CTV; to any person where required by
Australian or United States securities laws or the rules of any applicable stock
exchange; to Telstra or Foxtel or both, and their advisers, (subject to Telstra
or Foxtel, as applicable, signing confidentiality agreements) to enable UIH or
CTV to reach agreement with Telstra or Foxtel or both, on programming, carriage,
distribution or other related arrangements in the Regions; and to any sub-
licensee or prospective sub-licensee and its advisers (subject to such sub-
licensee or prospective sub-licensee signing confidentiality agreements).
<PAGE>
5
[LOGO APPEARS HERE]
AML agrees to procure that Pay TV Options Pty Limited ("PBL") gives AML written
acknowledgment (in a form acceptable to UIH) that all references in the deed
described as the "PBL Deed" dated 9 May 1996 between PBL, AML, Australis Media
Holdings Pty Limited, Galaxy Communication Pty Limited and Galaxy Network
International Pty Limited ("PBL Deed") to "the Franchise Agreements" and to
"rights created pursuant to the Franchise Agreements", insofar as they relate to
the Franchise Agreement the subject of this letter, are references to, and to
rights created under, the Franchise Agreement, in the form in which its terms
are agreed by UIH and AML to be amended by this letter and the attached Schedule
of Terms, and to rights created under the attached Schedule of Terms.
This letter is legally binding and is governed by the laws of New South Wales.
Yours sincerely
AUSTRALIS MEDIA LIMITED
(ACN 059 741 178)
/s/ Geoffrey Kleemann
Per: Geoffrey Kleemann, Finance Director
Please sign below to confirm the agreement of UIH.
Agreed and accepted:
UIH AUSTRALIA/PACIFIC, INC
/s/ Donald F. Hagans
Per: Donald F Hagans, Vice President
Agreed and accepted:
GALAXY COMMUNICATION PTY LIMITED
(ACN 064 288 035)
/s/ Geoffrey Kleemannn
Per: Geoffrey Kleemann, Finance Director
<PAGE>
SCHEDULE OF TERMS
1. CONFIRMATION OF EXCLUSIVITY
1.1 Without limiting its obligations under the Franchise Agreement or under
this Schedule of Terms but subject to paragraph 1.2, AML undertakes that
CTV will remain exclusively entitled to the rights and benefits given to
CTV under the Franchise Agreement in the Regions and AML confirms that the
intention of the Franchise Agreement is that CTV will be the sole and
exclusive provider of the Franchisor's Services, and of any other Services
to which AML has any rights, in the Regions. AML must not Transmit, or
grant or permit to be granted to third parties any licence or right to
Transmit the Programs or Franchisor's Services in the Regions. UIH will
procure that CTV acknowledges that AML may not, from time to time, have
exclusive rights, or rights on all technologies, to Transmit the Programs
during the Term and in the Regions, but AML must use its best endeavours to
acquire exclusive rights on all technologies to Transmit the Programs
during the Term and in the Regions.
1.2 AML is entitled to grant to Foxtel, and Foxtel is entitled to enjoy and
exercise, pursuant to the TNC Heads of Agreement (and any long form
agreement which is entered into on substantially the same terms in
replacement thereof), the non-exclusive right, as provided in the TNC Heads
of Agreement (and any long form agreement which is entered into on
substantially the same terms in replacement of the TNC Heads of Agreement),
to distribute by cable in the Regions any services including, without
limitation, the Franchisor's Services and rights incidental to the
Franchisor's Services.
1.3 AML agrees that it will not after the date of the letter attached to this
Schedule of Terms ("Letter"), grant to Foxtel, without the consent of CTV,
the right to sub-license, sub-franchise or otherwise grant to any person
any rights in respect of the Franchisor's Services in the Regions (but
nothing in this paragraph 1.3 limits any grant of rights already made in
the TNC Heads of Agreement).
1.4 (a) Without limiting its obligations under the Franchise Agreement or
under this Schedule of Terms, AML undertakes that, except with the
consent of CTV, if AML, or any business, venture or entity, through
which AML directly or indirectly carries on business (whether alone or
in partnership or joint venture with anyone else) or in which AML
participates, is concerned or interested (whether as trustee,
principal, agent, securityholder, unitholder, partner or in any other
capacity) ("AML Venture"), acquires rights to, or in respect of, any
Programs or Services, then:
(1) in the case of AML, or in the case where AML has economic or
management control of the AML Venture, AML must use its best
endeavours; and
(2) in the case where AML does not have economic or management
control of the AML Venture, AML must use its reasonable
endeavours,
to acquire, or procure that the AML Venture acquires, those rights on
identical terms in respect of the Regions as in respect of areas other
than the Regions, and to offer those rights to CTV in accordance with
paragraph 3(g) of this Schedule of Terms and clause 3.7 of the
Franchise Agreement.
(b) AML must promptly inform CTV of any discussions or negotiations in
respect of the acquisition of rights referred to in this clause 1.4
("AML Negotiations") such
<PAGE>
2
that CTV is fully informed about the nature, scope and effect of the
AML Negotiations at the time the AML Negotiations take place.
1.5 (a) UIH undertakes to AML that it will use its best endeavours to
procure that, without limiting CTV's obligations under the Franchise
Agreement, if CTV, or any business venture or entity through which CTV
directly or indirectly carries on business (whether alone or in
partnership or joint venture with anyone else) or in which CTV
participates, is concerned or interested (whether as trustee,
principal, agent, securityholder, unitholder, partner or in any other
capacity) ("CTV Venture"), acquires rights to, or in respect of, any
Programs or Services, then:
(1) in the case of CTV or in the case where CTV has economic or
management control of the CTV Venture, CTV must use its best
endeavours; and
(2) in the case where CTV does not have economic or management
control of the CTV Venture, CTV must use its reasonable
endeavours,
to acquire, or procure that the CTV Venture acquires, those rights on
identical terms in respect of the Regions as in respect of areas other
than the Regions, and to offer those rights to AML in accordance with
paragraph 3(g) of this Schedule of Terms and clause 3.8 of the
Franchise Agreement.
(b) UIH undertakes that CTV must use its best endeavours to promptly
inform AML of any discussions or negotiations in respect of the
acquisition of rights referred to in this clause 1.5 ("CTV
Negotiations") such that AML is fully informed about the nature, scope
and effect of the CTV Negotiations at the time the CTV Negotiations
take place.
1.6 At the request of AML, UIH will procure that CTV shall do all things
reasonably required to ensure that AML is not in breach of the last
sentence of clause 5.2 of the TNC Heads of Agreement.
2. COMPENSATION IN RELATION TO FOXTEL
2.1 Period up to 30 June 1996
Within 10 Business Days after satisfaction of the conditions in this
Letter, AML must pay to CTV, in respect of each subscriber for whom payment
is receivable by AML in respect of services or programs provided by Foxtel
under the TNC Heads of Agreement ("Foxtel Services") in respect of the
Regions for the period commencing on the date of the TNC Heads of Agreement
and ending on 30 June 1996, an amount equal to AML's Actual Margin (which
AML represents to CTV, in respect of this period, has been US$4.00 per
subscriber per month). "AML's Actual Margin" means the difference between
the amount paid to AML by Foxtel in respect of any Foxtel Services and the
actual costs paid or payable by AML to third party program suppliers in
respect of those Foxtel Services or in respect of any programs forming part
of those Foxtel Services, in each case calculated on a per subscriber basis
per month for the number of months during that period for which that person
was a subscriber to the Foxtel Services.
2.2 Period from 30 June 1996
CTV has the right, at its sole discretion, either:
(a) by agreement of CTV, Foxtel and AML (such agreement not to be
unreasonably withheld), to sub-license to Foxtel or any related body
corporate of Foxtel the right to Transmit the Franchisor's Services
(and any other services) by cable in all
<PAGE>
3
or any part of the Regions, to the extent that CTV has such rights
through AML or otherwise, in which case AML must cease supplying all
such Franchisor's Services to Foxtel in those Regions and paragraph
2.2(b) will no longer apply; or
(b) in respect of the period from 30 June 1996, to require AML during the
Term to pay to CTV, or at CTV's direction, within 30 days after the
date ("Payment Date") that fees or other monies in respect of any of
the Foxtel Services in the Regions are payable by Foxtel under the TNC
Heads of Agreement (except in respect of fees or monies payable in the
period between 1 July 1996 and the last Payment Date before the date
on which the conditions in the Letter are satisfied, which AML must
pay to CTV within 10 Business Days of the satisfaction of those
conditions), an amount equal to the sum of:
(1) the greater of A$4.50 and AML's Actual Margin from time to time
(presently US$4.00, but AML has advised CTV that, from 1 October
1996 to 30 June 1997, the Actual Margin is likely to be US$3.50,
and that from 1 July 1997, the Actual Margin is likely to be in
excess of US$4.00) per month in respect of each subscriber to the
Foxtel Services in the Regions; and
(2) the additional amount (if any) to put CTV in the position in
which it would have been had it sub-licensed Foxtel directly to
distribute the relevant Franchisor's Services by cable in the
Regions, on the basis that CTV would have been paid:
(A) the same amount per subscriber by Foxtel as Foxtel pays to
AML under the TNC Heads of Agreement; plus
(B) the amount paid by Foxtel for the "A" Licence channels under
the current form of the agreement ("A" Licence Agreement")
under which Foxtel receives those channels (being that form
of the agreement provided to AML by CTV under cover of a
letter dated 18 June 1996), which UIH has represented to AML
is currently US$4.15. For the avoidance of doubt, if the A
Licence Agreement is amended with the effect that the amount
payable by Foxtel for the "A" Licence channels increases,
the amount payable under this paragraph 2.2(b)(2)(B) is the
amount payable by Foxtel for the "A" Licence channels under
the A Licence Agreement in its current form. However, if the
A Licence Agreement is amended with the effect that the
amount payable by Foxtel for the "A" Licence channels
decreases, the amount payable under this paragraph
2.2(b)(2)(B) is the amount payable pursuant to that
amendment.
It is acknowledged by AML that this does not in any way constitute an
admission by CTV of CTV's measure or amount of alleged damages by
reason of AML entering into the TNC Heads of Agreement.
Paragraph 2.2(b)(2) of this Schedule of Terms is to be applied
consistently with the following principles:
1. The additional amount to put CTV in the position in which it
would have been had it sub-licensed Foxtel to distribute the
relevant Franchisor's Services by cable in the Regions must be
calculated on the basis of the following principles:
<PAGE>
4
(a) The amount that would have been payable by Foxtel to CTV is
the same as the amount payable by Foxtel to AML plus the
amount paid by Foxtel for the "A" Licence channels under the
current form of the A Licence Agreement;
(b) CTV's Gross Revenues would have been treated under the
Franchise Agreement as the same as Foxtel's actual Gross
Revenues;
(c) The Agreed Costs that CTV would have been entitled to deduct
would have been A$7 or Foxtel's actual Agreed Costs
(depending on the election in paragraph 3(b) of this
Schedule of Terms); and
(d) CTV has the right to sub-license cable rights to the "A"
Licence channels and would have sub-licensed those cable
rights to Foxtel in addition to the "B" Licence channels and
other Franchisor's Services (although the "A" Licence cable
rights may presently be provided to CTV by an entity other
than AML).
2. (a) Paragraphs 2.2(b)(1) and (2) of this Schedule of Terms
must be applied consistently with the following worked
examples:
(1) Assume Foxtel pays A$21.50 per subscriber to AML.
(2) Assume Foxtel pays A$5.20 (being US$4.15 at
A$1:US$0.80, rounded up) to the "A" Licensee in respect
of the "A" Licence channels.
(3) Accordingly, Foxtel would have paid CTV A$26.70 if CTV
had sub-licensed to Foxtel directly the right to the 8
channel Galaxy package.
(4) Assume Foxtel actually charges its subscribers a
subscription fee of A$40.00 per month, and assume CTV's
Gross Revenues would therefore have been taken to be
A$40.00 if CTV had sub-licensed to Foxtel directly.
(5) Assume that Foxtel's Agreed Costs are A$7, and assume
CTV would have been entitled to Agreed Costs of A$7 if
CTV had sub-licensed to Foxtel directly.
(6) If CTV had sub-licensed to Foxtel directly, then CTV
would have paid A$16.50 to AML, calculated as follows:
$40.00 Gross Revenue
- 7.00 Agreed Costs
= 33.00
x 50% (assuming that, at the relevant time, this
is the applicable rate under clause 7 of
the Franchise Agreement)
= $16.50
<PAGE>
5
(7) If CTV had sub-licensed to Foxtel directly, a net
amount of A$10.20 would have been receivable and
retained by CTV, calculated as follows:
A$26.70 Amount that would have been received by
CTV from Foxtel for the "A" and "B"
Licence channels
- A$16.50 Amount that would have been payable by CTV
for both the "A" and "B" Licence channels
= A$10.20 Net amount that would have been receivable
and retained by CTV
(8) Therefore, AML must pay $5.20 to CTV, calculated as
follows:
A$10.20 Amount receivable and retained by CTV
- A$ 5.00 A$ value of the amount payable by AML
under paragraph (b)(1) (ie US$4 assuming
an exchange rate of US$0.80: A$1) as the
greater of A$4.50 and AML's Actual Margin.
= A$ 5.20 Additional amount to put CTV in the
position in which it would have been had
it sub-licensed the "A" and "B" Licence
channels directly to Foxtel in the Regions
(b) Assume the same as for (a) except:
(1) Foxtel charges $50 per subscriber;
(2) Foxtel's Agreed Costs are $3;
(3) AML must pay to CTV the greater of A$4.50 and AML's
Actual Margin, calculated as follows:
(A) $50.00 Gross Revenue
- 3.00 Agreed Costs
= $47.00
x 50% (on the same assumption as in (a))
= $23.50 Amount that would have been payable by
CTV
(B) $26.70 Amount that would have been payable to
CTV by Foxtel
- $23.50
= $ 3.20 Net amount that would have been received
and retained by CTV
(C) No additional amount is therefore payable by CTV under
paragraph 2.2(b)(2). AML must only pay to CTV the
<PAGE>
6
greater of A$4.50 and AML's Actual Margin, as required
by paragraph 2.2(b)(1).
