<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
FILE NO. 333-16347
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UIH AUSTRALIA/PACIFIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 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)
----------------
MICHAEL T. FRIES
CHIEF EXECUTIVE 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. NICK P. SAGGESE, ESQ.
HOLME ROBERTS & OWEN LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1700 LINCOLN, SUITE 4100 300 SOUTH GRAND AVENUE
DENVER, COLORADO 80203 LOS ANGELES, CALIFORNIA 90071-3144
(303) 861-7000 (213) 687-5000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
, 1997
$150,000,000 (PROCEEDS)
AUSTRALIA/PACIFIC, INC.
% SENIOR DISCOUNT NOTES DUE 2007
The % Senior Discount Notes due 2007 (the "Notes") offered hereby (the
"Offering") are being issued by UIH Australia/Pacific, Inc., a Colorado
corporation (the "Issuer"). The Notes will be issued at a significant discount
to their aggregate principal amount at maturity to raise aggregate gross
proceeds of approximately $150,000,000. Cash interest will not accrue on the
Notes prior to , 2002. On and after , 2002, cash interest will accrue
on the Notes at a rate of % per annum and will be payable semi-annually on
each and , commencing , 2002. See "Description of the Notes" and
"Certain U.S. Income Tax Considerations."
The Notes will mature on , 2007 and will be redeemable at the option of
the Issuer on or after , 2002 at the redemption prices set forth herein,
plus accrued and unpaid interest to the redemption date. In addition, at any
time prior to , 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
% of the Accreted Value (as defined) 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 , 2002 or
101% of the principal amount at maturity thereof, plus accrued and unpaid
interest in the case of any such purchase on or after , 2002. 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.
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 senior
indebtedness of the Issuer, including the Issuer's existing 14% Senior Discount
Notes due 2006 (the "Existing Notes"), which as of September 30, 1996 had an
accreted value of $237.0 million. 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 September 30, 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 $427.2 million, substantially all of which, except for the Notes
and the Existing Notes would have been obligations of the Issuer's
subsidiaries. See "Use of Proceeds."
Concurrently with the Offering, the Issuer's parent company, UIH Asia/Pacific
Communications, Inc. ("UAP"), is offering, pursuant to a separate prospectus,
shares of its Class A Common Stock (the "UAP Stock Offering" and, together
with the Offering, the "Offerings") and United International Holdings, Inc.,
UAP's parent, has agreed to contribute $25.0 million cash to UAP for additional
UAP common stock. UAP intends to contribute $70.0 million of the net proceeds
of the UAP Stock Offering to the Company (the "UAP Contribution"). The Offering
is contingent upon the consummation of the UAP Stock Offering, but the UAP
Stock Offering is not contingent upon consummation of the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULDBE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PROCEEDS
TO
PRICE TO DISCOUNTS AND THE
INVESTORS(1) COMMISSIONS(2) ISSUER(3)
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<S> <C> <C> <C>
Per Note.................................. % % %
Total..................................... $ $ $
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</TABLE>
(1)Plus accretion, if any, from the date of issuance.
(2) The Issuer has agreed to indemnify the Underwriters (as defined herein)
against, and to provide contribution with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3)Before deducting expenses related to the Offering payable by the Issuer,
estimated at $ million.
The Notes are being offered severally by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Notes will be made in New York, New York on
or about , .
DONALDSON, LUFKIN & JENRETTE______________________________SMITH BARNEY INC.
SECURITIES CORPORATION
LOGO
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
<PAGE>
ADDITIONAL INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. As used
herein, the term "Registration Statement" means the Registration Statement as
originally filed and any and all amendments thereto. This Prospectus omits
certain information contained in the Registration Statement as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration
Statement, each such statement being qualified by and subject to such
reference in all respects.
* * *
The Issuer intends to furnish holders of the 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.
2
<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 otherwise requires, the "Issuer" refers to UIH
Australia/Pacific, Inc., a wholly owned subsidiary of UIH Asia/Pacific
Communications, Inc. ("UAP"), an indirect majority-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 100% economic interest in two Australian companies, CTV
Pty Ltd. ("CTV") and STV Pty Ltd. ("STV"), which are together operating, and
are referred to herein, as "Austar." See "Corporate Organizational Structure--
Austar." 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, unless otherwise indicated. For
information regarding foreign currency amounts translated to U.S. dollars, see
"Exchange Rate Data."
THE COMPANY
OVERVIEW
The Company is a leading provider of multi-channel television services in
Australasia. Through its Australian operating company Austar, the Company is
the largest provider of multi-channel television services in regional
Australia, where it operates wireless cable ("MMDS") systems and is marketing a
direct-to-home ("DTH") service in franchise areas encompassing approximately
1.5 million television homes, or 25% of the total Australian market. In
addition, the Company, through its New Zealand operating company, Saturn
Communications Limited ("Saturn"), is constructing a wireline cable and
telephony system in Wellington, New Zealand, a market representing
approximately 135,000 television homes. The Company's other assets include a
25% interest in XYZ Entertainment Pty Ltd. ("XYZ"), a programming company that
provides four channels to the Australian multi-channel television market as
part of the "Galaxy" package, the most widely distributed programming package
in Australia and the core component of Austar's programming offering, and a 90%
economic interest in Telefenua S.A. ("Telefenua"), the only provider of multi-
channel television services in Tahiti, with an MMDS system in a market with
31,000 television homes.
The Company believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australasia. As of October 31, 1996, the Company had invested approximately
$200 million in its networks and operating infrastructure and had launched
service in each of its markets. The Company has experienced rapid growth in its
network coverage and subscriber base during 1996. As of October 31, 1996 the
Company's multi-channel television operating systems had an aggregate of
approximately 1.5 million television homes serviceable and approximately 81,500
subscribers, as compared with approximately 233,000 television homes
serviceable and approximately 10,200 subscribers as of December 31, 1995 (with
a substantial majority of such growth resulting from Austar's expansion).
During this same ten-month period, programming subscribers of XYZ increased
from approximately 65,000 to approximately 269,000. While the Company expects
that a substantial portion of its growth will come from the continued
development of Austar, the Company is also anticipating significant growth by
its other operating companies.
OPERATIONS
AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). Austar
initiated widespread deployment of its services in early 1996 and as of October
31, 1996, had launched MMDS service in 27 metropolitan markets containing
approximately 700,000 homes and had initiated the marketing of DTH services in
non-metropolitan markets containing approximately 740,000 homes. These markets
represent over 93% of Austar's 1.5 million franchise television homes, the
remaining 100,000 of which will be serviceable by early 1997.
3
<PAGE>
Austar's marketing efforts have kept pace with the rapid roll-out of its
network services during 1996. As of October 31, 1996, Austar had 75,300
subscribers with a backlog of 13,900 customers scheduled for installation. In
addition, subscriber growth has accelerated in recent periods, as demonstrated
by October's results in which Austar generated 23,800 subscription sales orders
and had a net gain of over 15,000 subscribers, with the difference primarily
attributable to installation backlog. Austar is continuing to market its
services aggressively and expects to continue rapidly building its subscriber
base. Austar is benefitting from several characteristics which are supporting
its marketing success and which management believes give it a competitive
advantage in its markets:
. OPERATIONAL INFRASTRUCTURE IN PLACE. In addition to having launched
service to over 93% of its franchise areas, Austar has also developed the
operational infrastructure necessary to continue its rapid growth.
Austar's early investment of approximately $149 million in operating and
capital expenditures from inception through October 31, 1996 has
established it currently as the only multi-channel television provider in
substantially all of its franchise areas. Austar has developed a
comprehensive marketing organization consisting of a 200 person direct
salesforce and over 200 national customer service and telemarketing
personnel. The direct salesforce, which operates out of local offices in
the majority of Austar's metropolitan markets, is currently generating
sales of approximately 2,250 subscriptions per week. The salesforce at
Austar's state-of-the-art national customer operations center ("NCOC") is
currently generating sales of approximately 3,000 additional
subscriptions per week from inbound and outbound calls. This salesforce
is supported by an integrated marketing program of television, radio and
print advertising. The NCOC is also the center of Austar's customer
service organization, processing all incoming information, installation
and service requests. The NCOC has sufficient capacity to service
Austar's customer service needs for the foreseeable future.