(c) (1) AML acknowledges that, in order to satisfy the condition
precedent referred to in paragraph 1 of the Letter, CTV may
sub-license Foxtel or a related body corporate of Foxtel the
right, to the extent that CTV has such rights through AML or
otherwise, to Transmit Franchisor's Services in the Regions
by cable. However, CTV agrees that, if it proposes to sub-
license Foxtel to Transmit Franchisor's Services by cable,
it will only do so with AML's prior agreement (such
agreement not to be (1) AML acknowledges that, in order to
satisfy the condition unreasonably withheld).
(2) For the avoidance of doubt, nothing in this paragraph 2.2
prevents CTV from sub-licensing (or requires AML's consent
to CTV sub-licensing) Foxtel or any related body corporate
of Foxtel to Transmit Franchisor's Services by any means
other than cable. Paragraph 2.2(b) of this Schedule of Terms
continues to apply if CTV sub-licenses Foxtel or any related
body corporate of Foxtel to Transmit Franchisor's Services
by any means other than cable.
2.3 Subject to paragraph 2.2(c) of this the right to sub-license any person to
Transmit Franchisor's Services or Services in the Schedule of Terms, AML
acknowledges that Regions on the following basis: CTV has
(a) CTV, acting reasonably and in good faith, must ensure that any sub-
licensee is financially and otherwise capable of performing the
obligations under the sub-licence agreement (including, without
limitation, as required by paragraph 2.3(b));
(b) the sub-licence agreement must require, to the extent applicable
having regard to the territory the subject of the sub-licence, the
sub-licensee to comply with the obligations under the Franchise
Agreement;
(c) CTV will consult with AML before finalising any sub-licence
arrangement and must provide AML with a copy of each sub-licence
agreement;
(d) CTV will be responsible to AML for the performance by each sub-
licensee of its sub-licence agreement and, to the extent applicable in
each sub-licensed area, the Franchise Agreement, and CTV indemnifies
AML against any loss suffered by AML by reason of any breach by a sub-
licensee of its sub-licence agreement; and
(e) no sub-licensee shall have the right, in turn, to sub-license other
parties with any relevant rights.
For the avoidance of doubt, where CTV sub-licenses any person to distribute
or Transmit Franchisor's Services, references in the Franchise Agreement to
the "Franchisee" shall be taken to include references to that sub-licensee.
2.4 For the purposes of the sub-licence referred to in paragraph 2.2(a) of this
Schedule of Terms or any amounts payable under the calculations set out in
paragraph 2.2 of this Schedule of Terms, CTV's Gross Revenue in that part
of the Regions where Foxtel has subscribers shall be taken to be the higher
of:
(a) the amount charged by Foxtel to its subscribers (and, if Foxtel
charges different prices in a Region, the amount charged by Foxtel is
taken as the average of the prices charged by Foxtel in that Region)
in respect of its basic package of services
<PAGE>
7
containing the "A" and "B" Licence channels or any replacement to all
or any of those "A" and "B" Licence channels (whether or not
replacement channels in respect of the "A" Licence channels are
provided by AML); and
(b) $39.95 per month.
3. FRANCHISE AGREEMENT AMENDMENTS
For the duration of the operation of this Schedule of Terms, the Franchise
Agreement shall be given effect as if it had been amended as follows:
(a) Additional Fixed Fee
CLAUSE 1.1: "ADDITIONAL FIXED FEE" shall be amended by adding
"subject to clause 11.1B" after "means" and by deleting "plus 10%"
wherever it occurs.
(b) Agreed Costs
CLAUSE 1.1:
(1) The definitions of "Agreed Costs" and "Gross Revenues" are
amended as follows:
"AGREED COSTS", in relation to an Accounting Period, means
all amounts paid in that Accounting Period by the
Franchisee:
(1) in relation to reception Equipment for supply to
Subscribers (excluding the purchase cost of the
Equipment and installation costs);
(2) as depreciation (at the lower of 30% per annum and the
highest rate from time to time permitted for such
depreciation under the Income Tax Assessment Act 1936)
of direct purchase costs for the Equipment supplied to
Subscribers (where that Equipment is purchased by the
Franchisee) (it being acknowledged that no depreciation
will apply to any Equipment which is sold by the
Franchisee to Subscribers or to that portion of the
Equipment which is subsidised by the Subscriber by
payments in excess of the actual cost of labour and
parts to enable the Subscriber to receive the
Franchisor's Services);
(3) as any Taxes (but not more than the amounts recovered
from Subscribers in respect of Taxes); and
(4) as any other commercially reasonable and appropriate
cost, including without limitation sales commissions
notified by the Franchisee to the Franchisor and in
respect of which the prior written consent of the
Franchisor has been obtained.
"GROSS REVENUES" in an Accounting Period means, in respect
of each Subscriber, all amounts derived by the Franchisee as
Subscription Fees from that Subscriber (but, for the
avoidance of doubt, this does not apply to Equipment sold or
to that portion of the Equipment which is subsidised by the
Subscriber by payments in excess of the actual costs of
labour and parts to enable the Subscriber to receive the
Franchisor's Services);
<PAGE>
8
(2) CTV will have the right (which may be exercised
independently and as a separate right in respect of two
separate categories of Delivery System, being MDS and
satellite as one category, and cable as another category
(each a "Category"), and for the avoidance of doubt, this
right may be exercised independently in relation to
Franchisor's Services delivered by either Category or both
Categories) exercisable by notice in writing to AML within 2
years after the date of the Letter, to vary the definition
of "Agreed Costs" in clause 1.1 by substituting the
following:
'"AGREED COSTS" means, in relation to an Accounting Period:
(a) for the first 15 years after the date of this
Agreement, $7 per Subscriber per month during that
Accounting Period (but, for the avoidance of doubt,
this does not apply to Equipment sold to or subsidised
by the Subscriber by payments in excess of the actual
cost of labour and parts, to the extent of such
subsidisation to enable the Subscriber to receive the
Franchisor's Services"); and
(b) after the end of that 15 year period, nil.'
Any exercise of rights under this paragraph 3(b)(2) is
irrevocable.
(3) If CTV does not, within 2 years after the date of the
Letter, exercise a right referred to in paragraph 3(b)(2) in
relation to Franchisor's Services delivered by any Category,
then the definitions of "Agreed Costs" and "Gross Revenues"
referred to in paragraph 3(b)(1) will continue to apply in
relation to Franchisor's Services delivered by that
Category.
(c) CONTROLLED ENTITIES
Clause 1.1 "Controlled Entities" shall be amended by substituting the
following:
"CONTROLLED ENTITY" means any entity which is controlled by AML
within the meaning of section 243E or 244B of the Corporations
Law, and any related body corporate of AML;.
(d) SUBSCRIPTION TELEVISION BROADCASTING SERVICES
Clause 1.1 shall be amended by inserting the following:
"SUBSCRIPTION TELEVISION BROADCASTING SERVICES" has the meaning
given to it in the BSA;
(e) "SUBSCRIPTION FEES"
"SUBSCRIPTION FEES" is deleted and the following substituted:
"SUBSCRIPTION FEES" means all amounts payable by Subscribers
pursuant to Subscriber Contracts in respect of the reception of
the basic package of Services provided by the Franchisee, being
the channels referred to in Schedule 2(a) (as amended by
paragraph 7 of this Schedule of Terms), and in respect of the
lease, licence, hire or rental of, or any other usage fee for,
any Equipment (but not including any amounts payable by
Subscribers for any Services which are not referred to in
Schedule 2(a)).
<PAGE>
9
(f) Term
Clause 1.1 "Term" shall be amended by substituting the following:
"Term" means, in relation to each Region, the period commencing
on the date of this Franchise Agreement and ending 15 years after
the Commencement Date and includes the Further Term of 10 years
pursuant to clause 24;'
(g) Clauses 3.7 and 3.8
(1) AML agrees with UIH that, in offering to CTV any Service or
Franchisor's Service under clause 3.7 of the Franchise Agreement,
AML will:
(A) make that offer on the same or no less favourable terms as
that enjoyed by AML (but subject to paragraph 3(g)(1)(B) of
this Schedule of Terms), or offered to any other person for
any part of Australia (including any franchisee or any other
person acquiring rights from AML); and
(B) in any event, the offer will be at a price no more than cost
plus 10% (subject to compliance with the terms on which such
Franchisor's Services are provided to AML under a bona fide
arms length contract).
Clause 3.7 of the Franchise Agreement also applies to any Service
offered, or provided to, CTV before the date of the Letter (other
than the "A" Licence and "B" Licence channels) including, but not
limited to, "BBC World", "CNBC", "World Movies", "TVC" and
"TeleItalia", with the effect that, as and from that date, the
terms offered or provided to CTV are no less favourable than the
terms on which that Service is enjoyed by AML (subject to
paragraph 3(g)(1)(B)), or offered or provided to any other person
for any part of Australia and, in any event, is at a price no
more than cost plus 10% (subject to compliance with the terms on
which that Service is provided to AML under a bona fide arms
length contract).
For these purposes, "cost" means, in respect of each Service or
Franchisor's Service, the actual costs charged to, or imposed on,
AML under a bona fide arms length agreement with a third party or
the lowest price at which AML offers to distribute an AML
produced or compiled Service or Franchisor's Service, and if
costs are charged to or imposed on more than one entity in the
Australis Group in respect of that Service or Franchisor's
Service, "cost" means the lowest actual cost charged or imposed
by that third party agreement on any entity in the Australis
Group.
(2) AML agrees with UIH that any Subscription Television Broadcasting
Service offered by AML to CTV before 1 May 1997 under clause 3.7
of the Franchise Agreement is deemed to be notified by AML on 1
May 1997 (provided AML's rights to this Service have not lapsed).
Accordingly, the negotiation period of 60 days and the acceptance
period of 60 days, referred to in clause 3.7 do not commence
until 1 May 1997 in respect of Subscription Television
Broadcasting Services offered by AML to CTV before 1 May 1997.
However, the period of 15 months referred to in
<PAGE>
10
clause 3.7 commences on the date 120 days after the date of
actual notification by AML under clause 3.7 of the Franchise
Agreement and not on the deemed notification date of 1 May 1997.
(3) Clause 3.7 is to be applied consistently with the following
worked example:
(A) Assume AML offered CTV a Subscription Television
Broadcasting Service on 1 May 1996. The effect of paragraph
3(f)(2) of the Schedule of Terms is that AML is deemed to
offer CTV the Service on 1 May 1997 and the negotiation, and
acceptance periods referred to in clause 3.7 do not commence
until 1 May 1997, while the 15 month period referred to in
clause 3.7 commences 120 days after 1 May 1996.
(B) The effect of paragraph 3(g)(1)(B) is that the terms of
AML's offer made on 1 May 1997 must be on no less favourable
terms than the terms of any offer made by AML to any other
person for any part of Australia. In any event, AML must not
offer the Service to CTV at a price higher than cost plus
10%.
(4) UIH agrees with AML that UIH will procure that paragraphs
3(g)(1), (2) and (3) apply, with the necessary changes, to any
offer made by CTV to AML under clause 3.8 of the Franchise
Agreement.
(h) The following clauses are deleted:
(1) Clause 5.2(y) and (z);
(2) Clauses 12.2, 16.3 16.5(a) and 16.6;
(i) Clause 5.2(c) shall be amended by inserting "each of" after "for" and
by adding at the end "(but this Clause does not impose any obligation
on the Franchisee, to procure Subscribers to all Franchisor's Services
in excess of the requisite Minimum Subscriber Level in each Region)".
(j) Clause 5.2(f) is deleted and the following substituted:
"at all times contract Subscribers for DTH Services (including
Nominated Customers and Preferred Customers) on the terms of the
satellite Subscriber Contract or at the option of CTV, on the
terms of a satellite subscriber contract, the terms of which have
been approved by AML, such approval not to be unreasonably
withheld."
(k) Clause 5.2(i) is amended as follows:
(i) to insert "only" after "at all times"; and
(ii) to add the following at the end:
"and only use the channel logos (for example "Showtime" and
"Encore") of the Franchisor's Services in such manner as
reasonably prescribed by AML in accordance with its third party
Program Agreements from time to time."
(l) Clause 5.2(s) is amended by the addition of the following words after
"the Franchisor"
"which consent shall not be unreasonably withheld."
<PAGE>
11
(m) Clause 5.2(t) is amended by deleting all of the words after the words
"...lesser fee..." in the fourth line, and by substituting the
following:
"if in its opinion, acting in good faith, there is a business
need to charge less than that fee, and:
(1) the Franchisor has agreed to that lesser fee; or
(2) that fee is no lower than $39.95, but this clause 5.2(t)(2)
only applies for a period of 5 years after the date of the
letter attached to this Schedule of Terms; or
(3) the Franchisee continues to pay the Franchisor fees under
clause 7.1 as if the lesser fee was not being charged;"
(n) Clause 5.2A.
New clause 5.2A is added as follows:
"If UIH or CTV acquires or holds any direct or indirect economic
or voting interest in or otherwise has economic or management
control of East Coast Pay Television Pty Limited (ACN 003 546
272) ("ECT"):
(1) UIH acknowledges that the terms of the Franchise Agreement,
the Letter and this Schedule of Terms do not apply to the
franchise regions the subject of a franchise agreement
between AML and ECT as amended from time to time ("ECT
Franchise Agreement") and the terms of the ECT Franchise
Agreement do not apply to the Franchise Agreement Regions;
and
(2) AML acknowledges that the terms of the ECT Franchise
Agreement will continue to apply in the regions the subject
of the ECT Franchise Agreement and that the terms of the
letter dated 8 July 1994 between ECT and AML (which amended
the ECT Franchise Agreement of 8 July 1994) will apply even
if Century Communications Corp ceases to have a Relevant
Interest (as defined in that letter) in ECT provided that
the terms of that letter will only apply if and for so long
as UIH has a Relevant Interest (as defined in the ECT
Franchise Agreement) in ECT.
(o) Clause 13.1 is amended by inserting the words "acting in good faith"
after "the Franchisor" on the first line, and "reasonable" in the
second line after the word "Franchisee".
(p) Clause 13.4
The following is added as a new clause 13.4:
"The Franchisor shall consult with the Franchisee at least 30
days before issuing any Compliance Note, to enable the Franchisee
to have input into the scope and content of that Compliance
Note."
(q) Clause 16.5(b) is deleted and the following substituted:
"(b) not, in any Advertising, make any representations or give
any representations or give any warranty with respect to:
(1) the Australis Group; or
<PAGE>
11
(2) the Franchisor's Services, if that representation or
warranty is inconsistent with any obligation of the
Franchisor to a third party in respect of those
Franchisor's Services, which obligation has been
disclosed to the Franchisee;
except as authorised in writing by the Franchisor."