Austar has a total of approximately 600 employees, most of whom are
located in local offices and regional operating centers, and has
contracted with a number of local service companies which employ an
aggregate of approximately 400 technicians to install and maintain
subscriber equipment in each of its markets. Management believes that this
infrastructure positions Austar to service its markets efficiently and
provides it with significant competitive advantages.
. REGIONAL FOCUS; CLASSIC MARKETS. Austar has strategically focused on the
currently less competitive regional markets that are located outside of
Australia's largest cities and encompass approximately 25% of the total
Australian television market. These areas are "classic" multi-channel
television markets with attractive demographics and limited television
and alternative entertainment options. Approximately one-half of its
service area (approximately 800,000 television homes) are in metropolitan
markets with sufficient housing densities to support the construction of
MMDS systems. Austar owns virtually all of the available MMDS licenses in
each of these markets. The Company believes these markets generally do
not have the size and/or densities to support the construction of a
competitive wireline cable system. In Austar's non-metropolitan markets
(approximately 740,000 serviceable television homes), where management
believes household densities do not support the deployment of MMDS
networks, Austar is marketing a DTH service on an exclusive basis. Austar
is currently the only provider of multi-channel television services in
substantially all of its service area. See "Risk Factors--Competitive
Industries."
. APPROPRIATE TECHNOLOGY. Austar believes that its utilization of wireless
technologies in the build-out of its franchise area has afforded it with
several economic and strategic advantages. The rapid deployment of MMDS
networks in its metropolitan markets and a DTH service in its non-
metropolitan markets has allowed Austar to reach the vast majority of the
homes in these markets in just over one year. Austar's status as the
initial operator in all of its markets has allowed it to establish a
significant subscriber base and strong brand awareness, factors that
management believes will give it a competitive advantage. Management
believes the combination of MMDS and DTH has allowed Austar to reach
virtually all of the 1.5 million serviceable television homes in its
service areas on the most cost effective basis. Austar estimates its
total fixed capital cost to build out initially its entire franchise area
will be approximately $43 million, or $29 per serviceable home, over 75%
of which had been expended as of October 31, 1996.
4
<PAGE>
Accordingly, Austar has been able to devote a significant amount of its
financial resources to completing its operational infrastructure and
installing its "in-home" subscriber equipment, over which Austar retains
ownership. Austar has spent in excess of $80 million as of October 31,
1996 on these items and expects that the substantial majority of its
future incremental capital expenditures will be incurred only as
additional subscribers are installed (currently approximately $460 and
$945 per MMDS and DTH subscriber, respectively, which amounts are
partially offset by installation charges). While Austar is currently
employing analog technology in its MMDS systems, it is testing digital
technology (which would increase its existing 19 channel capacity) in one
market and intends to offer digital service in its metropolitan markets if
and when competitive factors dictate. Austar's DTH service uses state-of-
the-art MPEG II digital technology.
. ATTRACTIVE PROGRAMMING AGREEMENTS. Austar has entered into franchise
agreements with Australis Media Limited ("Australis") that grant it the
right to provide the Galaxy programming package within its franchise
areas through 2009 (extendible at Austar's option through 2019). The
Galaxy programming package, the most widely distributed programming
package in Australia, was created by many of the world's leading
programming suppliers and features brand name channels including
Showtime, Encore, Fox Sports, The Discovery Channel, Nickelodeon/Nick at
Nite and Red (a 24-hour music video channel) as well as two general
entertainment channels. Management believes that Austar's franchise
agreements have favorable pricing for such programs. Austar's programming
costs are based on a percentage of its service revenue and provide for an
offset of those costs with the depreciation of its subscriber equipment.
Austar's franchise agreements provide exclusivity over wireless
technologies (MMDS and DTH). While Austar's franchise agreements were
formerly exclusive for cable television, the Company recently agreed to
allow Foxtel Management Pty Limited ("Foxtel") to carry the Galaxy
package on Foxtel's wireline cable systems throughout Australia (the
"Australis Arrangement"). The Australis Arrangement provides that Austar
will be compensated for any Foxtel subscriber in its franchise areas in
an amount approximately equal to the profit margin that Austar would have
received had it sublicensed such programming to Foxtel (which currently
would be approximately $8 per Foxtel subscriber per month). Foxtel is
currently operating in only one of Austar's markets and the Company
believes that the small size of and/or low household densities in the
majority of its markets do not justify the construction of competitive
wireline cable systems. Austar does not currently have any subscription
television competitors in the remainder of its franchise areas. Austar's
franchise agreements continue to provide exclusivity over all wireline
cable operators other than Foxtel. In addition, as part of the Australis
Arrangement, Austar was granted the right to acquire any additional
channels distributed by Galaxy on no less favorable terms than offered to
any other person and in any event at no more than Australis' cost, plus
10%. See "Business--Austar (Australia)-- Franchise Agreements." Austar
has also secured several additional satellite-delivered programming
services to supplement the Galaxy channels.
. ATTRACTIVE DEMOGRAPHICS. Australia has demographic and other
characteristics that management believes are favorable to multi-channel
television operators, including high per capita income and high
television and VCR penetration rates. Television viewers in Australia
have limited over-the-air television options with a maximum of five free-
to-air channels, which number is generally lower in regional Australia.
The Australian subscription television industry has grown rapidly since
its inception in early 1995, reaching a combined 6% penetration rate. In
addition, management believes Australian consumers are generally
receptive to new technologies, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of Australia compared to comparable
statistics for the more mature multi-channel television markets of the
United States and the United Kingdom:
<TABLE>
<CAPTION>
GDP PER HOMES YEARS OF SUBSCRIPTION TELEVISION CELLULAR
CAPITA IN WITH SUBSCRIPTION TELEVISION HOMES WITH TELEPHONE
1995 TELEVISION TELEVISION PENETRATION VCR PENETRATION
--------- ---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Australia............... $19,271 99% 2 6% 81% 19%
United States........... 27,581 99 40+ 66 80 15
United Kingdom.......... 18,881 97 12 23 81 10
</TABLE>
5
<PAGE>
SATURN (NEW ZEALAND)
The Company owns 100% of Saturn, which recently launched service on the
initial portions of its hybrid fiber coaxial ("HFC") cable network that enables
it to provide multi-channel television services as well as business and
residential telecommunications services in the Wellington area, encompassing
135,000 homes.
Wellington is New Zealand's capital and second largest city. The Company
launched service in portions of this system in September 1996 and expects
construction to be completed by mid-1998. Saturn also operates an existing
cable system, which passes approximately 6,000 homes, on the Kapiti Coast north
of Wellington. As of October 31, 1996, Saturn's activated networks passed
approximately 12,600 homes, and serviced approximately 1,300 subscribers. The
Company expects to use a portion of the UAP Contribution (as defined below) to
accelerate Saturn's build-out and marketing programs during 1997.
Saturn has secured additional infrastructure rights in markets representing
200,000 homes and is exploring the possibility of expanding its networks and
services to these markets. 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, VCR and cellular telephone penetration rates. In addition,
New Zealand permits operators to offer combined multi-channel television and
telephony services over one network and Saturn expects to launch telephone,
pay-per-view and data services over the next six to 18 months. There is
currently one significant multi-channel television provider in New Zealand,
which provider offers a five-channel UHF-delivered subscription service.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four of the eight
channels offered in the Galaxy package, Australia's most widely distributed
programming package. XYZ's channels consist of high quality, brand named
programming services, including Nickelodeon/Nick at Nite, The Discovery
Channel, Arena (quality general entertainment channel) 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 Austar, Australis and
East Coast Television Pty Limited ("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 result in
XYZ's programming package being available to virtually all of Australia's 6.0
million television households. XYZ launched its channels in April 1995 and as
of October 31, 1996, XYZ provided its channels to approximately 269,000
subscribers in Australia. Foxtel, which owns 50% of XYZ, is a joint venture
between The News Corporation Limited ("News Corp.") 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.
OTHER BUSINESSES
The Company's other businesses include a 90% economic interest in Telefenua,
the only multi-channel television operator in Tahiti, and a 100% interest in
United Wireless Pty Limited ("United Wireless"), a provider of two-way wireless
mobile data services in Australia. As of October 31, 1996, Telefenua was
marketing its 15-channel MMDS service to 18,700 of 31,000 homes in its
franchise area and had approximately 4,900 subscribers paying an average
monthly rate of $65. The Company is in the early stages of negotiating the sale
of all or a portion of Telefenua to a local strategic investor, although there
can be no assurance that the Company will conclude such a transaction.
RELATIONSHIP WITH UIH
The Issuer, through UAP, 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 25 countries in
6
<PAGE>
Europe, Latin America and, through the Company, Asia/Pacific. As of September
30, 1996, UIH's multi-channel television systems had approximately 10.4 million
television homes in their respective service areas, passed approximately 7.2
million homes and had approximately 3.1 million subscribers. In addition to the
Company, UIH's operations include its 50% interest in United and Philips
Communications B.V., a joint venture with Philips Electronics N.V. that is the
largest privately owned multi-channel television operator in Europe.
UAP and each of Austar, Saturn and Telefenua are parties to Technical
Assistance Agreements, pursuant to which UAP 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, UAP and the Issuer are parties to a management
agreement (the "UAP Management Agreement"), pursuant to which UAP performs
certain management, technical, administrative, accounting, financial reporting,
tax, legal and other services for the Issuer for a fee. See "Certain
Relationships."
OTHER
The Issuer, a Colorado corporation, was incorporated in 1994. 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.
CONCURRENT UAP CLASS A COMMON STOCK OFFERING
Concurrently with the Offering, UAP is offering pursuant to a separate
prospectus shares of its Class A Common Stock which is expected to
generate gross proceeds of approximately $100.0 million and UIH has agreed to
contribute $25.0 million cash to UAP (the "UIH Investment") for additional
shares of Class B Common Stock of UAP at the initial public offering price. Pro
forma for the initial public offering and the UIH Investment (assuming the
midpoint of the filing range), UAP would have an equity market capitalization
of approximately $ million. The Offering is contingent upon the consummation
of the UAP Stock Offering, but the UAP Stock Offering and the UIH Investment
are not contingent upon the consummation of the Offering. UAP intends to use
$70.0 million of the net proceeds of the UAP Stock Offering and the UIH
Investment to purchase shares of capital stock of the Issuer (the "UAP
Contribution"). Upon completion of the Offering and the UAP Contribution, the
Company believes that it will have sufficient capital to complete construction
of all of its existing systems and fund anticipated start-up losses. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
7
<PAGE>
THE OFFERING
Securities Offered.......... $ million principal amount at maturity of
Senior Discount Notes due 2007.
Maturity.................... , 2007.
Issue Price................. $ per $1,000 principal amount at maturity.
Interest.................... Cash interest on the Notes will not accrue prior
to , 2002. Thereafter, cash interest on the
Notes will accrue at a rate of % per annum, and
will be payable semi-annually on each and
, commencing , 2002.
Optional Redemption......... The Notes may be redeemed, in whole or in part,
at the option of the Issuer, at any time on or
after , 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, at any time
prior to , the Issuer may redeem up to 33% of
the originally issued 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 % of the Accreted Value thereof on the
redemption date; provided that not less than 67%
of the aggregate principal amount at maturity of
the Notes originally issued are outstanding
immediately after giving effect to such
redemption. See "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 senior indebtedness of the Issuer, other
than indebtedness that by its terms is expressly
subordinated in right and priority of payment to
the Notes. The Issuer conducts substantially all
of its business through its subsidiaries and the
Notes will be effectively subordinated to the
claims of creditors of such subsidiaries. As of
September 30, 1996, after giving effect to the
sale of the Notes and the use of proceeds
therefrom, the Issuer and its subsidiaries would
have had an aggregate of approximately $427.2
million of consolidated liabilities outstanding
(including $ million of trade payables of
subsidiaries and the Notes and Existing Notes)
substantially all of which, except for the Notes
and the Issuer's 14% Senior Discount Notes due
2006 (the "Existing Notes") (of which there was
outstanding as of September 30, 1996, $237.0
million aggregate accreted value thereof), would
have been obligations of the Issuer's
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 , or 101% of the principal
amount at maturity thereof, plus accrued and
unpaid interest, if any, in the case of any such
purchase on or after . See "Description of
the Notes--Certain Covenants--Change of Control."
8
<PAGE>
Certain Covenants........... The indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain
covenants which, among other things, will
restrict the ability of the Issuer and/or its
Restricted Subsidiaries (as defined herein) to
(i) incur additional 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 affiliates
or other interested persons and (vi) consummate
certain asset sales. In addition, the Indenture
will limit the ability of the Issuer to
consolidate, merge or sell all or substantially
all of its assets. These covenants are subject to
important exceptions and qualifications. See
"Description of the Notes."
Original Issue Discount..... The Notes are being offered at an original issue
discount for United States Federal income tax
purposes. Thus, although cash interest will not
be payable on the Notes prior to , 2002,
original issue discount (i.e., the difference
between the principal and interest payable on the
Notes and their issue price) will accrue from the
issue date of the Notes and will generally be
included as interest income periodically in a
Noteholder's gross income for United States
Federal income tax purposes in advance of receipt
of the cash payments to which the income is
attributable. See "Certain U.S. Income Tax
Considerations--Taxation of Original Issue
Discount."
Use of Proceeds.............
The net proceeds from the Offering are estimated
to be approximately $144.1 million. The Company
plans to use such proceeds together with the
$70.0 million of the UAP Contribution and the
$70.1 million of the cash and short-term
investments on hand at October 31, 1996 to fund
the system construction and initial marketing
costs and working capital requirements of its
operating companies and fund general corporate
purposes. See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Securities that should be considered by prospective investors.
9
<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
for the operating companies rather than the Issuer's proportionate interest in
such statistics. See "Business" for a full description of the operating
companies and the Issuer's interest therein.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1996
----------------------------------------------------------------
TELEVISION MONTHLY
HOMES IN BASIC INVESTED THE
SERVICE HOMES SUBSCRIPTION CAPITAL ISSUER'S
OPERATING SYSTEM TECHNOLOGY AREA SERVICEABLE SUBSCRIBERS RATE(1) (IN 000S)(2) INTEREST(3)
- ---------------- ------------------ ---------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Austar.................. MMDS/DTH(4) 1,540,000 1,440,000 75,300(5) $31(2) $149,536 100%
Saturn.................. Cable/Telephony(6) 141,000 12,555 1,294 23(2) 21,557 100%
Telefenua............... MMDS 31,000 18,703 4,902 65(2) 16,136 90%
--------- --------- ------- --------
Total................. 1,712,000 1,471,258 81,496 187,229
========= ========= ======= ========
<CAPTION>
PROGRAMMING
- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
XYZ..................... Programming N/A(7) N/A 269,000(8) $ 3 $ 10,623 25%
======= ========
</TABLE>
- --------------------
(1) The basic rate does not include charges for installation and other premium
services, which vary in each individual market, and does not reflect
promotions that may be made from time to time. Austar charges this rate in
all of its markets except the Gold Coast market, which had approximately
12,300 subscribers as of October 31, 1996, where Austar charges a basic
subscription rate of $23. Saturn is currently offering new subscribers a
promotional monthly basic rate of $17 for the months from November 1996 to
March 1997. Telefenua charges $65 for its expanded tier of service. Nearly
99% of Telefenua's customers are currently subscribing to this expanded
tier of service. The rate listed for XYZ is net of revenues passed through
to the Nickelodeon joint venture (in which XYZ holds a 50% interest) and
Discovery Asia with respect to the channel each entity supplies to XYZ. See
"Business--XYZ (Australian Programming)."
(2) Represents the cash investments to fund operations and capital expenditures
since inception. Includes amounts contributed to Austar (approximately
$11.1 million) and Saturn (approximately $2.9 million) by shareholders
other than the Company, which amounts were contributed by such shareholders
prior to the acquisition of their respective interests by the Company, but
does not include, (i) invested capital in United Wireless, (ii) the $58.6
million used by the Issuer to increase its economic interest in Austar to
approximately 100%, or (iii) the 2.6% of the Issuer's common stock issued
to the Issuer's former partner in Saturn to increase the Company's interest
in Saturn to 100% from 50%.