(r) Clause 16.6 is deleted and the following substituted:
(a) "The Franchisee may elect, on 6 months written notice to the
Franchisor, to provide its own program guide in substitution for
the otherwise mandatory use of the program guide provided by the
Franchisor ("Franchisor's Program Guide").
(b) While the Franchisor's Program Guide is used:
(1) the Franchisee shall use its best endeavours to sell the
Franchisor's Program Guide to Subscribers at the recommended
retail price, if any, so long as that price is also charged
by the Franchisor to its subscribers;
(2) the Franchisee may insert into the Franchisor's Program
Guide (by way of insertion, supplement or wraparound)
details of other Services transmitted by the Franchisee and
other information, advertising and materials authorised by
the Franchisor, but may not otherwise add to, delete from or
change the form or substance of the Franchisor's Program
Guide. The revenue from such insertions shall be the
property of the Franchisee; and
(3) the Franchisor shall procure that the Franchisor's Program
Guide is made available to the Franchisee at the same cost
incurred by the Franchisor, being the costs incurred in the
production and publishing of the Program Guide.
(c) If the Franchisee's program guide is used:
(1) the Franchisor is entitled to the same rights and benefits
in relation to the insertion, supplement or wraparound as
apply to the Franchisee;
(2) subject to the Franchisee's approval, not to be unreasonably
withheld, the Franchisor shall be entitled at the same
production and publishing cost as that charged to the
Franchisee to include any information, advertising and
material (not merely as an insertion, supplement or
wraparound) in the Franchisee's program guide in accordance
with normal production schedules. The revenue from any such
information, advertising and materials shall be the property
of the Franchisor;
(3) if the Franchisee requests, the Franchisor must make
available to the Franchisee at 25% of all relevant costs
incurred by AML (other than printing costs for the
Franchisor's Program Guide) all relevant material to enable
the Franchisee to produce its own program guide for release
each week or at any other interval, as the case may be, no
later than the Franchisor produces and releases its Program
Guide for that week. For these purposes, the material that
the
<PAGE>
Franchisor must make available includes without limitation
all program schedules, listings, and publicity material in
respect of the relevant programming to be Transmitted during
that week which AML has the right to permit the Franchisee
to publish; and
(4) the Franchisor, acting reasonably and in good faith, will
use its best endeavours to procure that its printers and
other persons providing goods and services to the Franchisor
in respect of the Franchisor's Program Guide, agree to
supply materials and services to the Franchisee on the same
commercial terms as to the Franchisor."
(s) Clause 7.1 shall be amended as follows:
(1) by substituting "35%" (appearing twice) with "25%"; and
(2) by substituting "15%" with "25%".
(t) Clause 7.9 is deleted.
(u) Clauses 11.1 to 11.3 shall be amended as follows:
(1) by substituting the following for the whole of clause 11.1:
"11.1AThe Franchisee Group is not required to use the
Franchisor's Subscriber Management System for satellite,
MDS or other technology delivered Services. However, the
Franchisee may request the Australis Group to provide the
Franchisee Group with the use of all or part of the
Franchisor's Subscriber Management System in respect of
its Subscribers, the acceptance of which request will be at
the discretion of the Australis Group.
11.1B The Franchisor and the Franchisee shall in good faith agree
to a commercially reasonable service fee to be charged by
the Australis Group to the Franchisee Group and other
commercial terms (eg. as regards notice for termination) in
respect of the services (if any) provided by the Australis
Group under clause 11.1A (as appropriate). Such fee shall
be included as the Additional Fixed Fee payable by the
Franchisee to the Franchisor in respect of all applicable
Subscribers to the Franchisor's Services. If the parties
cannot reach agreement on a commercially reasonable service
fee, or other commercial terms, they agree that the
provisions of clause 23.1 of the Franchise Agreement
dealing with resolutions of disputes shall apply.;
11.1C (1) To the extent the Conditional Access System operated
by the Franchisor from time to time is technically
capable:
(a) The Franchisee is entitled to "Independent
Operator Status" within the Franchisor's Digital
Conditional Access System. "Independent Operator
Status" is defined as a distinct and logically
separate sector of the smart card and the
related capability to insert independent video,
entitlement and subscriber management
information into a unique multiplexing and
transmission environment within the Irdeto Pay
TV System and as detailed in the Irdeto
Conditional
<PAGE>
14
Access Evaluation Information. This will permit
independent multiplexing and the use of separate
satellite transponders.
(b) The Franchisor and Franchisee shall in good
faith agree to a protocol for technical
interface between the Australis Group and the
Franchisee Group, or any other entity necessary
to entitle the Franchisee to "Separate Operator
Status" as provided in this clause 11.1C. The
Franchisor shall make available to the
Franchisee any technical information (including
information from the Conditional Access
Provider) to facilitate technical interface and
the operation of an independent sector in an
efficient and timely manner, subject to any
confidentiality restrictions imposed upon the
Franchisor.
(c) The Franchisor shall make available to the
Franchisee and the Franchisee's independent
sector environment any and all improvements and
modifications to the Conditional Access System
producing additional or improved functionality
for the multiplexors and receivers and more
specifically as available pursuant to Irdeto's
Phase Implementation Plan. The Franchisee and
related independent sector environment shall
benefit from any and all Conditional Access
System maintenance contracts and maintenance
activities, subject to paying relevant costs.
(d) the Franchisee will be entitled to all
functionality available to the franchisor from
time to time related to operating an independent
sector within the Irdeto conditional access
system as implemented under the irdeto
Conditional Access Evaluation Information and
other related Irdeto Operating Documents from
time to time, including (to the extent available
from time to time) but not limited to:
. activation and deactivation of the satellite
reception equipment of relevant subscribers;
. definition and addressing of "groups", "user
type fields", "regional identifiers" as defined
in the Irdeto Conditional Access Evaluation
Information;
. definition and insertion of independent
entitlements (products);
. definition of free entitlement periods
. utilisation of basic store, forward pay per view
and advanced store, forward pay per view when
available;
<PAGE>
15
. access to unique keys from Irdeto to open
sector;
. messaging and conditional control.
(2) It is the intention of the parties that:
(a) the Franchisee will be independently capable of
acquiring and delivering its own programming to
the relevant conditional access equipment
including independent multiplexing computers
which may be owned or contracted by the
Australis Group or the Franchisee, for
subsequent uplink and delivery (from the
Franchisee's contracted transponders) to
potential subscribers. In the instance where the
Franchisee owns or operates independent
multiplexing and/or encryption equipment the
Franchisor will provide without hindrance or
conditional access to the logical, software
portion of the Conditional Access System for the
provision of a conditional access digital
stream.
(b) subject to the limitations set out in this
clause 11.1C the Franchisee will be granted
access and aforementioned status to/within the
Franchisor's Conditional Access System so long
as the Franchisee's receiving equipment remains
capable of receiving digital transmission from
the Irdeto system. Nothing in this clause
prevents the Franchisee from utilising a
separate conditional access system, or from
being able to Transmit that Service to
subscribers in the Regions using the Equipment;
(c) if the Franchisor changes all or any part of its
satellite Delivery System of which the Irdeto
Conditional Access System forms part, this
clause 11.1C applies, with the necessary
changes, to any such replacement system except
to the extent that this is technically
impracticable; and
(d) if, for any reason the Franchisor incurs
additional Costs, if any, in providing access to
the Franchisee as contemplated by this clause
11.1C, the Franchisee will pay AML for those
Costs.
(3) Where the Franchisor offers any Service to CTV under
clause 3.7 and, having offered that Service, the
Franchisor is entitled under clause 3.7 to Transmit
that Service by satellite in the Regions, nothing in
this clause 11.1C prevents the Franchisor from being
able, and the Franchisor is expressly authorised, to
Transmit that Service by satellite (but not by means
of MDS or cable) to Subscribers in the Regions using
the Equipment and the Franchisee shall do all things
reasonably required (at the cost of the Franchisor
<PAGE>
16
but being no more than the Franchisee's Cost) to
facilitate this at the Franchisor's request.
(4) The Franchisee agrees that the Franchisor's
obligation under this clause 11.1C to grant access to
the Franchisor's licensed proprietary Conditional
Access System, and any other relevant technology or
equipment, must not impede the Australis Group's
control or operation, or unreasonably restrict or
limit any access to or use of, such Conditional
Access System, and any other relevant technology or
equipment, by the Australis Group, but the Franchisee
may, at its cost, pay for and/or provide additional
capacity to enable the Australis Group to have such
control, operation or access.
(5) In this clause 11.1C, "Costs" means, in relation to
any matter, the actual costs charged to, or imposed
on, AML or CTV, as the case may be, under a bona fide
arms length agreement, and, if applicable, directly
attributable personnel costs (on a time basis) and
directly attributable overhead costs incurred by AML
or CTV, as the case may be, in each case, directly in
respect of that matter.
(6) If the parties cannot reach agreement on applicable
Costs or other commercial terms of any matters in
this clause 11.1C, they agree that the provisions of
clause 23.1 of the Franchise Agreement dealing with
resolutions of disputes shall apply."
(2) by inserting ", if included on the Franchisor's Subscriber
Management System," before "coded" in clause 11.2;
(3) by substituting "Subject to clause 11.1" with "In relation to all
Subscribers for whom the Australis Group acts as invoicing agent
under clause 11.1.A or 11.1.B" and by substituting "Subscribers"
with "those Subscribers" in clause 11.3; and
(4) by deleting from "For the Service Fee" to However," (both
inclusive) in clause 11.4.
(v) SCHEDULE 3 shall be amended by inserting at the end the following:
"provided that, if Foxtel procures subscribers to its Services and
those Services include Services licensed to Foxtel by the Franchisor
which are also Franchisor's Services licensed to the Franchisee in a
particular Region, in respect of that Region only, commencing from the
Accounting Period next following the procurement of the first relevant
Foxtel subscriber (as reasonably verified and acknowledged between the
Franchisor and the Franchisee) and for so long as Foxtel continues to
have relevant subscribers in that Region and Foxtel also continues to
have the right from the Franchisor to Transmit any or all of the
Franchisor's Services in that Region, the Minimum Subscriber Levels
stated above shall be reduced to the lesser of:
(1) 75% of those which would otherwise have been required as stated
above; and
<PAGE>
17
(2) 100% of those which would otherwise have been required as stated
above but crediting each relevant Foxtel subscriber in each
Region as a subscriber of the Franchisee in that Region."
(w) All obligations under the Franchise Agreement to pay "on account" are
removed and all reporting and payment obligations which were less than
30 days are amended to require those reports and payments to be given
or made not later than 30 days after the last day of the relevant
Accounting Period but this only applies to the "A" Licence and "B"
Licence Services.
(x) The Franchise Agreement is automatically amended (unless CTV elects
otherwise) to extend to CTV the benefit of any more favourable term
granted or otherwise permitted by AML after the date of the letter
attached to this Schedule of Terms to, or in respect of, any other
franchisee or licensee of AML anywhere in Australia in respect of any
Services, including where the benefit of any more favourable term is
granted or permitted to a person other than a franchisee or licensee
of AML but with the effect that, as between AML and that person, the
arrangement with the franchisee or licensee is treated as if that more
favourable term applied. However, this paragraph 3(x) is not intended
to apply to any term offered, granted or otherwise permitted by AML
solely in performance of its current franchise agreements in their
form as at the date of the letter attached to this Schedule of Terms
(including this Schedule of Terms). UIH acknowledges that if a more
favourable term is offered, granted or otherwise permitted by AML as
part of a package of related terms, then this paragraph 3(x) only
applies to the entire package including (if applicable) any less
favourable terms in that package with the more favourable terms in
that package of related terms. AML must notify CTV in writing of any
terms offered, granted or otherwise permitted by AML to, or in respect
of, any other franchisee or licensee of AML anywhere in Australia in
respect of any Services as soon as practicable after offering that
term or package of related terms.
4. AML will use its best endeavours to procure the supply of Equipment, goods
and services to CTV as envisaged in clause 8 of the Franchise Agreement, at
the same total cost and terms as are available to AML, subject to order
volume, credit, security and financing provisions. Where excess Equipment
is held by AML, AML will endeavour to make this available to CTV at the
cost of that Equipment to AML.
5. OPTUS VISION NEGOTIATIONS
(a) CTV shall be promptly and fully informed of and, wherever reasonable
and practicable, be given opportunity to participate in all and any
negotiations in which AML engages with Optus Vision in regard to the
procuring of carriage rights of any Optus Vision channels, and with
Optus Communications in regard to the procuring of delivery of any
Optus Vision services, establishment of DTH platform standards jointly
or separately, technical specifications and subscriber reception
equipment, and any other matters which would in any way directly
affect the delivery of Services to Subscribers or potential
Subscribers in the Regions. Nothing in this paragraph prevents UIH or
CTV from negotiating directly with Optus Vision or Optus
Communications, including but not limited to the matters set out in
this paragraph.
(b) In the event that AML obtains channels and/or programming from Optus
Vision, it will use its best endeavours to procure that the Franchisee
obtains exclusive, or if not available, non-exclusive rights to those
channels and/or programming on all
<PAGE>
18
available technologies, and on terms that the payment for such rights
by the Franchisee will not be greater than the fees payable by AML to
Optus Vision for such rights plus 10% and on other commercial terms no
less favourable than those provided by Optus Vision to AML.
Any programming acquired by CTV from a joint venture or partnership
between AML and Optus Vision (or from any other entity formed among
AML and Optus Vision) shall be at a fee no greater than 110% of the
costs to that joint venture, partnership or entity in respect of
programming to be supplied to AML's subscribers or to the subscribers
of that venture, partnership or entity.
(c) AML agrees that it will use its best endeavours to provide CTV with
participation in any such business, partnership or venture with Optus
Vision or Optus Communications, by way of a position, together with
STV Pty Limited, of up to 25% of the AML portion of such business,
partnership or other venture, at the same cost as the cost to AML.
Such participation shall be on arms length commercial terms which will
not economically prejudice CTV or AML and which shall be not more
favourable, in their totality, to CTV than the terms of AML's
participation in the same business or venture. For the avoidance of
doubt, it is intended that CTV shall only be entitled to participate
in a business, partnership or venture to which AML and Optus Vision
contribute their subscribers if CTV also contributes its subscribers,
or their economic equivalent, to the business, partnership or venture.