(3) For an explanation of the Issuer's interests in each of the operating
companies, see "Corporate Organizational Structure."
(4) Austar is also constructing a wireline cable system in Darwin that is
scheduled to pass 26,200 homes. Austar is offering its services to the
800,000 homes in its metropolitan areas primarily by MMDS and to the
740,000 homes in its non-metropolitan areas exclusively by DTH.
(5) Does not include an installation backlog of 13,860 customers.
(6) Saturn plans to begin offering telephony services in 1998.
(7) The Company expects that XYZ's programming package eventually will be
marketed to virtually all of Australia's 6.0 million television households
by Australian multi-channel television providers, including Austar,
Australis, Foxtel and ECT.
(8) Total subscribers to the eight channel Galaxy package to which XYZ
currently supplies four channels.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
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 nine months ended September 30,
1995 and 1996, and at September 30, 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 nine months ended September 30, 1996 (i) includes the results of operations
of Austar, in which the Company increased its economic ownership to 90% from
50% in December 1995, which interest was subsequently increased to 100% in
October 1996 (the "Austar Transaction"), (ii) reflects the sale of a 25%
interest in XYZ (reducing the Company's interest to 25% from 50%) in September
1995 (the "XYZ Sale"), (iii) includes the results of operations of Saturn, in
which the Company increased its ownership from 50% to 100% in July 1996 (the
"Saturn Purchase") and (iv) includes the eight months of operations of United
Wireless prior to its acquisition date (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 Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- -----------------------------
PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
------- ------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other reve-
nue.................... $ -- $ 1,883 $ 2,507 $ 1,152 $ 13,262 $ 13,366
System operating ex-
pense.................. -- (3,230) (5,573) (1,870) (18,914) (19,533)
System selling, general
and administrative
expense................ -- (2,482) (11,006) (1,636) (13,987) (15,064)
Corporate general and
administrative
expense................ (659) (920) (920) (688) (746) (746)
Depreciation and amorti-
zation expense......... -- (1,003) (6,345) (639) (15,935) (16,426)
Equity in losses of af-
filiated companies,
net.................... (1,015) (16,379) (7,597) (12,518) (4,501) (3,571)
Net loss................ (1,674) (17,233) (26,748) (11,791) (47,329) (50,340)
Ratio of earnings to
fixed charges(1)....... -- -- -- -- -- --
OTHER DATA:
Capital expenditures.... $ 1 $ 7,143 $ 23,206 $ 6,970 $105,899 $110,121
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and
short-term investments...................... $ 106,858 $ 320,958
Property, plant and equipment, net........... 130,435 130,435
Total assets................................. 325,162 545,162
Senior Discount Notes and other long-term
debt........................................ 241,039 391,039
Total liabilities............................ 277,237 427,237
Total stockholders' equity................... 47,347 117,347
</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 nine months ended
September 30, 1995 and 1996 and pro forma 1996 were $1.1 million, $12.9
million, $ million, $10.2 million, $43.8 million and $ 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 to reflect the sale of the Notes offered hereby, net of
offering expenses, and the UAP Contribution.
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider carefully
the following Risk Factors, as well as the other information set forth in this
Prospectus, before purchasing the Notes.
This Prospectus contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places in this Prospectus,
including, without limitation, the information under the headings "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers primarily
with respect to the development of the Company's markets, future funding
requirements and operating performance of the Company. Prospective purchasers
of the Notes offered hereby are cautioned that any such forward-looking
statements are not guarantees of future performance and may involve risks and
uncertainties, and that actual results may differ from those in the forward-
looking statements as a result of various factors. The accompanying
information contained in this Prospectus, including, without limitation, the
information set forth below identifies important factors that could cause such
differences.
Holding Company Structure; Limitations on Access to Cash Flow. The Issuer is
a holding company with no substantial business operations of its own. The
Issuer's assets consist primarily of its ownership interests in its affiliated
companies. The Notes will effectively be subordinated to all existing and
future indebtedness and other liabilities of the Issuer's subsidiaries since
the Issuer's right to receive the assets of any such affiliates upon their
liquidation or reorganization will be subordinated by operation of law to the
claims of such subsidiaries' creditors (including trade creditors), except to
the extent that the Issuer is itself recognized as a creditor of any such
affiliate, in which case the claims of the Issuer would still be subordinated
to any indebtedness of such affiliate that is senior in right of payment to
the Issuer's claim. The Issuer's subsidiaries have substantial indebtedness
and other liabilities. As of September 30, 1996, the Issuer's subsidiaries had
$37.3 million of indebtedness outstanding (including trade payables). The
Indenture will restrict the ability of the Issuer and its Restricted
Subsidiaries and its Restricted Affiliates to incur additional Indebtedness.
The Indenture will restrict the ability of the Issuer to invest in entities
that are not Restricted Subsidiaries or Restricted Affiliates. See
"Description of Notes."
The covenants set forth in the Indenture governing the Notes restrict the
activities of the Issuer and its Restricted Subsidiaries but are not generally
applicable to certain of the Issuer's existing affiliated companies since such
entities are not to be deemed to be "Restricted Subsidiaries" or "Restricted
Affiliates" for purposes of the Indenture. As a result, the ability of such
affiliated companies to incur additional indebtedness, to impose restrictions
on their ability to pay dividends to the Issuer, to sell assets or to engage
in other transactions that may be detrimental to the interests of the Issuer's
creditors, including the holders of Notes, is not restricted. In addition,
under certain limited circumstances, the Issuer is entitled to designate
certain of its Restricted Subsidiaries as Unrestricted Subsidiaries which are
not subject to many of the restrictions set forth in the Indenture. However,
the Issuer's ability to make future Investments (as defined) in Unrestricted
Subsidiaries or Unrestricted Affiliates is limited by the Indenture which
provides that future Investments in affiliates are, in general, permitted only
if such affiliates are designated as Restricted Affiliates and are bound by
the provisions of the Indenture relating to the incurrence of indebtedness and
the issuance of preferred stock and other significant restrictions. See
"Description of Notes."
Leverage; Ability to Service Debt. Immediately following consummation of the
Offerings, the Company will be highly leveraged. After giving pro forma effect
to the sale of Notes offered hereby, net of offering expenses and the UAP
Contribution, on a consolidated basis, (i) the Company would have had
outstanding at September 30, 1996, an aggregate of $391.0 million of long-term
debt and stockholders' equity of $117.3 million. See "Capitalization." The
Existing Notes will have an Accreted Value of $ as of May 16, 2001 (the
date cash interest payments begin on the Existing Notes). The Notes will have
an Accreted Value of $ as of , 2002 (the date cash interest payments
begin on the Notes). The Company's ability to meet its debt service
requirements will be dependent upon substantial growth in the Company's cash
flow. If the
12
<PAGE>
Company's cash flow and working capital are not sufficient to fund the
Company's expenditures and to service its indebtedness, including the Notes,
the Company would be required to raise additional funds through either the
sale of equity or debt securities, refinance of all or part of its
indebtedness, or effect the sale of significant assets. There can be no
assurance that the Company will be successful in generating cash flow by a
sufficient magnitude or in a timely manner or in raising additional equity or
debt financing to enable the Company to meet its debt service and other
liquidity requirements. The high degree to which the Company is leveraged
could have significant adverse consequences upon the Company, including,
without limitation, (i) increased vulnerability to adverse economic and
competitive conditions, (ii) inability to obtain additional financing
necessary to fund future working capital requirements, capital expenditures,
acquisitions or other general needs, and (iii) the dedication of a substantial
portion of cash flow from operations to the payment of principal of and
interest on indebtedness, rather than to the expansion of operations and the
pursuit of new opportunities. Cash interest on the Notes will commence to
accrue and be payable on . In addition, the Issuer and its subsidiaries
and affiliates may incur additional indebtedness from time to time to finance
expansion, either through capital expenditures or acquisitions, or for other
general corporate purposes.