(d) If, having used its best endeavours as required by paragraph 5(c), AML
is unable to provide CTV with participation in a business, partnership
or venture with Optus Vision or Optus Communications, as the case may
be, AML must use its best endeavours to procure that:
(1) Optus Vision; or
(2) if that business, partnership or venture acquires programs or
program rights from Optus Vision, that business, partnership or
venture,
appoints ctv on an exclusive basis as its franchisee on reasonable arms
length commercial terms, to deliver those programs in the regions.
6. CONDITIONAL ASSIGNMENT
AML agrees, within a reasonable timeframe, to formally request the
respective suppliers of Showtime, Encore, TV-1 and Fox Sports, for consent
to the transfer or assignment of any and all of its rights under the
programming agreements with such entities, such that if AML is unable to
deliver Services for any reason, those Services will be delivered directly
to CTV.
7. FRANCHISOR'S SERVICES
Schedule 2(a) to the Franchise Agreement is amended so that the following 8
(eight) channels are specified: Showtime, Encore, Fox Sports, TV-1, Arena,
Red, Nickelodeon, Discovery, or any successor channels to that channel.
Any substitute channel must be of similar standard in terms of its
attractiveness to subscribers and potential subscribers, taking into
account the other channels available in that 8 channel package to the
channels listed above. However, CTV acknowledges that AML may not be in a
position to determine or control the genre of any substitute channels to
the 4 "A" Licence channels.
<PAGE>
19
It is intended that the 8 Services are the sole Services to which the
Franchisee is entitled as Franchisor's Services for the Service Fee (ie
without additional payment as contemplated under clause 3.7 of the
Franchise Agreement and paragraph 3(g) of this Schedule of Terms).
8. RECORDS AND AUDIT
(a) CTV shall have the right to appoint any independent auditor to
verify and audit all information ("Information"), including AML's
relevant records, pertaining to:
(1) any amount to be paid by AML to CTV under paragraph 2.1 or 2.2
including but not limited to "AML's Actual Margin", the amounts
paid or payable to AML by Foxtel in respect of Foxtel Services,
the actual costs paid or payable by AML to third party program
suppliers in respect of those Services or Programs in those
Services and details of subscribers and details of subscribers to
Foxtel Services in the Regions;
(2) the cost (as defined in paragraph 3(g)(1) of this Schedule of
Terms) to AML of any Service offered or to be offered to CTV
under clause 3.7 of the Franchise Agreement and paragraph 3(g) of
this Schedule of Terms, and the terms on which that Service is
provided to or by AML to any other person; and
(3) for the purposes of paragraph 5(b) the fees payable by AML to
Optus Vision or to any joint venture partnership or entity
referred to in that paragraph, and the other commercial terms on
which any channels or programming to which paragraph 5(b)
applies, are provided to AML.
(b) AML shall provide to CTV's nominated auditor on request access to its
documents and records containing any Information, including records
and documents contained in computerised form and shall give to CTV's
auditors the right at any time during normal business hours, with at
least 5 Business Days' notice to AML to audit all books, records,
statements and documents containing Information.
(c) AML shall fully co-operate with CTV's auditor conducting any audit
and, if any audit should disclose an understatement of any amount
payable by AML to CTV for any period, AML shall pay to CTV within 10
Business Days after receipt of the audit report, any amount due as the
amount of such understatement and, if any audit should disclose an
understatement of at least 5% of any such amount payable by AML to
CTV, AML shall also pay to CTV within 10 Business Days after receipt
of the audit report, the cost of such audit.
(d) Any inspection or audit shall take place during normal business hours
on a Business Day and not more than once during any 6 month period.
(e) CTV must procure that its auditor enters into an agreement with AML
agreeing not to disclose AML's confidential information to CTV or any
other person, or to use AML's confidential information, except for the
purpose of conducting the verification and audit referred to in
paragraph 8(a) of this Schedule of Terms.
(f) AML shall have the right to appoint any independent auditor to verify
and audit all information, including CTV's relevant records,
pertaining to the cost (as defined in paragraph 3(g)(1) of this
Schedule of Terms with the necessary changes required by paragraphs
3(g)(5)) to CTV of any Service offered or to be offered by AML under
clause 3.8 of the Franchise Agreement and paragraph
<PAGE>
20
3(g)(5) of this Schedule of Terms, and the terms on which that Service
is provided to or by CTV to any other person. Paragraphs 8(b), (c),
(d) and (e) apply to any audit conducted by AML's auditor, with the
necessary changes.
9. FURTHER ASSURANCES
UIH and AML agree to, and UIH agrees to procure that CTV will, do all acts
and things and execute such other documents as are reasonably required to
give effect to the intention and purpose of the matters agreed in this
Schedule of Terms and the letter attached to this Schedule.
10. CONFIDENTIALITY
UIH and AML agree to maintain the terms of this Schedule of Terms in
confidence in accordance with clause 18 of the Franchise Agreement, as if
UIH were named in the Franchise Agreement as the Franchisee. UIH and AML
agree that all information exchanged for the purposes of the provisions of
this Schedule of Terms and to effectuate its intent shall be considered to
be Confidential Information for these purposes. Without limitation, UIH and
AML acknowledge that disclosure of the terms of this Schedule of Terms is
permitted to CTV; to any person where required by Australian or United
States securities law or the rules of any applicable stock exchange; to
Telstra or Foxtel or both, and their advisers, (subject to Telstra or
Foxtel, as applicable; signing confidentiality agreements) to enable UIH or
CTV to reach agreement with Telstra, Foxtel or both on programming,
carriage, distribution or other related arrangements in the Regions; and to
any sub-licensee or prospective sub-licensee and its advisers (subject to
such sub-licensee or prospective sub-licensee signing confidentiality
agreements).
11. DEFINITIONS
For the purposes of this Schedule of Terms and the letter attached,
"Foxtel" means the partnership of that name between Telstra Corporation
Limited and The News Corporation Limited (the "Partnership"), Foxtel
Management Pty Limited and any related body corporate of Foxtel Management
Pty Limited and any entity in which Foxtel Management Pty Limited, the
Partnership, or such related body corporate has an economic or voting
interest which distributes Franchisor's Services in the Regions.
UIH and AML agree that a reference in the Franchise Agreement, this
Schedule of Terms or the Letter to:
(a) "A Licence" or "B" Licence" is a reference to Licence A and Licence B,
respectively, issued under section 93(1) of the BSA, and a reference
to "A Licence channels" or "A Licence Services" or "B Licence
channels" or "B Licence Services" is a reference to services or
channels provided pursuant to Licence A and Licence B respectively;
(b) "Franchisee" includes a reference to "the Franchisee, any member of
the Franchisee Group or any sub-licensee";
(c) "Equipment" includes a reference to "Equipment or any reception
equipment provided by the Franchisee to a Subscriber necessary for the
provision of the Franchisor's Services provided by the Franchisee in
the Regions"; and
(d) "Subscriber" includes a reference to a "Subscriber or any subscriber
to a service provided by the Franchisee in the Regions".
It is the intention of the parties that costs and revenues under the
Franchise Agreement shall be calculated on a comparable basis. For example,
if, for any calculation, revenues
<PAGE>
21
are to take into account revenues of a sub-licensee, then applicable costs
of that sub-licensee should also be taken into account.
12. EQUITABLE RELIEF
UIH and AML agree that damages may not be an adequate remedy for the breach
of the provisions set out in this Schedule of Terms and that UIH and AML
may obtain equitable relief, in addition to any and all other remedies
provided by law, to prevent or ensure a discontinuance of any such breach
which occurs.
13. TERM
This Schedule of Terms continues in force for the Term of the Franchise
Agreement.
<PAGE>
Exhibit 10.24A
[Letterhead of Australis Medicate Limited]
19 June 1996
The Directors
UIH Australia/Pacific Inc.
4643 South Ulster Street
Suite 1300
Denver Colorado 80237
USA
Dear Sirs
STV FRANCHISE AGREEMENT
We refer to the Franchise Agreement between us and STV Pty Limited dated 12
October 1994 ("Franchise Agreement"). Words used in this letter, and the
attached Schedule of Terms, have the same definition as in the Franchise
Agreement. "AML" means the Australis Group. "STV" means the Franchisee Group.
"UIH" means UIH Australia/Pacific, Inc and its subsidiaries.
The Franchise Agreement entitles STV to enjoy on an exclusive basis in the
Regions certain rights and benefits in connection with AML's activities. These
rights include, but are not limited to, all rights to or benefits of the
Franchisor's Services, the Programs, the Equipment, other Services, the
Franchisor's Delivery System, and the Franchisor's Proprietary Rights, which
rights are held by AML, AML having used its best endeavours in relation to
rights to Transmit the Programs to acquire such rights on an exclusive basis in
the Regions.
Subsequent to the Franchise Agreement, AML entered into programming agreements
("Programming Agreements") for certain of the Franchisor's Services. AML
maintains that the Programming Agreements required AML to sell rights in respect
of certain of those Franchisor's Services to other arms-length operators in
addition to the Australis Group and the Franchisee Group.
<PAGE>
2
[LOGO APPEARS HERE]
Subsequent to the Franchise Agreement, on 9 March 1995, AML made the TNC Heads
of Agreement with Foxtel, a joint venture or partnership formed between Telstra
Corporation Limited ("Telstra") and The News Corporation Limited ("News"), and
others, in which AML granted to Foxtel the right to distribute certain of the
Franchisor's Services by cable, including in the Regions. Foxtel has commenced
distribution of those Franchisor's Services in the Regions.
UIH and STV have been provided with redacted copies of the Programming
Agreements for the "B" Licence Services and the TNC Heads of Agreement.
UIH maintains that AML's execution and performance of the TNC Heads of Agreement
breaches the Franchise Agreement and the agreement ("STV Securityholders
Agreement") between AML, UIH, STV and others dated 12 October 1994 (as amended).
UIH also maintains that STV and UIH have suffered loss as a result of AML's
alleged breach of the Franchise Agreement and the STV Securityholders Agreement.
AML has requested STV to relinquish its rights to cable exclusivity in the
Regions in respect of the "B" Licence Services and other Services that form part
of the Franchisor's Services, to the extent to which AML is required to provide
those Services to Foxtel under the TNC Heads of Agreement. AML has also
requested STV to relinquish certain other consequential rights, including rights
in and to the Programs and the Franchisor's Proprietary Rights. AML has made
those requests to enable Foxtel to have the exclusive right to distribute those
Services by cable in the Regions. UIH and STV are not prepared to relinquish
those rights.
In consideration of, among other things, the sum of A$10 paid by each of
Australis Media Limited and Galaxy Communication Pty Limited to UIH
Australia/Pacific, Inc. and by UIH Australia/Pacific, Inc. to each of Australis
Media Limited and Galaxy Communication Pty Limited (receipt of which is
acknowledged), UIH Australia/Pacific, Inc and each of Australis Media Limited
and Galaxy Communication Pty Limited have agreed to the matters in this letter
and the terms set out in the Schedule of Terms attached to this letter and:
(a) UIH Australia/Pacific, Inc. has agreed to procure that all subsidiaries
of UIH Australia/Pacific, Inc., STV and all subsidiaries of STV, are bound
by and comply with this letter and the attached Schedule of Terms; and
(b) Australis Media Limited and Galaxy Communication Pty Limited have agreed to
procure that all persons in the Australis Group are bound by and comply
with, and do all things consistent (and refrain from doing anything
inconsistent) with, this letter and the attached Schedule of Terms.
UIH and STV maintain that the Schedule of Terms does not adequately compensate
STV or UIH for the alleged loss of STV's exclusive rights and other loss caused
by AML's alleged breach of the Franchise Agreement and STV Securityholders
Agreement. STV and UIH are seeking to mitigate their alleged loss and damage by,
amongst other things, reaching agreement with Telstra and Foxtel on programming,
carriage, distribution and other arrangements in the Regions.
AML undertakes to UIH that it will not impose, nor attempt to impose, any terms
on STV which are inconsistent with the terms of this letter and the attached
Schedule of Terms.
<PAGE>
3
[LOGO APPEARS HERE]
At the request of AML, UIH has agreed, subject to the conditions set out below,
that it will ensure that STV does not make any objection to or claim against AML
or any other person (including Foxtel), and that STV will waive and release all
of its rights arising out of or in connection with AML's execution and
performance of the TNC Heads of Agreement (and any longform agreement which is
entered into in substantially the same terms in replacement thereof), and any
loss or damage caused to STV thereby, on the basis that AML and UIH have agreed
to the terms set out in the Schedule of Terms attached to this letter.
UIH and STV are not bound to waive and release all of their rights arising out
of or in connection with AML's execution and performance of the TNC Heads of
Agreement (and any longform agreement which is entered into in substantially the
same terms in replacement thereof) until all of the conditions set out below are
satisfied or waived by UIH. Nothing in this letter affects the right of any
person to object to or claim against any other person in respect of any matter
arising after the date of this letter which is not expressly waived and released
by STV in accordance with this letter.
AML fully indemnifies and must continue to fully indemnify UIH against any
claim, damage, loss, liability and expense which STV pays, suffers, incurs or is
liable for in respect of a breach by AML of this letter or the attached Schedule
of Terms ("STV's Loss").
If, for any reason, this indemnity does not result in UIH being paid an amount
equal to STV's Loss, AML must pay to UIH, on demand, as a separate and
independent payment obligation, such amount as is necessary to result in UIH
having received from AML an amount equal to STV's Loss.
UIH declares, and AML acknowledges, that UIH holds the benefit of this letter
and the Schedule of Terms on trust for itself and for all other Securityholders
of STV from time to time. In addition, UIH has the right to assign the benefit
of this letter and the Schedule of Terms to any person who acquires securities
in STV from time to time, but AML may require any such person to enter into a
letter or agreement undertaking to AML to be bound by applicable terms of this
letter and the Schedule of Terms.
Nothing in this letter or any accompanying document (including the Schedule of
Terms) shall be taken to be an admission by AML, STV or UIH of any breach of the
Franchise Agreement or STV Securityholders Agreement or any acceptance by AML,
STV or UIH of any position maintained by the other in respect of the Franchise
Agreement or STV Securityholders Agreement.
CONDITIONS
The Schedule of Terms (except for paragraph 5, which is of immediate legal
effect) is subject to, and conditional upon:
1.
(a) AML receiving equity subscriptions for shares and/or convertible notes
in the amount of not less than US$50 million as required by Salomon
Bros., of which at least US$10 million must come from Pay TV Options
Pty Limited or its related body corporate, to enable Salomon Bros. to
commence an offering in the USA in
<PAGE>
4
[LOGO APPEARS HERE]
an amount which, together with the
aggregate of actual equity subscriptions, will not be less than US$250
million ("US Offering"); and
(b) Salomon Bros. successfully completing the US Offering.
2. Receipt by UIH of a written acknowledgment from Pay TV Options Pty Limited
in the terms described in the penultimate paragraph of this letter.
AML acknowledges and agrees that the above conditions are for the benefit of UIH
and may only be waived by UIH, and that:
(a) the Schedule of Terms (except for paragraph 5) is not binding until the
date that all of the conditions in paragraphs 1 and 2 above are satisfied;
and
(b) UIH is at liberty to agree that the Schedule of Terms will become binding
notwithstanding that all of the conditions in paragraphs 1 and 2 have not
been satisfied, and may at its option waive any or all of those conditions.
If the conditions referred to in paragraphs 1 and 2 above are not satisfied, or
waived (in whole or in part) by UIH on or before 1 October 1996, or such later
date agreed to under the Guarantee Facility Agreement between AML, Publishing
and Broadcasting (Finance) Limited, Lenfest Communications Inc., Guinness Peat
Group plc, UIH AML Inc. and others, dated 9 May 1996, then this letter and the
attached Schedule of Terms (including paragraph 5 of the Schedule of Terms) are
of no further force and effect.
OTHER MATTERS
AML and UIH agree to document mandatory procedures to be followed between AML
and STV in relation to the matters set out in paragraphs (a), (b) and (c) below
within 60 days after delivery by UIH to AML of a detailed proposal for those
procedures:
(a) the operational relationship between Franchisor and Franchisee;
(b) agreed methods to calculate amounts due pursuant to the Franchise
Agreement; and
(c) the participation by STV (or a person nominated by STV who is at the
relevant time and remains after the relevant time a related body corporate
of STV as defined under the Corporations Law) in any activities or
negotiations conducted by AML in relation to the delivery of Programs or
Services by satellite.
UIH and AML agree to maintain the terms of this letter in confidence in
accordance with clause 18 of the Franchise Agreement (as if UIH were named in
the Franchise Agreement as the Franchisee). UIH and AML agree that all
information exchanged for the purposes of the provisions of this letter and to
effectuate its intent shall be considered to be Confidential Information for
these purposes. Without limitation, AML and UIH acknowledge that disclosure of
the terms of this letter is permitted to STV; to any person where required by
Australian or United States securities laws or the rules of any applicable stock
exchange; to Telstra or Foxtel or both, and their advisers, (subject to Telstra
or Foxtel, as applicable, signing confidentiality agreements) to enable UIH or
STV to reach agreement with Telstra or Foxtel or both, on programming, carriage,
distribution or other related arrangements in the Regions; and to any sub-
licensee or prospective sub-licensee and its advisers (subject to such sub-
licensee or prospective sub-licensee signing confidentiality agreements).
<PAGE>
5
[LOGO APPEARS HERE]
AML agrees to procure that Pay TV Options Pty Limited ("PBL") gives AML written
acknowledgment (in a form acceptable to UIH) that all references in the deed
described as the "PBL Deed" dated 9 May 1996 between PBL, AML, Australis Media
Holdings Pty Limited, Galaxy Communication Pty Limited and Galaxy Network
International Pty Limited ("PBL Deed") to "the Franchise Agreements" and to
"rights created pursuant to the Franchise Agreements", insofar as they relate to
the Franchise Agreement the subject of this letter, are references to, and to
rights created under, the Franchise Agreement, in the form in which its terms
are agreed by UIH and AML to be amended by this letter and the attached Schedule
of Terms, and to rights created under the attached Schedule of Terms.
This letter is legally binding and is governed by the laws of New South Wales.
Yours sincerely
AUSTRALIS MEDIA LIMITED
(ACN 059 741 178)
/s/ Geoffrey Kleemann
Per: Geoffrey Kleemann, Finance Director
Please sign below to confirm the agreement of UIH.
Agreed and accepted:
UIH AUSTRALIA/PACIFIC, INC
/s/ Donald F. Hagans
Per: Donald F Hagans, Vice President
Agreed and accepted:
GALAXY COMMUNICATION PTY LIMITED
(ACN 064 288 035)
/s/ Geoffrey Kleemann
Per: Geoffrey Kleemann, Finance Director
<PAGE>
5
[LOGO APPEARS HERE]
AML agrees to procure that Pay TV Options Pty Limited ("PBL") gives AML written
acknowledgment (in a form acceptable to UIH) that all references in the deed
described as the "PBL Deed" dated 9 May 1996 between PBL, AML, Australis Media
Holdings Pty Limited, Galaxy Communication Pty Limited and Galaxy Network
International Pty Limited ("PBL Deed") to "the Franchise Agreements" and to
"rights created pursuant to the Franchise Agreements", insofar as they relate to
the Franchise Agreement the subject of this letter, are references to, and to
rights created under, the Franchise Agreement, in the form in which its terms
are agreed by UIH and AML to be amended by this letter and the attached Schedule
of Terms, and to rights created under the attached Schedule of Terms.
This letter is legally binding and is governed by the laws of New South Wales.
Yours sincerely
AUSTRALIS MEDIA LIMITED
(ACN 059 741 178)
/s/ Geoffrey Kleemann
Per: Geoffrey Kleemann, Finance Director
Please sign below to confirm the agreement of UIH.
Agreed and accepted:
UIH AUSTRALIA/PACIFIC, INC
/s/ Donald F. Hagans
Per: Donald F Hagans, Vice President
Agreed and accepted:
GALAXY COMMUNICATION PTY LIMITED
(ACN 064 288 035)
/s/ Geoffrey Kleemann
Per: Geoffrey Kleemann, Finance Director
<PAGE>
SCHEDULE OF TERMS
1. CONFIRMATION OF EXCLUSIVITY
1.1 Without limiting its obligations under the Franchise Agreement or under
this Schedule of Terms but subject to paragraph 1.2, AML undertakes that
STV will remain exclusively entitled to the rights and benefits given to
STV under the Franchise Agreement in the Regions and AML confirms that
the intention of the Franchise Agreement is that STV will be the sole and
exclusive provider of the Franchisor's Services, and of any other
Services to which AML has any rights, in the Regions. AML must not
Transmit, or grant or permit to be granted to third parties any licence
or right to Transmit the Programs or Franchisor's Services in the
Regions. UIH will procure that STV acknowledges that AML may not, from
time to time, have exclusive rights, or rights on all technologies, to
Transmit the Programs during the Term and in the Regions, but AML must
use its best endeavours to acquire exclusive rights on all technologies
to Transmit the Programs during the Term and in the Regions.
1.2 AML is entitled to grant to Foxtel, and Foxtel is entitled to enjoy and
exercise, pursuant to the TNC Heads of Agreement (and any long form
agreement which is entered into on substantially the same terms in
replacement thereof), the non-exclusive right, as provided in the TNC
Heads of Agreement (and any long form agreement which is entered into on
substantially the same terms in replacement of the TNC Heads of
Agreement), to distribute by cable in the Regions any services including,
without limitation, the Franchisor's Services and rights incidental to
the Franchisor's Services.
1.3 AML agrees that it will not after the date of the letter attached to this
Schedule of Terms ("Letter"), grant to Foxtel, without the consent of
STV, the right to sub-license, sub-franchise or otherwise grant to any
person any rights in respect of the Franchisor's Services in the Regions
(but nothing in this paragraph 1.3 limits any grant of rights already
made in the TNC Heads of Agreement).
1.4 (a) Without limiting its obligations under the Franchise Agreement or
under this Schedule of Terms, AML undertakes that, except with the
consent of STV, if AML, or any business, venture or entity, through
which AML directly or indirectly carries on business (whether alone
or in partnership or joint venture with anyone else) or in which AML
participates, is concerned or interested (whether as trustee,
principal, agent, securityholder, unitholder, partner or in any
other capacity) ("AML Venture"), acquires rights to, or in respect
of, any Programs or Services, then:
(1) in the case of AML, or in the case where AML has economic or
management control of the AML Venture, AML must use its best
endeavours; and
(2) in the case where AML does not have economic or management
control of the AML Venture, AML must use its reasonable
endeavours,
to acquire, or procure that the AML Venture acquires, those rights
on identical terms in respect of the Regions as in respect of areas
other than the Regions, and to offer those rights to STV in
accordance with paragraph 3(g) of this Schedule of Terms and clause
3.7 of the Franchise Agreement.
(b) AML must promptly inform STV of any discussions or negotiations in
respect of the acquisition of rights referred to in this clause 1.4
("AML Negotiations") such
<PAGE>
2
that STV is fully informed about the nature, scope and effect of the
AML Negotiations at the time the AML Negotiations take place.
1.5 (a) UIH undertakes to AML that it will use its best endeavours to
procure that, without limiting STV's obligations under the Franchise
Agreement, if STV, or any business venture or entity through which
STV directly or indirectly carries on business (whether alone or in
partnership or joint venture with anyone else) or in which STV
participates, is concerned or interested (whether as trustee,
principal, agent, securityholder, unitholder, partner or in any
other capacity) ("STV Venture"), acquires rights to, or in respect
of, any Programs or Services, then:
(1) in the case of STV or in the case where STV has economic or
management control of the STV Venture, STV must use its best
endeavours; and
(2) in the case where STV does not have economic or management
control of the STV Venture, STV must use its reasonable
endeavours,
to acquire, or procure that the STV Venture acquires, those rights
on identical terms in respect of the Regions as in respect of areas
other than the Regions, and to offer those rights to AML in
accordance with paragraph 3(g) of this Schedule of Terms and clause
3.8 of the Franchise Agreement.
(b) UIH undertakes that STV must use its best endeavours to promptly
inform AML of any discussions or negotiations in respect of the
acquisition of rights referred to in this clause 1.5 ("STV
Negotiations") such that AML is fully informed about the nature,
scope and effect of the STV Negotiations at the time the STV
Negotiations take place.
1.6 At the request of AML, UIH will procure that STV shall do all things
reasonably required to ensure that AML is not in breach of the last
sentence of clause 5.2 of the TNC Heads of Agreement.
2. COMPENSATION IN RELATION TO FOXTEL
2.1 Period up to 30 June 1996
Within 10 Business Days after satisfaction of the conditions in this
Letter, AML must pay to STV, in respect of each subscriber for whom
payment is receivable by AML in respect of services or programs provided
by Foxtel under the TNC Heads of Agreement ("Foxtel Services") in respect
of the Regions for the period commencing on the date of the TNC Heads of
Agreement and ending on 30 June 1996, an amount equal to AML's Actual
Margin (which AML represents to STV, in respect of this period, has been
US$4.00 per subscriber per month). "AML's Actual Margin" means the
difference between the amount paid to AML by Foxtel in respect of any
Foxtel Services and the actual costs paid or payable by AML to third
party program suppliers in respect of those Foxtel Services or in respect
of any programs forming part of those Foxtel Services, in each case
calculated on a per subscriber basis per month for the number of months
during that period for which that person was a subscriber to the Foxtel
Services.
2.2 Period from 30 June 1996
STV has the right, at its sole discretion, either:
(a) by agreement of STV, Foxtel and AML (such agreement not to be
unreasonably withheld), to sub-license to Foxtel or any related body
corporate of Foxtel the right to Transmit the Franchisor's Services
(and any other services) by cable in all or any part of the Regions,
to the extent that STV has such rights through AML or
<PAGE>
3
otherwise, in which case AML must cease supplying all such
Franchisor's Services to Foxtel in those Regions and paragraph
2.2(b) will no longer apply; or
(b) in respect of the period from 30 June 1996, to require AML during
the Term to pay to STV, or at STV's direction, within 30 days after
the date ("Payment Date") that fees or other monies in respect of
any of the Foxtel Services in the Regions are payable by Foxtel
under the TNC Heads of Agreement (except in respect of fees or
monies payable in the period between 1 July 1996 and the last
Payment Date before the date on which the conditions in the Letter
are satisfied, which AML must pay to STV within 10 Business Days of
the satisfaction of those conditions), an amount equal to the sum
of:
(1) the greater of A$4.50 and AML's Actual Margin from time to time
(presently US$4.00, but AML has advised STV that, from 1
October 1996 to 30 June 1997, the Actual Margin is likely to be
US$3.50, and that from 1 July 1997, the Actual Margin is likely
to be in excess of US$4.00) per month in respect of each
subscriber to the Foxtel Services in the Regions; and
(2) the additional amount (if any) to put STV in the position in
which it would have been had it sub-licensed Foxtel directly to
distribute the relevant Franchisor's Services by cable in the
Regions, on the basis that STV would have been paid:
(A) the same amount per subscriber by Foxtel as Foxtel pays to
AML under the TNC Heads of Agreement; plus
(B) the amount paid by Foxtel for the "A" Licence channels
under the current form of the agreement ("A" Licence
Agreement") under which Foxtel receives those channels
(being that form of the agreement provided to AML by STV
under cover of a letter dated 18 June 1996), which UIH has
represented to AML is currently US$4.15. For the avoidance
of doubt, if the A Licence Agreement is amended with the
effect that the amount payable by Foxtel for the "A"
Licence channels increases, the amount payable under this
paragraph 2.2(b)(2)(B) is the amount payable by Foxtel for
the "A" Licence channels under the A Licence Agreement in
its current form. However, if the A Licence Agreement is
amended with the effect that the amount payable by Foxtel
for the "A" Licence channels decreases, the amount payable
under this paragraph 2.2(b)(2)(B) is the amount payable
pursuant to that amendment.
It is acknowledged by AML that this does not in any way constitute
an admission by STV of STV's measure or amount of alleged damages by
reason of AML entering into the TNC Heads of Agreement.