The Company's ability to repay its obligations on the Notes at maturity will
be dependent on developing one or more sources of cash prior to the maturity
of the Notes in 1999. The Company may (i) seek to refinance all or a portion
of the Notes at maturity through sales of additional debt or equity securities
of the Company, (ii) seek to sell all or a portion of its interests in one or
more of its affiliated companies, (iii) negotiate with its current financial
and strategic partners to permit the cash produced by its affiliated companies
to be distributed to equity holders rather than invested in the businesses of
such affiliated companies, and/or (iv) operate and invest in companies that
will make substantial cash distributions on or before the maturity of the
Notes. There can be no assurance that (i) there will be a market for the debt
or equity securities of the Company in the future, or (ii) the Company will be
able to sell assets in a timely manner or on commercially acceptable terms or
in an amount that will be sufficient to repay the Notes when due.
The Issuer's ability to sell or transfer its ownership interests in
Telefenua and XYZ is subject to limitations contained in the agreements
between the Company and its strategic and financial partners including, in
certain cases, complete prohibitions on sales or transfers for a period of
years and/or rights of first refusal. In addition, none of the operating
companies currently has any publicly traded securities and there can be no
guarantee that there will be in the future either a public or private market
for the securities of the operating companies. As a result, the Issuer's
ability to liquidate any or all of its investments may be substantially
limited and there can be no guarantee that the Issuer will be able to do so in
a timely manner in the event of an acceleration of the Notes prior to their
maturity or in order to satisfy its obligations in respect of such securities
in the event of a Change of Control (as defined) or to repay the Notes upon
their maturity.
History of Operating Losses. The Company has experienced net losses since
its formation. On a pro forma basis, assuming the Austar Transaction, the XYZ
Sale, the United Wireless Purchase and the Saturn Purchase had each occurred
as of January 1, 1995, the Company would have had consolidated net operating
losses of $21.3 million for fiscal 1995. The Company expects to incur
substantial additional net losses and net operating losses for the foreseeable
future as it pursues the development of its multi-channel television systems
and programming ventures and there can be no assurance that such losses will
not continue indefinitely or exceed the Company's expectations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company has experienced net losses, net
operating losses and negative cash flows from operations since formation, as
each of its operating companies has been in the early stages of constructing
and marketing its operations. In fiscal 1995, net operating losses (translated
using a weighted average exchange rate) for Austar, 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 $0.6 million.
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 Capital."
Limited Operating History; Uncertainties Associated with a New Industry;
Customer Acceptance and Market Demand. Saturn and Telefenua are in the early
stages of constructing their respective multi-channel
13
<PAGE>
television and telecommunication systems and/or marketing their respective
services. Although Austar has finished construction of substantially all of
its MMDS systems and has launched DTH service in all of its franchise areas,
it is still in the early stages of marketing its services. Austar's success
will depend largely upon its ability to gain and retain subscribers throughout
its franchise areas. Saturn is in the early stages of constructing a full-
service network in its identified markets. Saturn recently launched service in
a portion of its service areas and has only recently begun marketing its
services and connecting subscribers beyond its existing base. Telefenua
launched its service in March 1995 and is also in the early stages of
marketing its services. In addition, the successful implementation of the
Company's operating strategies is subject to factors and uncertainties, many
of which are outside of its control and difficult to predict, due, in part, 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 assurance that the Company
will experience and sustain the levels of customer acceptance and retention
required for its success. 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 are unclear.
Need for Additional Capital. While the Company believes that its cash on
hand, the proceeds from the Offering and the UAP Contribution and projected
cash flow from operations will be sufficient for the Company to complete the
construction and initial marketing of its existing operating companies,
currently estimated to require approximately $300 million over the next two to
three years, there can be no assurances that such funds will be sufficient for
its needs. This Offering is conditioned upon the closing of the UAP Stock
Offering. Sources of additional capital, if any, may include additional debt
and equity financing at the Issuer and operating company levels, although
there can be no assurance that such funds will be available on satisfactory
terms or on a timely basis, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Liquidity and
Capital Resources."
Competitive Industry. The subscription television business in all the
countries in which the Company operates is and will remain competitive and
subject to rapid change due to regulatory and other factors. Austar currently
competes in one of its metropolitan markets with Foxtel, which has substantial
financial resources and also carries the Galaxy package. Austar may face
competition as it launches service in other franchise areas. In addition,
Australian law allows other persons to deliver subscription television
services via DTH beginning in July 1997. See "Business--Austar (Australia)--
Competition." Optus Vision Pty Limited ("Optus Vision") has publicly announced
that it plans to offer subscription television services by DTH throughout
Australia. In addition, the Company understands that Australis and Optus
Vision plan to form a joint venture whereby Australis will contribute to the
venture its satellite infrastructure allowing for DTH transmission of Optus
Vision's programming services. The Company believes that the use of such
infrastructure by any entity other than Austar for the provision of DTH
services within Austar's franchise areas would be in violation of its
franchise agreements with Australis and has recently commenced proceedings
seeking injunctive relief preventing the use of Australis' infrastructure by
Optus Vision and preventing Optus Vision from competing with Austar in
Austar's franchise areas. There can be no assurance that Austar will prevail
on its lawsuit or that, even if it is successful in obtaining an injunction to
prevent the consummation of the joint venture, Optus Vision or others will not
compete in the DTH market in Austar's franchise area. See "Business--Legal
Proceedings." 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."
14
<PAGE>
Deployment of Network; Access to Infrastructure; Construction Risk. The
construction within management's cost estimates and launch schedules of the
Saturn network, is dependent upon factors, many of which are outside of the
Company's control. Because the New Zealand pay television market is in its
early development stages, access to contractors experienced in the necessary
deployment of 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 in part upon its ability to deploy networks quickly 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 delays related to
governmental rules and regulations including zoning and permit requirements,
as well as 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 compete and could have material adverse
effects on the financial condition and results of operations of one or more of
the operating companies. 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. 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 the operating companies' 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.
Australis, Austar'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. Australis has recently closed private offerings of
debt and equity securities that Australis announced would enable it to carry
its business through to cash flow positive. If such financing is not
sufficient to satisfy Australis' long-term capital needs, Australis may have
difficulty meeting contractual obligations with respect to the four non-XYZ
Galaxy channels distributed directly by Australis. The Company believes that
if Austar 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 such four Galaxy channels or sufficient alternative programming
on competitive terms. There can be no assurance, however, that this would be
the case and the inability of Austar 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.
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.
15
<PAGE>
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 Austar 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 (the "BSA"), 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, among other
things, regulates the use of telecommunications facilities that supply
telecommunications services and 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 Austar to compete with other forms of entertainment
and may also have a material adverse effect on XYZ's and Austar's ability to
attain their business objectives or on their results of operations. Matters
which could adversely affect the profitability of XYZ and Austar 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 Austar of certain of its licenses, the inability of
Austar to acquire additional licenses, the inability of Austar to be issued or
reissued licenses, the inability of Austar 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
Austar, 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
Austar to secure additional financing. The 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.
Austar's MMDS licenses issued under the Radiocommunications Act have initial
terms of five years. The terms governing the renewal or conversion of Austar'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. 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 so
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 all of the directors of Austar. 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 (the
"Treasurer") under provisions of the Australian Foreign Acquisition and
Takeovers Act, 1975, as amended ("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 Austar so that the Company is
entitled to appoint directly only three of six directors of Austar. While the
Company believes a determination under the FATA would not affect its 100%
economic interest in Austar, there can be no assurances that such would be the
case. See "Regulation--Australia--Foreign Acquisitions and Takeovers Act" and
"Corporate Organizational Structure--
16
<PAGE>
Austar." In addition, if the manner in which the Company designates directors
of Austar is changed as a result of action by the Treasurer, an issue may be
presented under the Investment Company Act of 1940 (the "1940 Act") as to
whether the Company would then be an unregistered investment company. If the
Company's economic interests in Austar did not provide the Company sufficient
control of Austar to permit the Company to obtain exemptive relief from the
Commission, then there would be a risk that the Company would be an
unregistered investment company and as such, that the Company would be subject
to monetary penalties and injunctive relief in an action brought by the
Commission, that the Company 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 Company was an
unregistered investment company.
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."
Dependence on Key Personnel; Relationship with UAP. Many of the personnel
performing key managerial and executive functions in the operating companies
are employees of the Issuer's parent, UAP, over which the Issuer has control.
The services of such personnel are made available to the operating companies
under the terms of Technical Assistance Agreements and the UAP 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 UAP and operating company levels. 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 substantially
all of 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. Although the
majority of the Company's operations are located in Australia and New Zealand,
the Company has interests in operating systems in Tahiti where foreign
investment risks may be greater.