Paragraph 2.2(b)(2) of this Schedule of Terms is to be applied
consistently with the following principles:
1. The additional amount to put STV in the position in which it
would have been had it sub-licensed Foxtel to distribute the
relevant Franchisor's Services by cable in the Regions must be
calculated on the basis of the following principles:
<PAGE>
4
(a) The amount that would have been payable by Foxtel to STV
is the same as the amount payable by Foxtel to AML plus
the amount paid by Foxtel for the "A" Licence channels
under the current form of the A Licence Agreement;
(b) STV's Gross Revenues would have been treated under the
Franchise Agreement as the same as Foxtel's actual Gross
Revenues;
(c) The Agreed Costs that STV would have been entitled to
deduct would have been A$7 or Foxtel's actual Agreed Costs
(depending on the election in paragraph 3(b) of this
Schedule of Terms); and
(d) STV has the right to sub-license cable rights to the "A"
Licence channels and would have sub-licensed those cable
rights to Foxtel in addition to the "B" Licence channels
and other Franchisor's Services (although the "A" Licence
cable rights may presently be provided to STV by an entity
other than AML).
2. (a) Paragraphs 2.2(b)(1) and (2) of this Schedule of Terms
must be applied consistently with the following worked
examples:
(1) Assume Foxtel pays A$21.50 per subscriber to AML.
(2) Assume Foxtel pays A$5.20 (being US$4.15 at
A$1:US$0.80, rounded up) to the "A" Licensee in
respect of the "A" Licence channels.
(3) Accordingly, Foxtel would have paid STV A$26.70 if
STV had sub-licensed to Foxtel directly the right to
the 8 channel Galaxy package.
(4) Assume Foxtel actually charges its subscribers a
subscription fee of A$40.00 per month, and assume
STV's Gross Revenues would therefore have been taken
to be A$40.00 if STV had sub-licensed to Foxtel
directly.
(5) Assume that Foxtel's Agreed Costs are A$7, and assume
STV would have been entitled to Agreed Costs of A$7
if STV had sub-licensed to Foxtel directly.
(6) If STV had sub-licensed to Foxtel directly, then STV
would have paid A$16.50 to AML, calculated as
follows:
$40.00 Gross Revenue
- 7.00 Agreed Costs
= 33.00
x 50% (assuming that, at the relevant time,
this is the applicable rate under clause
7 of the Franchise Agreement)
= $16.50
<PAGE>
5
(7) If STV had sub-licensed to Foxtel directly, a net
amount of A$10.20 would have been receivable and
retained by STV, calculated as follows:
A$26.70 Amount that would have been received by
STV from Foxtel for the "A" and "B"
Licence channels
- A$16.50 Amount that would have been payable by
STV for both the "A" and "B" Licence
channels
= A$10.20 Net amount that would have been
receivable and retained by STV
(8) Therefore, AML must pay $5.20 to STV, calculated as
follows:
A$10.20 Amount receivable and retained by STV
- A$5.00 A$ value of the amount payable by AML
under paragraph (b)(1) (ie US$4 assuming
an exchange rate of US$0.80: A$1) as the
greater of A$4.50 and AML's Actual
Margin.
= A$5.20 Additional amount to put STV in the
position in which it would have been had
it sub-licensed the "A" and "B" Licence
channels directly to Foxtel in the
Regions
(b) Assume the same as for (a) except:
(1) Foxtel charges $50 per subscriber;
(2) Foxtel's Agreed Costs are $3;
(3) AML must pay to STV the greater of A$4.50 and AML's
Actual Margin, calculated as follows:
(A) $50.00 Gross Revenue
- 3.00 Agreed Costs
= $47.00
x 50% (on the same assumption as in (a))
= $23.50 Amount that would have been payable by STV
(B) $26.70 Amount that would have been payable to STV
by Foxtel
- $23.50
= $ 3.20 Net amount that would have been received
and retained by STV
(C) No additional amount is therefore payable by STV
under paragraph 2.2(b)(2). AML must only pay to STV
the
<PAGE>
6
greater of A$4.50 and AML's Actual Margin, as
required by paragraph 2.2(b)(1).
(c) (1) AML acknowledges that, in order to satisfy the condition
precedent referred to in paragraph 1 of the Letter, STV
may sub-license Foxtel or a related body corporate of
Foxtel the right, to the extent that STV has such rights
through AML or otherwise, to Transmit Franchisor's
Services in the Regions by cable. However, STV agrees
that, if it proposes to sub-license Foxtel to Transmit
Franchisor's Services by cable, it will only do so with
AML's prior agreement (such agreement not to be
unreasonably withheld).
(2) For the avoidance of doubt, nothing in this paragraph 2.2
prevents STV from sub-licensing (or requires AML's consent
to STV sub-licensing) Foxtel or any related body corporate
of Foxtel to Transmit Franchisor's Services by any means
other than cable. Paragraph 2.2(b) of this Schedule of
Terms continues to apply if STV sub-licenses Foxtel or any
related body corporate of Foxtel to Transmit Franchisor's
Services by any means other than cable.
2.3 Subject to paragraph 2.2(c) of this Schedule of Terms, AML acknowledge
that STV has the right to sub-license any person to Transmit Franchisor's
Services or Services in the Regions on the following basis:
(a) STV, acting reasonably and in good faith, must ensure that any sub-
licensee is financially and otherwise capable of performing the
obligations under the sub-licence agreement (including, without
limitation, as required by paragraph 2.3(b));
(b) the sub-licence agreement must require, to the extent applicable
having regard to the territory the subject of the sub-licence, the
sub-licensee to comply with the obligations under the Franchise
Agreement;
(c) STV will consult with AML before finalising any sub-licence
arrangement and must provide AML with a copy of each sub-licence
agreement;
(d) STV will be responsible to AML for the performance by each sub-
licensee of its sub-licence agreement and, to the extent applicable
in each sub-licensed area, the Franchise Agreement, and STV
indemnifies AML against any loss suffered by AML by reason of any
breach by a sub-licensee of its sub-licence agreement; and
(e) no sub-licensee shall have the right, in turn, to sub-license other
parties with any relevant rights.
For the avoidance of doubt, where STV sub-licenses any person to
distribute or Transmit Franchisor's Services, references in the Franchise
Agreement to the "Franchisee" shall be taken to include references to
that sub-licensee.
2.4 For the purposes of the sub-licence referred to in paragraph 2.2(a) of
this Schedule of Terms or any amounts payable under the calculations set
out in paragraph 2.2 of this Schedule of Terms, STV's Gross Revenue in
that part of the Regions where Foxtel has subscribers shall be taken to
be the higher of:
(a) the amount charged by Foxtel to its subscribers (and, if Foxtel
charges different prices in a Region, the amount charged by Foxtel
is taken as the average of the prices charged by Foxtel in that
Region) in respect of its basic package of services
<PAGE>
7
containing the "A" and "B" Licence channels or any replacement to
all or any of those "A" and "B" Licence channels (whether or not
replacement channels in respect of the "A" Licence channels are
provided by AML); and
(b) $39.95 per month.
3. FRANCHISE AGREEMENT AMENDMENTS
For the duration of the operation of this Schedule of Terms, the
Franchise Agreement shall be given effect as if it had been amended as
follows:
(a) Additional Fixed Fee
CLAUSE 1.1: "ADDITIONAL FIXED FEE" shall be amended by adding
"subject to clause 11.1B" after "means" and by deleting "plus 10%"
wherever it occurs.
(b) Agreed Costs
CLAUSE 1.1:
(1) The definitions of "Agreed Costs" and "Gross Revenues" are
amended as follows:
'"AGREED COSTS", in relation to an Accounting Period,
means all amounts paid in that Accounting Period by the
Franchisee:
(1) in relation to reception Equipment for supply to
Subscribers (excluding the purchase cost of the
Equipment and installation costs);
(2) as depreciation (at the lower of 30% per annum and
the highest rate from time to time permitted for such
depreciation under the Income Tax Assessment Act
1936) of direct purchase costs for the Equipment
supplied to Subscribers (where that Equipment is
purchased by the Franchisee) (it being acknowledged
that no depreciation will apply to any Equipment
which is sold by the Franchisee to Subscribers or to
that portion of the Equipment which is subsidised by
the Subscriber by payments in excess of the actual
cost of labour and parts to enable the Subscriber to
receive the Franchisor's Services);
(3) as any Taxes (but not more than the amounts recovered
from Subscribers in respect of Taxes); and
(4) as any other commercially reasonable and appropriate
cost, including without limitation sales commissions
notified by the Franchisee to the Franchisor and in
respect of which the prior written consent of the
Franchisor has been obtained.'
'"GROSS REVENUES" in an Accounting Period means, in
respect of each Subscriber, all amounts derived by the
Franchisee as Subscription Fees from that Subscriber (but,
for the avoidance of doubt, this does not apply to
Equipment sold or to that portion of the Equipment which
is subsidised by the Subscriber by payments in excess of
the actual costs of labour and parts to enable the
Subscriber to receive the Franchisor's Services)';
<PAGE>
8
(2) STV will have the right (which may be exercised
independently and as a separate right in respect of two
separate categories of Delivery System, being MDS and
satellite as one category, and cable as another category
(each a "Category"), and for the avoidance of doubt, this
right may be exercised independently in relation to
Franchisor's Services delivered by either Category or both
Categories) exercisable by notice in writing to AML within
2 years after the date of the Letter, to vary the
definition of "Agreed Costs" in clause 1.1 by substituting
the following:
'"AGREED COSTS" means, in relation to an Accounting
Period:
(a) for the first 15 years after the date of this
Agreement, $7 per Subscriber per month during that
Accounting Period (but, for the avoidance of doubt,
this does not apply to Equipment sold to or
subsidised by the Subscriber by payments in excess of
the actual cost of labour and parts, to the extent of
such subsidisation to enable the Subscriber to
receive the Franchisor's Services"); and
(b) after the end of that 15 year period, nil.'
Any exercise of rights under this paragraph 3(b)(2) is
irrevocable.
(3) If STV does not, within 2 years after the date of the
Letter, exercise a right referred to in paragraph 3(b)(2)
in relation to Franchisor's Services delivered by any
Category, then the definitions of "Agreed Costs" and
"Gross Revenues" referred to in paragraph 3(b)(1) will
continue to apply in relation to Franchisor's Services
delivered by that Category.
(c) CONTROLLED ENTITIES
Clause 1.1 "Controlled Entities" shall be amended by substituting
the following:
'"CONTROLLED ENTITY" means any entity which is controlled by
AML within the meaning of section 243E or 244B of the
Corporations Law, and any related body corporate of AML;.'
(d) SUBSCRIPTION TELEVISION BROADCASTING SERVICES
CLAUSE 1.1 shall be amended by inserting the following:
"SUBSCRIPTION TELEVISION BROADCASTING SERVICES" has the meaning
given to it in the BSA;
(e) "SUBSCRIPTION FEES"
"SUBSCRIPTION FEES" is deleted and the following substituted:
'"SUBSCRIPTION FEES" means all amounts payable by Subscribers
pursuant to Subscriber Contracts in respect of the reception of
the basic package of Services provided by the Franchisee, being
the channels referred to in Schedule 2(a) (as amended by
paragraph 7 of this Schedule of Terms), and in respect of the
lease, licence, hire or rental of, or any other usage fee for,
any Equipment (but not including any amounts payable by
Subscribers for any Services which are not referred to in
Schedule 2(a)).'
<PAGE>
9
(f) TERM
CLAUSE 1.1 "Term" shall be amended by substituting the following:
""Term" means, in relation to each Region, the period
commencing on the date of this Franchise Agreement and ending
15 years after the Commencement Date and includes the Further
Term of 10 years pursuant to clause 24;'
(g) CLAUSES 3.7 AND 3.8
(1) AML agrees with UIH that, in offering to STV any Service or
Franchisor's Service under clause 3.7 of the Franchise
Agreement, AML will:
(A) make that offer on the same or no less favourable terms as
that enjoyed by AML (but subject to paragraph 3(g)(1)(B)
of this Schedule of Terms), or offered to any other person
for any part of Australia (including any franchisee or any
other person acquiring rights from AML); and
(B) in any event, the offer will be at a price no more than
cost plus 10% (subject to compliance with the terms on
which such Franchisor's Services are provided to AML under
a bona fide arms length contract).
CLAUSE 3.7 of the Franchise Agreement also applies to any
Service offered, or provided to, STV before the date of the
Letter (other than the "A" Licence and "B" Licence channels)
including, but not limited to, "BBC World", "CNBC", "World
Movies", "TVC" and "TeleItalia", with the effect that, as and
from that date, the terms offered or provided to STV are no
less favourable than the terms on which that Service is enjoyed
by AML (subject to paragraph 3(g)(1)(B)), or offered or
provided to any other person for any part of Australia and, in
any event, is at a price no more than cost plus 10% (subject to
compliance with the terms on which that Service is provided to
AML under a bona fide arms length contract).
For these purposes, "cost" means, in respect of each Service or
Franchisor's Service, the actual costs charged to, or imposed
on, AML under a bona fide arms length agreement with a third
party or the lowest price at which AML offers to distribute an
AML produced or compiled Service or Franchisor's Service, and
if costs are charged to or imposed on more than one entity in
the Australis Group in respect of that Service or Franchisor's
Service, "cost" means the lowest actual cost charged or imposed
by that third party agreement on any entity in the Australis
Group.
(2) AML agrees with UIH that any Subscription Television
Broadcasting Service offered by AML to STV before 1 May 1997
under clause 3.7 of the Franchise Agreement is deemed to be
notified by AML on 1 May 1997 (provided AML's rights to this
Service have not lapsed). Accordingly, the negotiation period
of 60 days and the acceptance period of 60 days, referred to in
clause 3.7 do not commence until 1 May 1997 in respect of
Subscription Television Broadcasting Services offered by AML to
STV before 1 May 1997. However, the period of 15 months
referred to in
<PAGE>
10
clause 3.7 commences on the date 120 days after the date of
actual notification by AML under clause 3.7 of the Franchise
Agreement and not on the deemed notification date of 1 May
1997.
(3) Clause 3.7 is to be applied consistently with the following
worked example:
(A) Assume AML offered STV a Subscription Television
Broadcasting Service on 1 May 1996. The effect of
paragraph 3(f)(2) of the Schedule of Terms is that AML is
deemed to offer STV the Service on 1 May 1997 and the
negotiation, and acceptance periods referred to in clause
3.7 do not commence until 1 May 1997, while the 15 month
period referred to in clause 3.7 commences 120 days after
1 May 1996.
(B) The effect of paragraph 3(g)(1)(B) is that the terms of
AML's offer made on 1 May 1997 must be on no less
favourable terms than the terms of any offer made by AML
to any other person for any part of Australia. In any
event, AML must not offer the Service to STV at a price
higher than cost plus 10%.
(4) UIH agrees with AML that UIH will procure that paragraphs
3(g)(1), (2) and (3) apply, with the necessary changes, to any
offer made by STV to AML under clause 3.8 of the Franchise
Agreement.
(h) The following clauses are deleted:
(1) Clause 5.2(y) and (z);
(2) Clauses 12.2, 16.3 16.5(a) and 16.6;
(i) Clause 5.2(c) shall be amended by inserting "each of" after "for"
and by adding at the end "(but this Clause does not impose any
obligation on the Franchisee, to procure Subscribers to all
Franchisor's Services in excess of the requisite Minimum Subscriber
Level in each Region)".
(j) Clause 5.2(f) is deleted and the following substituted:
"at all times contract Subscribers for DTH Services (including
Nominated Customers and Preferred Customers) on the terms of
the satellite Subscriber Contract or at the option of STV, on
the terms of a satellite subscriber contract, the terms of
which have been approved by AML, such approval not to be
unreasonably withheld."
(k) Clause 5.2(i) is amended as follows:
(i) to insert "only" after "at all times"; and
(ii) to add the following at the end:
"and only use the channel logos (for example "Showtime" and
"Encore") of the Franchisor's Services in such manner as
reasonably prescribed by AML in accordance with its third party
Program Agreements from time to time."
(l) Clause 5.2(s) is amended by the addition of the following words
after "the Franchisor"
"which consent shall not be unreasonably withheld."
<PAGE>
11
(m) Clause 5.2(t) is amended by deleting all of the words after the
words "...lesser fee..." in the fourth line, and by substituting the
following:
"if in its opinion, acting in good faith, there is a business
need to charge less than that fee, and:
(1) the Franchisor has agreed to that lesser fee; or
(2) that fee is no lower than $39.95, but this clause
5.2(t)(2) only applies for a period of 5 years after the
date of the letter attached to this Schedule of Terms; or
(3) the Franchisee continues to pay the Franchisor fees under
clause 7.1 as if the lesser fee was not being charged;"
(n) CLAUSE 5.2A.
New clause 5.2A is added as follows:
"If UIH or STV acquires or holds any direct or indirect
economic or voting interest in or otherwise has economic or
management control of East Coast Pay Television Pty Limited
(ACN 003 546 272) ("ECT"):
(1) UIH acknowledges that the terms of the Franchise
Agreement, the Letter and this Schedule of Terms do not
apply to the franchise regions the subject of a franchise
agreement between AML and ECT as amended from time to time
("ECT Franchise Agreement") and the terms of the ECT
Franchise Agreement do not apply to the Franchise
Agreement Regions; and
(2) AML acknowledges that the terms of the ECT Franchise
Agreement will continue to apply in the regions the
subject of the ECT Franchise Agreement and that the terms
of the letter dated 8 July 1994 between ECT and AML (which
amended the ECT Franchise Agreement of 8 July 1994) will
apply even if Century Communications Corp ceases to have a
Relevant Interest (as defined in that letter) in ECT
provided that the terms of that letter will only apply if
and for so long as UIH has a Relevant Interest (as defined
in the ECT Franchise Agreement) in ECT.
(o) Clause 13.1 is amended by inserting the words "acting in good faith"
after "the Franchisor" on the first line, and "reasonable" in the
second line after the word "Franchisee".
(p) Clause 13.4
The following is added as a new clause 13.4:
"The Franchisor shall consult with the Franchisee at least 30
days before issuing any Compliance Note, to enable the
Franchisee to have input into the scope and content of that
Compliance Note."
(q) Clause 16.5(b) is deleted and the following substituted:
"(b) not, in any Advertising, make any representations or give
any representations or give any warranty with respect to:
(1) the Australis Group; or
<PAGE>
12
(2) the Franchisor's Services, if that representation or
warranty is inconsistent with any obligation of the
Franchisor to a third party in respect of those
Franchisor's Services, which obligation has been
disclosed to the Franchisee;
except as authorised in writing by the Franchisor."
(r) Clause 16.6 is deleted and the following substituted:
(a) "The Franchisee may elect, on 6 months written notice to the
Franchisor, to provide its own program guide in substitution
for the otherwise mandatory use of the program guide provided
by the Franchisor ("Franchisor's Program Guide").
(b) While the Franchisor's Program Guide is used:
(1) the Franchisee shall use its best endeavours to sell the
Franchisor's Program Guide to Subscribers at the
recommended retail price, if any, so long as that price is
also charged by the Franchisor to its subscribers;
(2) the Franchisee may insert into the Franchisor's Program
Guide (by way of insertion, supplement or wraparound)
details of other Services transmitted by the Franchisee
and other information, advertising and materials
authorised by the Franchisor, but may not otherwise add
to, delete from or change the form or substance of the
Franchisor's Program Guide. The revenue from such
insertions shall be the property of the Franchisee; and
(3) the Franchisor shall procure that the Franchisor's Program
Guide is made available to the Franchisee at the same cost
incurred by the Franchisor, being the costs incurred in
the production and publishing of the Program Guide.
(c) If the Franchisee's program guide is used:
(1) the Franchisor is entitled to the same rights and benefits in
relation to the insertion, supplement or wraparound as apply to
the Franchisee;
(2) subject to the Franchisee's approval, not to be unreasonably
withheld, the Franchisor shall be entitled at the same
production and publishing cost as that charged to the
Franchisee to include any information, advertising and material
(not merely as an insertion, supplement or wraparound) in the
Franchisee's program guide in accordance with normal production
schedules. The revenue from any such information, advertising
and materials shall be the property of the Franchisor;
(3) if the Franchisee requests, the Franchisor must make available
to the Franchisee at 25% of all relevant costs incurred by AML
(other than printing costs for the Franchisor's Program Guide)
all relevant material to enable the Franchisee to produce its
own program guide for release each week or at any other
interval, as the case may be, no later than the Franchisor
produces and releases its Program Guide for that week. For
these purposes, the material that the
<PAGE>
13
Franchisor must make available includes without limitation all
program schedules, listings, and publicity material in respect
of the relevant programming to be Transmitted during that week
which AML has the right to permit the Franchisee to publish;
and
(4) the Franchisor, acting reasonably and in good faith, will use
its best endeavours to procure that its printers and other
persons providing goods and services to the Franchisor in
respect of the Franchisor's Program Guide, agree to supply
materials and services to the Franchisee on the same commercial
terms as to the Franchisor."
(s) CLAUSE 7.1 shall be amended as follows:
(1) by substituting "35%" (appearing twice) with "25%"; and
(2) by substituting "15%" with "25%".
(t) CLAUSE 7.9 is deleted.
(u) CLAUSES 11.1 to 11.3 shall be amended as follows:
(1) by substituting the following for the whole of
clause 11.1:
"11.1A The Franchisee Group is not required to use the
Franchisor's Subscriber Management System for
satellite, MDS or other technology delivered
Services. However, the Franchisee may request the
Australis Group to provide the Franchisee Group
with the use of all or part of the Franchisor's
Subscriber Management System in respect of its
Subscribers, the acceptance of which request will
be at the discretion of the Australis Group.
11.1B The Franchisor and the Franchisee shall in good
faith agree to a commercially reasonable service
fee to be charged by the Australis Group to the
Franchisee Group and other commercial terms (eg.
as regards notice for termination) in respect of
the services (if any) provided by the Australis
Group under clause 11.1A (as appropriate). Such
fee shall be included as the Additional Fixed Fee
payable by the Franchisee to the Franchisor in
respect of all applicable Subscribers to the
Franchisor's Services. If the parties cannot reach
agreement on a commercially reasonable service
fee, or other commercial terms, they agree that
the provisions of clause 23.1 of the Franchise
Agreement dealing with resolutions of disputes
shall apply.;
11.1C(1) To the extent the Conditional Access System
operated by the Franchisor from time to time is
technically capable:
(a) The Franchisee is entitled to "Independent
Operator Status" within the Franchisor's
Digital Conditional Access System.
"Independent Operator Status" is defined as
a distinct and logically separate sector of
the smart card and the related capability
to insert independent video, entitlement
and subscriber management information into
a unique multiplexing and transmission
environment within the Irdeto Pay TV System
and as detailed in the Irdeto Conditional
<PAGE>
14
Access Evaluation Information. This will
permit independent multiplexing and the use
of separate satellite transponders.
(b) The Franchisor and Franchisee shall in good
faith agree to a protocol for technical
interface between the Australis Group and
the Franchisee Group, or any other entity
necessary to entitle the Franchisee to
"Separate Operator Status" as provided in
this clause 11.1C. The Franchisor shall
make available to the Franchisee any
technical information (including
information from the Conditional Access
Provider) to facilitate technical interface
and the operation of an independent sector
in an efficient and timely manner, subject
to any confidentiality restrictions imposed
upon the Franchisor.
(c) The Franchisor shall make available to the
Franchisee and the Franchisee's independent
sector environment any and all improvements
and modifications to the Conditional Access
System producing additional or improved
functionality for the multiplexors and
receivers and more specifically as
available pursuant to Irdeto's Phase
Implementation Plan. The Franchisee and
related independent sector environment
shall benefit from any and all Conditional
Access System maintenance contracts and
maintenance activities, subject to paying
relevant costs.
(d) The Franchisee will be entitled to all
functionality available to the Franchisor
from time to time related to operating an
independent sector within the Irdeto
Conditional Access System as implemented
under the Irdeto Conditional Access
Evaluation Information and other related
Irdeto Operating Documents from time to
time, including (to the extent available
from time to time) but not limited to:
. activation and deactivation of the
satellite reception equipment of relevant
subscribers;
. definition and addressing of "groups",
"user type fields", "regional identifiers"
as defined in the Irdeto Conditional Access
Evaluation Information ;
. definition and insertion of independent
entitlements (products);
. definition of free entitlement periods
. utilisation of basic store, forward pay per
view and advanced store, forward pay per
view when available;
<PAGE>
15
. access to unique keys from Irdeto to open
sector;
. messaging and conditional control.
(2) It is the intention of the parties that:
(a) the Franchisee will be independently
capable of acquiring and delivering its own
programming to the relevant conditional
access equipment including independent
multiplexing computers which may be owned
or contracted by the Australis Group or the
Franchisee, for subsequent uplink and
delivery (from the Franchisee's contracted
transponders) to potential subscribers. In
the instance where the Franchisee owns or
operates independent multiplexing and/or
encryption equipment the Franchisor will
provide without hindrance or conditional
access to the logical, software portion of
the Conditional Access System for the
provision of a conditional access digital
stream.
(b) subject to the limitations set out in this
clause 11.1C the Franchisee will be granted
access and aforementioned status to/within
the Franchisor's Conditional Access System
so long as the Franchisee's receiving
equipment remains capable of receiving
digital transmission from the Irdeto
system. Nothing in this clause prevents the
Franchisee from utilising a separate
conditional access system, or from being
able to Transmit that Service to
subscribers in the Regions using the
Equipment;
(c) if the Franchisor changes all or any part
of its satellite Delivery System of which
the Irdeto Conditional Access System forms
part, this clause 11.1C applies, with the
necessary changes, to any such replacement
system except to the extent that this is
technically impracticable; and
(d) if, for any reason the Franchisor incurs
additional Costs, if any, in providing
access to the Franchisee as contemplated by
this clause 11.1C, the Franchisee will pay
AML for those Costs.
(3) Where the Franchisor offers any Service to STV
under clause 3.7 and, having offered that
Service, the Franchisor is entitled under clause
3.7 to Transmit that Service by satellite in the
Regions, nothing in this clause 11.1C prevents
the Franchisor from being able, and the
Franchisor is expressly authorised, to Transmit
that Service by satellite (but not by means of
MDS or cable) to Subscribers in the Regions
using the Equipment and the Franchisee shall do
all things reasonably required (at the cost of
the Franchisor
<PAGE>
16
but being no more than the Franchisee's Cost) to
facilitate this at the Franchisor's request.
(4) The Franchisee agrees that the Franchisor's
obligation under this clause 11.1C to grant
access to the Franchisor's licensed proprietary
Conditional Access System, and any other
relevant technology or equipment, must not
impede the Australis Group's control or
operation, or unreasonably restrict or limit any
access to or use of, such Conditional Access
System, and any other relevant technology or
equipment, by the Australis Group, but the
Franchisee may, at its cost, pay for and/or
provide additional capacity to enable the
Australis Group to have such control, operation
or access.
(5) In this clause 11.1C, "Costs" means, in relation
to any matter, the actual costs charged to, or
imposed on, AML or STV, as the case may be,
under a bona fide arms length agreement, and, if
applicable, directly attributable personnel
costs (on a time basis) and directly
attributable overhead costs incurred by AML or
STV, as the case may be, in each case, directly
in respect of that matter.
(6) If the parties cannot reach agreement on
applicable Costs or other commercial terms of
any matters in this clause 11.1C, they agree
that the provisions of clause 23.1 of the
Franchise Agreement dealing with resolutions of
disputes shall apply."
(2) by inserting," if included on the Franchisor's Subscriber
Management System," before "coded" in clause 11.2;
(3) by substituting "Subject to clause 11.1" with "In relation to
all Subscribers for whom the Australis Group acts as invoicing
agent under clause 11.1.A or 11.1.B" and by substituting
"Subscribers" with "those Subscribers" in clause 11.3; and
(4) by deleting from "For the Service Fee" to However," (both
inclusive) in clause 11.4.
(v) SCHEDULE 3 shall be amended by inserting at the end the following:
"provided that, if Foxtel procures subscribers to its Services and
those Services include Services licensed to Foxtel by the Franchisor
which are also Franchisor's Services licensed to the Franchisee in a
particular Region, in respect of that Region only, commencing from
the Accounting Period next following the procurement of the first
relevant Foxtel subscriber (as reasonably verified and acknowledged
between the Franchisor and the Franchisee) and for so long as Foxtel
continues to have relevant subscribers in that Region and Foxtel
also continues to have the right from the Franchisor to Transmit any
or all of the Franchisor's Services in that Region, the Minimum
Subscriber Levels stated above shall be reduced to the lesser of:
(1) 75% of those which would otherwise have been required as stated
above; and
<PAGE>
17
(2) 100% of those which would otherwise have been required as
stated above but crediting each relevant Foxtel subscriber in
each Region as a subscriber of the Franchisee in that Region."