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
17
<PAGE>
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. 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. Such restrictions, if enacted, could create
substantial barriers to the conversion or repatriation of funds, and such
restrictions could adversely affect the Company's and its operating companies'
ability to pay overhead expenses, meet their respective debt obligations and
to continue and expand their businesses. See "Management's Discussion and
Analysis of Financial Condition--Foreign Currency Exchange Rate Risks;
Hedging."
Limited Insurance Coverage. The operating companies obtain insurance of the
type and amount which management believes is appropriate for their systems.
Such policies do not, however, insure the entire portion of multi-channel
television systems. Accordingly, a catastrophe affecting a significant portion
of a system's infrastructure 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.
Trading Market for the Securities, Absence of Public Market. The Issuer has
not sought a listing for the Notes on a national securities exchange or an
authorization for quotation on Nasdaq Stock Market. The Notes may trade at a
discount from their respective initial offering prices, depending upon
prevailing interest rates, the market for similar securities and other
factors. The Underwriters have informed the Issuer that they intend to make a
market in the Notes offered hereby. The Underwriters are not obligated to do
so however, and any such market making may be discontinued at any time without
notice at the Underwriters' sole discretion. There can be no assurance that an
active trading market will develop for the Notes. See "Underwriting." The
liquidity of, and trading market for, the Notes may also be significantly
adversely affected by declines in the market for high yield securities
generally.
Original Issue Discount Consequences. The Notes will be issued at a
substantial discount from their principal amount at maturity. Consequently,
the purchasers of the Notes generally will be required to include amounts in
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 Issuer 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 at maturity 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."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Issuer from the Offering, are
estimated to be approximately $144.1 million after deduction of underwriting
discounts and commissions and offering expenses. At October 31, 1996, the
Company had approximately $70.1 million of cash and short term investments on
hand, excluding cash on hand at the operating companies. Pro forma for the
Offering net of offering costs and the $70.0 million UAP Contribution, the
Company would have had a total of approximately $284.2 million of cash and
short-term investments as of October 31, 1996. The Company currently intends
to use this cash, as well as anticipated cash flow from operations, to fund
the currently planned build-out and marketing of its existing systems and
believes that it will have sufficient capital to do so. Such belief, however,
is based, in part, upon estimates and predictions about forward-looking events
and circumstances about which there can be no certainty and therefore no
assurance can be given that such capital will be sufficient for the purposes
described above.
The following table sets forth, as of October 31, 1996, (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 and the application of any operating cash flow
sources for such operating companies, (ii) the total amount of capital
invested in each of the operating companies and the portion funded by the
Company, and (iii) the total estimated additional funding required as stated
in clause (i) above and the Company's estimated portion of such funding. Such
amounts are expected to be funded over the next 24 to 36 months. The estimated
required additional funding numbers below have not been reduced to give effect
to any surplus cash flow of any one operating company which might be available
to fund the requirements of another operating company. 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. The Company's portion of estimated additional funding
would be increased proportionately to the extent cash flow from the operating
companies and other sources of financing are not sufficient to meet project
funding requirements. To the extent that the other shareholders of 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.
Pending use of the net proceeds of the Offering and the UAP Contribution, the
Company intends to hold such proceeds in short-term interest-bearing,
investment grade securities, including governmental obligations and other
money market instruments.
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF OCTOBER 31, 1996(1) ADDITIONAL FUNDING
------------------ -------------------------- ------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY(2) TOTAL(1)(2) THE COMPANY TOTAL
- ----------------- ----------- ------ -------------- ----------- ----------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Austar.................. $366.4 $366.4 $149.5(3) $149.5(3) $216.9 $216.9
Saturn.................. 95.7 95.7 21.6(4) 21.6(4) 74.1 74.1
XYZ..................... 14.4 57.6 10.6 42.4 3.8 15.2
Telefenua............... 17.4 17.4 16.1 16.1 1.3 1.3
United Wireless......... 8.2 8.2 4.3 4.3 3.9 3.9
------ ------ ------ ------ ------ ------
Total................. $502.1 $545.3 $202.1 $233.9 $300.0 $311.4
====== ====== ====== ====== ====== ======
</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) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million), by shareholders other than the
Company, which amounts were contributed by such shareholders prior to the
acquisition of their respective interests by the Company.
(3) Does not include the $58.6 million used by the Issuer to increase its
economic interest in Austar to approximately 100%.
(4) Does not include the value of shares of 2.6% of the Issuer's common stock
used to increase its interest in Saturn to 100%. See "Corporate
Organizational Structure--Saturn."
19
<PAGE>
EXCHANGE RATE DATA
The Company's interests in Austar, 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$1.00. On September
30, 1996, the Noon Buying Rate was US$.80 per A$1.00.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,(1) AT AND FOR THE
-------------------------------------------- NINE MONTHS ENDED
1991 1992 1993 1994 1995 SEPTEMBER 30, 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$0.79
Average exchange rate
during period(2)....... 0.78 0.73 0.68 0.73 0.74 0.78
Highest exchange rate
during period.......... 0.80 0.77 0.72 0.78 0.77 0.80
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 annual financial statement amounts, and
September 30, 1996 with respect to all other amounts for Australia, New
Zealand and Tahiti.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to reflect the Offering, net of offering
expenses, and the UAP Contribution. 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 SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, restricted cash and
short-term investments(1)....................... $ 106,858 $ 320,958
============ ============
Debt:
14% Senior Discount Notes due 2006............... $ 237,024 $ 237,024
% Senior Discount Notes due 2007................ -- 150,000
Other debt....................................... 4,015 4,015
------------ ------------
Total debt..................................... 241,039 391,039
Stockholders' equity:
Common Stock ($.01 par value); 1,000 shares
authorized; 500 shares outstanding ............. -- --
Additional paid-in capital....................... 112,246 182,246
Unrealized loss on investment.................... (784) (784)
Cumulative translation adjustment................ 2,121 2,121
Accumulated deficit.............................. (66,236) (66,236)
------------ ------------
Total stockholders' equity..................... 47,347 117,347
------------ ------------
Total capitalization....................... $ 288,386 $ 508,386
============ ============
</TABLE>
- ---------------------
(1) Includes $10.0 million of restricted cash which was subsequently released
in October 1996. Does not reflect the Company's (i) $7.9 million
acquisition of the remaining interest in Austar and (ii) $4.0 million of
ordinary shares and convertible notes of Australis acquired upon exercise
of warrants and other subscription rights, both of which occurred in
October 1996.
21
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS DATA
The following unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996, give effect to the Austar Transaction, the XYZ Sale, the
Saturn Purchase and the United Wireless Purchase as if each had occurred at
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
condensed statement of operations and accompanying notes 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 nor are they necessarily
indicitive of what such results of operations will be in any future period.
The unaudited pro forma consolidated condensed statement of operations 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 Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
UNITED
AUSTAR XYZ SATURN WIRELESS
ACTUAL TRANSACTION(1) SALE(2) PURCHASE(3) PURCHASE(4) PRO FORMA
-------- -------------- ------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service and other
revenue................ $ 1,883 $ 443 $ -- $ 148 $ 33 $ 2,507
System operating
expense................ (3,230) (793) -- (863) (687) (5,573)
System selling, general
and administrative
expense................ (2,482) (6,681) -- (1,502) (341) (11,006)
Corporate general and
administrative
expense................ (920) -- -- -- -- (920)
Depreciation and
amortization expense... (1,003) (4,259) -- (997) (86) (6,345)
-------- -------- ------- ------- ------- --------
Net operating loss.... (5,752) (11,290) -- (3,214) (1,081) (21,337)
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) $ -- $(1,831) $(1,080) $(26,748)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------
SATURN
ACTUAL AUSTAR(5) PURCHASE(3) PRO FORMA
-------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service and other revenue..... $ 13,262 $ -- $ 104 $ 13,366
System operating expense...... (18,914) -- (619) (19,533)
System selling, general and
administrative expense....... (13,987) -- (1,077) (15,064)
Corporate general and
administrative expense....... (746) -- -- (746)
Depreciation and amortization
expense...................... (15,935) -- (491) (16,426)
-------- -------- ------- --------
Net operating loss.......... (36,320) -- (2,083) (38,403)
Equity in losses of affiliated
companies, net............... (4,501) -- 930 (3,571)
Interest, net................. (9,571) -- (83) (9,654)
Other, net.................... 3,063 (1,911) 136 1,288
-------- -------- ------- --------
Net loss.................... $(47,329) $ (1,911) $(1,100) $(50,340)
======== ======== ======= ========
</TABLE>
- ---------------------
(1) Represents the consolidation of Austar 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 $0.6 million and $0.3 million of amortization for
the year ended December 31, 1995 and the nine months ended September 30,
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 eight months of activity of United Wireless prior to its
acquisition by the Company in September 1995.
(5) Represents the elimination of losses allocated to the minority interest
due to the increase in the economic ownership to 100%.
22
<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 nine
months ended September 30, 1995 and 1996, and at September 30, 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 Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------- ---------------------------------
1994 1995 1995 1996
------------ ------------ --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other
revenue................ $ -- $ 1,883 $ 1,152 $ 13,262
System operating
expense................ -- (3,230) (1,870) (18,914)
System selling, general
and administrative
expense................ -- (2,482) (1,636) (13,987)
Corporate general and
administrative
expense................ (659) (920) (688) (746)
Equity in losses of
affiliated companies,
net.................... (1,015) (16,379) (12,518) (4,501)
Interest expense, net .. -- 127 -- (9,571)
Net loss................ (1,674) (17,233) (11,791) (47,329)
Ratio of Earnings to
fixed charges..........
BALANCE SHEET DATA (AS
OF END OF PERIOD):
Cash and cash
equivalents and short-
term investments,
including restricted
cash................... $ -- $ 8,730 $ 106,658
Investments in and
advances to affiliated
companies.............. 22,296 2,829 --
Property, plant and
equipment, net......... 1 27,125 130,435
Goodwill, net........... -- 45,324 52,171
Total assets............ 24,084 99,295 325,162
Senior Discount Notes
and other long-term
debt................... -- 890 241,039
Total liabilities....... 11 21,714 277,237
Stockholders' equity.... 24,073 75,066 47,347
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Issuer currently holds (i) a 100% economic interest in Austar, (ii) a
100% interest in Saturn, (iii) a 25% interest in XYZ, (iv) a 90% economic
interest in Telefenua, and (v) a 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 Austar from 50% to 90%. During 1996, the Company further increased
its economic interest in Austar to 100%. Prior to the Austar Transaction, the
Company accounted for its investment in Austar using the equity method of
accounting. The Company began consolidating the results of operations of
Austar on January 1, 1996. Following its July 1996 acquisition of the
remaining 50% interest in Saturn, the Company began consolidating the results
of operations of Saturn, which had previously been accounted for using the
equity method of accounting. The Company accounts for its interest in XYZ
using the equity method of accounting. The Company's financial statements have
been prepared on a basis of reorganization accounting as though the Company
had performed those foreign development activities associated with the
operating companies and the Company's current and active development projects.
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 operating companies have, since inception, been engaged primarily in the
construction of their networks and organizational and start-up activities. As
a result, the Company has generated negative cash flow from operating
activities for all periods presented. Accordingly, 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. As demonstrated by
the table below, the Company has invested significant capital in the operating
companies each of which are experiencing a rapid growth in subscribers:
<TABLE>
<CAPTION>
AT OCTOBER 31, 1996
-------------------------------------
SERVICE INVESTED SUBSCRIBER
COMPANY LAUNCH CAPITAL NET GAIN
CONSOLIDATED SUBSIDIARIES: OWNERSHIP(1) DATE (IN MILLIONS) SUBSCRIBERS DURING 1996
- -------------------------- ------------ ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Austar.................. 100% Aug. 1995 $149.5 75,300 70,096
Saturn.................. 100% Sept. 1996 21.6 1,294 335
Telefenua............... 90% Mar. 1995 16.1 4,902 776
United Wireless......... 100% Sept. 1995 4.3 N/A N/A
<CAPTION>
UNCONSOLIDATED AFFILIATE:
- -------------------------
<S> <C> <C> <C> <C> <C>
XYZ..................... 25% Apr. 1995 $ 10.6 269,000 204,000
</TABLE>
- ---------------------
(1) For an explanation of the Issuer's interests in each of the operating
companies, see "Corporate Organizational Structure."
UAP, the Company's parent, provides various management, technical,
administrative, accounting, financial reporting, tax, legal and other services
for the Company pursuant to the terms of a UAP Management Agreement between
the Issuer and UAP. See "Relationship with UAP and Related Transactions."
24
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Service and Other Revenue. The Company's service revenues (including
installation revenues) increased to $13.3 million for the nine months ended
September 30, 1996 (the "1996 Nine Months") from $1.2 million in the
comparable prior year period (the "1995 Nine Months"). This increase was
primarily attributable to increases in service and installation revenues at
Austar. Service revenues for the 1995 Nine Months and the 1996 Nine Months
were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1996
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Austar.......................................... $ -- $10,544
Telefenua....................................... 1,152 2,632
Saturn.......................................... -- 44
United Wireless................................. -- 42
------------ -------------
Total service and other revenue............... $1,152 $13,262
============ =============
</TABLE>
Austar
Service revenues at Austar were $10.5 million in the 1996 Nine
Months. Revenues consisted primarily of service and installation fees
from basic subscribers of $6.7 million and $3.8 million, respectively.
The Company began consolidating the results of Austar on January 1,
1996. As a result, the Company reported no service revenues from Austar
in the 1995 Nine Months. Austar's actual service revenues for the 1995
Nine Months were $0.1 million. The increase in service revenues in the
1996 Nine Months was primarily attributable to an increase in
subscribers (60,276 at September 30, 1996 versus 1,019 at September 30,
1995). Such increase was the result of the rapid roll-out of Austar's
services initially launched August 1995.
Telefenua
Telefenua's service revenues increased to $2.6 million for 1996 Nine
Months from $1.2 million in the 1995 Nine Months, primarily
attributable to an increase in subscribers (4,700 at September 30, 1996
compared to 2,684 at September 30, 1995).
Saturn
The Company began consolidating Saturn beginning July 1, 1996.
Accordingly, reported service revenues for the 1996 and 1995 results
were not meaningful. In addition, because Saturn has only recently
launched basic services in the Wellington area in September 1996,
Saturn's actual results for the 1996 Nine Months and the 1995 Nine
Months were not significant or meaningful.
System Operating Expenses. The Company's operating expenses increased to
$18.9 million for the 1996 Nine Months from $1.9 million in the 1995 Nine
Months, primarily as a result of increases in operating expenses at Austar.
System operating expenses for the 1995 Nine Months and the 1996 Nine Months
were as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Austar..................................................... $ -- $15,749
Telefenua.................................................. 1,870 1,642
Saturn..................................................... -- 599
United Wireless............................................ -- 924
------ -------
Total system operating expenses.......................... $1,870 $18,914
====== =======
</TABLE>
25
<PAGE>
Austar
Operating expenses consolidated by the Company from Austar were $15.8
million in the 1996 Nine Months. Operating expenses consisted primarily
of payroll ($6.7 million), satellite programming fees ($2.6 million)
and annual MMDS spectrum license fees ($1.3 million), with the
remainder consisting primarily of warehouse rent, system
travel/recruitment and NCOC start-up costs. The Company began
consolidating the results of Austar on January 1, 1996. As a result,
the Company reported no operating expenses from Austar in the Company's
consolidated statement of operations for the 1995 Nine Months. Austar's
actual operating expenses for the 1995 Nine Months were $0.7 million.
The increase in operating expenses in the 1996 Nine Months was
primarily attributable to the rapid roll-out of Austar's services
initially launched in August 1995 and the corresponding increase in
subscribers. Austar is experiencing high operating expenses relative to
service revenues due to certain fixed operating expenses (such as
management overhead, license fees and certain marketing costs) as well
as non-recurring start up costs (such as initial market research, NCOC
establishment costs and additional one-time expenses due to the name
change to "Austar") associated with the launch of its service. Austar
expects operating expenses as a percent of service revenues to decline
as start-up costs are reduced and as certain fixed operating expenses
are spread over expected increases in service revenues.