(w) All obligations under the Franchise Agreement to pay "on account"
are removed and all reporting and payment obligations which were
less than 30 days are amended to require those reports and payments
to be given or made not later than 30 days after the last day of the
relevant Accounting Period but this only applies to the "A" Licence
and "B" Licence Services.
(x) The Franchise Agreement is automatically amended (unless STV elects
otherwise) to extend to STV the benefit of any more favourable term
granted or otherwise permitted by AML after the date of the letter
attached to this Schedule of Terms to, or in respect of, any other
franchisee or licensee of AML anywhere in Australia in respect of
any Services, including where the benefit of any more favourable
term is granted or permitted to a person other than a franchisee or
licensee of AML but with the effect that, as between AML and that
person, the arrangement with the franchisee or licensee is treated
as if that more favourable term applied. However, this paragraph
3(x) is not intended to apply to any term offered, granted or
otherwise permitted by AML solely in performance of its current
franchise agreements in their form as at the date of the letter
attached to this Schedule of Terms (including this Schedule of
Terms). UIH acknowledges that if a more favourable term is offered,
granted or otherwise permitted by AML as part of a package of
related terms, then this paragraph 3(x) only applies to the entire
package including (if applicable) any less favourable terms in that
package with the more favourable terms in that package of related
terms. AML must notify STV in writing of any terms offered, granted
or otherwise permitted by AML to, or in respect of, any other
franchisee or licensee of AML anywhere in Australia in respect of
any Services as soon as practicable after offering that term or
package of related terms.
4. AML will use its best endeavours to procure the supply of Equipment,
goods and services to STV as envisaged in clause 8 of the Franchise
Agreement, at the same total cost and terms as are available to AML,
subject to order volume, credit, security and financing provisions. Where
excess Equipment is held by AML, AML will endeavour to make this
available to STV at the cost of that Equipment to AML.
5. OPTUS VISION NEGOTIATIONS
(a) STV shall be promptly and fully informed of and, wherever reasonable
and practicable, be given opportunity to participate in all and any
negotiations in which AML engages with Optus Vision in regard to the
procuring of carriage rights of any Optus Vision channels, and with
Optus Communications in regard to the procuring of delivery of any
Optus Vision services, establishment of DTH platform standards
jointly or separately, technical specifications and subscriber
reception equipment, and any other matters which would in any way
directly affect the delivery of Services to Subscribers or potential
Subscribers in the Regions. Nothing in this paragraph prevents UIH
or STV from negotiating directly with Optus Vision or Optus
Communications, including but not limited to the matters set out in
this paragraph.
(b) In the event that AML obtains channels and/or programming from Optus
Vision, it will use its best endeavours to procure that the
Franchisee obtains exclusive, or if not available, non-exclusive
rights to those channels and/or programming on all
<PAGE>
18
available technologies, and on terms that the payment for such
rights by the Franchisee will not be greater than the fees payable
by AML to Optus Vision for such rights plus 10% and on other
commercial terms no less favourable than those provided by Optus
Vision to AML.
Any programming acquired by STV from a joint venture or partnership
between AML and Optus Vision (or from any other entity formed among
AML and Optus Vision) shall be at a fee no greater than 110% of the
costs to that joint venture, partnership or entity in respect of
programming to be supplied to AML's subscribers or to the
subscribers of that venture, partnership or entity.
(c) AML agrees that it will use its best endeavours to provide STV with
participation in any such business, partnership or venture with
Optus Vision or Optus Communications, by way of a position, together
with CTV Pty Limited, of up to 25% of the AML portion of such
business, partnership or other venture, at the same cost as the cost
to AML. Such participation shall be on arms length commercial terms
which will not economically prejudice STV or AML and which shall be
not more favourable, in their totality, to STV than the terms of
AML's participation in the same business or venture. For the
avoidance of doubt, it is intended that STV shall only be entitled
to participate in a business, partnership or venture to which AML
and Optus Vision contribute their subscribers if STV also
contributes its subscribers, or their economic equivalent, to the
business, partnership or venture.
(d) If, having used its best endeavours as required by paragraph 5(c),
AML is unable to provide STV with participation in a business,
partnership or venture with Optus Vision or Optus Communications, as
the case may be, AML must use its best endeavours to procure that:
(1) Optus Vision; or
(2) if that business, partnership or venture acquires programs or
program rights from Optus Vision, that business, partnership or
venture,
appoints STV on an exclusive basis as its franchisee on reasonable arms
length commercial terms, to deliver those programs in the Regions.
6. CONDITIONAL ASSIGNMENT
AML agrees, within a reasonable timeframe, to formally request the
respective suppliers of Showtime, Encore, TV-1 and Fox Sports, for
consent to the transfer or assignment of any and all of its rights under
the programming agreements with such entities, such that if AML is unable
to deliver Services for any reason, those Services will be delivered
directly to STV.
7. FRANCHISOR'S SERVICES
Schedule 2(a) to the Franchise Agreement is amended so that the following
8 (eight) channels are specified: Showtime, Encore, Fox Sports, TV-1,
Arena, Red, Nickelodeon, Discovery, or any successor channels to that
channel.
Any substitute channel must be of similar standard in terms of its
attractiveness to subscribers and potential subscribers, taking into
account the other channels available in that 8 channel package to the
channels listed above. However, STV acknowledges that AML may not be in a
position to determine or control the genre of any substitute channels to
the 4 "A" Licence channels.
<PAGE>
19
It is intended that the 8 Services are the sole Services to which the
Franchisee is entitled as Franchisor's Services for the Service Fee (ie
without additional payment as contemplated under clause 3.7 of the
Franchise Agreement and paragraph 3(g) of this Schedule of Terms).
8. RECORDS AND AUDIT
(a) STV shall have the right to appoint any independent auditor to
verify and audit all information ("Information"), including AML's
relevant records, pertaining to:
(1) any amount to be paid by AML to STV under paragraph 2.1 or 2.2
including but not limited to "AML's Actual Margin", the amounts
paid or payable to AML by Foxtel in respect of Foxtel Services,
the actual costs paid or payable by AML to third party program
suppliers in respect of those Services or Programs in those
Services and details of subscribers and details of subscribers
to Foxtel Services in the Regions;
(2) the cost (as defined in paragraph 3(g)(1) of this Schedule of
Terms) to AML of any Service offered or to be offered to STV
under clause 3.7 of the Franchise Agreement and paragraph 3(g)
of this Schedule of Terms, and the terms on which that Service
is provided to or by AML to any other person; and
(3) for the purposes of paragraph 5(b) the fees payable by AML to
Optus Vision or to any joint venture partnership or entity
referred to in that paragraph, and the other commercial terms
on which any channels or programming to which paragraph 5(b)
applies, are provided to AML.
(b) AML shall provide to STV's nominated auditor on request access to
its documents and records containing any Information, including
records and documents contained in computerised form and shall give
to STV's auditors the right at any time during normal business
hours, with at least 5 Business Days' notice to AML to audit all
books, records, statements and documents containing Information.
(c) AML shall fully co-operate with STV's auditor conducting any audit
and, if any audit should disclose an understatement of any amount
payable by AML to STV for any period, AML shall pay to STV within 10
Business Days after receipt of the audit report, any amount due as
the amount of such understatement and, if any audit should disclose
an understatement of at least 5% of any such amount payable by AML
to STV, AML shall also pay to STV within 10 Business Days after
receipt of the audit report, the cost of such audit.
(d) Any inspection or audit shall take place during normal business
hours on a Business Day and not more than once during any 6 month
period.
(e) STV must procure that its auditor enters into an agreement with AML
agreeing not to disclose AML's confidential information to STV or
any other person, or to use AML's confidential information, except
for the purpose of conducting the verification and audit referred to
in paragraph 8(a) of this Schedule of Terms.
(f) AML shall have the right to appoint any independent auditor to
verify and audit all information, including STV's relevant records,
pertaining to the cost (as defined in paragraph 3(g)(1) of this
Schedule of Terms with the necessary changes required by paragraphs
3(g)(5)) to STV of any Service offered or to be offered by AML under
clause 3.8 of the Franchise Agreement and paragraph
<PAGE>
20
3(g)(5) of this Schedule of Terms, and the terms on which that
Service is provided to or by STV to any other person. Paragraphs
8(b), (c), (d) and (e) apply to any audit conducted by AML's
auditor, with the necessary changes.
9. FURTHER ASSURANCES
UIH and AML agree to, and UIH agrees to procure that STV will, do all
acts and things and execute such other documents as are reasonably
required to give effect to the intention and purpose of the matters
agreed in this Schedule of Terms and the letter attached to this
Schedule.
10. CONFIDENTIALITY
UIH and AML agree to maintain the terms of this Schedule of Terms in
confidence in accordance with clause 18 of the Franchise Agreement, as if
UIH were named in the Franchise Agreement as the Franchisee. UIH and AML
agree that all information exchanged for the purposes of the provisions
of this Schedule of Terms and to effectuate its intent shall be
considered to be Confidential Information for these purposes. Without
limitation, UIH and AML acknowledge that disclosure of the terms of this
Schedule of Terms is permitted to STV; to any person where required by
Australian or United States securities law or the rules of any applicable
stock exchange; to Telstra or Foxtel or both, and their advisers,
(subject to Telstra or Foxtel, as applicable; signing confidentiality
agreements) to enable UIH or STV to reach agreement with Telstra, Foxtel
or both on programming, carriage, distribution or other related
arrangements in the Regions; and to any sub-licensee or prospective sub-
licensee and its advisers (subject to such sub-licensee or prospective
sub-licensee signing confidentiality agreements).
11. DEFINITIONS
For the purposes of this Schedule of Terms and the letter attached,
"Foxtel" means the partnership of that name between Telstra Corporation
Limited and The News Corporation Limited (the "Partnership"), Foxtel
Management Pty Limited and any related body corporate of Foxtel
Management Pty Limited and any entity in which Foxtel Management Pty
Limited, the Partnership, or such related body corporate has an economic
or voting interest which distributes Franchisor's Services in the
Regions.
UIH and AML agree that a reference in the Franchise Agreement, this
Schedule of Terms or the Letter to:
(a) "A Licence" or "B" Licence" is a reference to Licence A and Licence
B, respectively, issued under section 93(1) of the BSA, and a
reference to "A Licence channels" or "A Licence Services" or "B
Licence channels" or "B Licence Services" is a reference to services
or channels provided pursuant to Licence A and Licence B
respectively;
(b) "Franchisee" includes a reference to "the Franchisee, any member
of the Franchisee Group or any sub-licensee";
(c) "Equipment" includes a reference to "Equipment or any reception
equipment provided by the Franchisee to a Subscriber necessary for
the provision of the Franchisor's Services provided by the
Franchisee in the Regions"; and
(d) "Subscriber" includes a reference to a "Subscriber or any subscriber
to a service provided by the Franchisee in the Regions".
It is the intention of the parties that costs and revenues under the
Franchise Agreement shall be calculated on a comparable basis. For
example, if, for any calculation, revenues
<PAGE>
21
are to take into account revenues of a sub-licensee, then applicable
costs of that sub-licensee should also be taken into account.
12. EQUITABLE RELIEF
UIH and AML agree that damages may not be an adequate remedy for the
breach of the provisions set out in this Schedule of Terms and that UIH
and AML may obtain equitable relief, in addition to any and all other
remedies provided by law, to prevent or ensure a discontinuance of any
such breach which occurs.
13. TERM
This Schedule of Terms continues in force for the Term of the Franchise
Agreement.
<PAGE>
Exhibit 12.1
Ratio of Earnings to fixed charges
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
December 31, December 31, March 31, March 31, December 31, March 31,
1994 1995 1995 1996 1995 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax income from continuing operations (1,674) (17,233) (2,012) (8,664) (59,379) (18,771)
Less: losses from less than 50%
owned persons 551 4,327 290 632 7,597 632
Plus: losses from less than 50% owned persons
where the registrant has guaranteed debt
0 0 0 0 0 0
0 0 0 0 0 0
---------------------------------------------------------------------------------
(1,123) (12,906) (1,722) (8,032) (51,782) (18,139)
Fixed charges:
Interest, whether expensed or capitalized 0 30 0 0 32,649 9,021
Amortization of debt expense 0 0 0 0 0 0
Rental expense demonstrated to be interest 0 0 0 0 0 0
Preferred stock dividend requirements 0 0 0 0 0 0
---------------------------------------------------------------------------------
Total fixed charges 0 30 0 0 32,649 9,021
Adjusted earnings (1,123) (12,876) (1,722) (8,032) (19,133) (9,118)
Fixed charges 0 30 0 0 32,649 9,021
---------------------------------------------------------------------------------
Ratio of earnings to fixed charges
Dollar amount of coverage deficiency (1,123) (12,906) (1,722) (8,032) (51,782) (18,139)
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1996 on the consolidated financial statements of UIH
Australia/Pacific, Inc. included in or made part of this Form S-4 registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 6, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 29 March 1996 on the consolidated financial statements of CTV Pty Limited
included in or made part of UIH Australia/Pacific, Inc.'s Form S-4 registration
statement.
ARTHUR ANDERSEN
Sydney, Australia,
August 4, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 29 March 1996 on the consolidated financial statements of STV Pty Limited
included in or made part of UIH Australia/Pacific, Inc.'s Form S-4 registration
statement.
ARTHUR ANDERSEN
Sydney, Australia,
August 4, 1996
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 6 June 1995 on the consolidated financial statements of Kiwi Cable Company
Limited included in or made part of UIH Australia/Pacific, Inc.'s Form S-4
registration statement.
ARTHUR ANDERSEN
Wellington, New Zealand
August 6, 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-4
and in each Prospectus constituting part of this Registration Statement our
report dated March 15, 1996 on the financial statement of XYZ Entertainment Pty
Limited included in each Prospectus. We also consent to the reference to our
firm under the caption "Experts" in each Prospectus included in the Registration
Statement.
August 6, 1996
Deloitte Touche Tohmatsu
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT AUDITORS
- -------------------------------
We hereby consent to the inclusion in this Registration Statement on Form S-4
and each Prospectus constituting part of this Registration Statement of our
report dated February 16, 1996 on the financial statements of TELEFENUA SA,
included in each Prospectus.
We also consent to the reference to our firm under the caption (Experts) in each
Prospectus included in the Registration Statement.
Papeete, August 2, 1996
Coopers & Lybrand Tahiti
/s/ Jean-Pierre Gosse
-------------------------
Jean-Pierre GOSSE