Telefenua
Operating expenses consolidated by the Company from Telefenua
decreased to $1.6 million in the 1996 Nine Months from $1.9 million in
the 1995 Nine Months, primarily due to a decrease in technical related
repairs and maintenance and tape production costs, partially offset by
an increase in the subscribers in the 1996 Nine Months. Telefenua's
operating expenses for the 1996 Nine Months consisted primarily of
satellite programming fees ($0.5 million) and tape production costs
($0.4 million), with the remainder consisting of payroll related costs
and technical related costs.
Saturn
The Company began consolidating Saturn on July 1, 1996. Accordingly,
while the Company reported operating expenses of $0.6 million for
Saturn in its consolidated statement of operations for the 1996 Nine
Months, Saturn's actual operating expenses were $1.2 million for the
1996 Nine Months, consisting primarily of payroll and office expenses
related to the start-up activities, including system design and
engineering work, for launching Saturn's Wellington system in September
1996. Saturn's actual operating expenses for the 1995 Nine Months were
not significant or meaningful.
System Selling, General and Administrative Expenses. The Company's system
selling, general and administrative expenses increased to $14.0 million for
the 1996 Nine Months from $1.6 million in the 1995 Nine Months, primarily
attributable to increases in system selling, general and administrative
expenses at Austar. System selling, general and administrative expenses for
the 1995 Nine Months and the 1996 Nine Months were as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Austar..................................................... $ -- $10,667
Telefenua.................................................. 1,636 1,959
Saturn..................................................... -- 889
United Wireless............................................ -- 472
------ -------
Total system selling, general and administrative
expenses................................................ $1,636 $13,987
====== =======
</TABLE>
Austar
System selling, general and administrative expenses consolidated by
the Company from Austar were $10.7 million in the 1996 Nine Months and
consisted primarily of $3.1 million in marketing costs related to
print, radio and television advertisements utilized in the launch of
Austar services throughout its service areas during 1996, direct sales
commissions ($2.1 million) and for general and administrative expenses
at Austar's Sydney corporate headquarters ($5.5 million). The Company
26
<PAGE>
began consolidating the results of Austar on January 1, 1996. As a
result, the Company reported no system selling, general and
administrative expenses from Austar in its consolidated statement of
operations for the 1995 Nine Months. Austar's system selling, general
and administrative expenses for the 1995 Nine Months were $3.4 million.
The increase in system selling, general and administrative expenses at
Austar was primarily attributable to an increase in marketing related
to the increased roll-out of MMDS operating systems and the initiation
of DTH service in 1996.
Telefenua
System selling, general and administrative expenses consolidated by
the Company from Telefenua increased to $2.0 million in the 1996 Nine
Months compared to $1.6 million in the 1995 Nine Months. This increase
was primarily attributable to an increase in marketing expenses during
the 1996 Nine Months.
Saturn
The Company began consolidating Saturn beginning July 1, 1996.
Accordingly, reported system selling, general and administrative
expenses for the 1996 and 1995 results were not meaningful. In
addition, because Saturn has only recently launched basic services in
the Wellington area and had not conducted a significant marketing
effort in either period, Saturn's system selling, general and
administrative expenses for the 1996 Nine Months and the 1995 Nine
Months were not significant or meaningful.
Corporate General and Administrative Expenses. The Company's corporate
general and administrative expenses for the 1996 Nine Months increased to
$746,000 from $688,000 in the 1995 Nine Months, primarily due to the hiring of
additional staff dedicated to the region.
Depreciation and Amortization. Depreciation and amortization increased to
$15.9 million for the 1996 Nine Months from $0.6 million in the 1995 Nine
Months, primarily attributable to depreciation and amortization of $12.3
million from Austar in the 1996 Nine Months. The Company began consolidating
the results of Austar on January 1, 1996. As a result, the Company reported no
depreciation and amortization from Austar in its consolidated statement of
operations for the 1995 Nine Months. Austar's reported depreciation and
amortization of $0.4 million in such period. This increase in depreciation and
amortization was attributable primarily to the significant deployment of
operating assets at Austar beginning in early 1996 and continuing throughout
the period as Austar launched service and began serving subscribers in a number
of new markets. Depreciation expense is expected to increase substantially in
future periods as capital expenditures for the build-out of Austar's MMDS sites
and launch of Saturn's wireline cable plant and related increases in capital
necessary for subscriber equipment continue for the next several months.
Equity in Losses of Affiliated Companies. Equity in losses of affiliated
companies decreased to $4.5 million in the 1996 Nine Months from $12.5 million
in the 1995 Nine Months, primarily attributable to the decrease in its
ownership of XYZ and the consolidation of Austar beginning in January 1996.
Equity in losses of affiliated companies for the 1995 Nine Months and the 1996
Nine Months were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1995 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Austar............................................... $ 1,411 $ --
Saturn............................................... 812 930
XYZ.................................................. 10,295 3,571
---------- ---------
Total equity in losses of affiliated companies,
net............................................... $12,518 $4,501
========== =========
</TABLE>
Austar
The Company began consolidating Austar effective January 1, 1996.
Accordingly, the Company reported no equity in losses related to Austar
in the 1996 Nine Months.
27
<PAGE>
Saturn
The Company increased its ownership interest in Saturn from 50% to
100% in July 1996. Accordingly, subsequent to that time, the Company
consolidated the operating results of Saturn. Prior to such time, the
Company recognized equity in losses in Saturn which were less than $1.0
million in both the 1996 Nine Months and the 1995 Nine Months.
XYZ
Equity in losses at XYZ decreased to $3.6 million in the 1996 Nine
Months from $10.3 million in the 1995 Nine Months. This decrease was
primarily attributable to the decrease in the Company's interest in XYZ
from 50% to 25% in September 1995. In addition, XYZ reported a lower
net loss in the 1996 Nine Months due to higher revenues in the 1996
Nine Months resulting from an increase in programming subscribers
combined with a favorable comparison to the 1995 Nine Months which
included high start-up costs associated with the launch of the
channels. XYZ's actual operating revenues for the 1996 Nine Months were
$5.9 million compared to $0.3 for the 1995 Nine Months. XYZ's
operating, selling, general and administrative expenses for the 1996
Nine Months were $15.4 million (consisting primarily of satellite
transponder costs of $7.0 million, staffing costs of $3.9 million, and
production/programming costs and other costs of $4.5 million) compared
to $22.1 million for the 1995 Nine Months.
Interest Expense, Net. UIH A/P issued approximately $225.1 million (gross
proceeds) of the Existing Notes in May 1996 (the "May 1996 Note Offering"). As
a result of the May 1996 Note Offering, the Company incurred interest expense
of $12.9 million in the 1996 Nine Months, which was partially offset by
interest income of $3.3 million for the same period. Prior to the May 1996
Note Offering, the Company had no significant amount of interest-bearing debt.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Although the Company was formed in 1994, most of the operating companies did
not launch service until mid-to late-1995. Austar's results of operations were
not consolidated with those of the Company until January 1, 1996 and Saturn's
results of operations were not consolidated with those of the Company until
July 1, 1996. Accordingly, the Company believes its consolidated operating
results for the two years ended December 31, 1994 and 1995 are not meaningful.
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.
System Operating Expense. The Company's operating companies incurred $3.2
million of operating expenses in 1995, of which $2.8 million came from
Telefenua, which launched service in March 1995. The Company incurred no
operating expenses in 1994.
System Selling, General and Administrative Expense. The Company's operating
companies incurred $2.5 million of selling, general and administrative
expenses in 1995. Telefenua, which launched service in March 1995, accounted
for $2.3 million of this amount. The Company incurred no system selling,
general and administrative expenses in 1994.
Corporate General and Administrative Expense. The Company's corporate
general and administrative expenses for the year ended December 31, 1995
increased to $0.9 million from $0.7 million in the year ended December 31,
1994, primarily due to the hiring of additional corporate staff.
Depreciation and Amortization. The Company had depreciation and amortization
expenses of $1.0 million for the year ended December 31, 1995 due primarily
attributable to Telefenua which launched service and which began depreciating
its system in March 1995. The Company had no depreciation and amortization
expenses in 1994.
28
<PAGE>
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>
Austar(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 Austar 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. Austar 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.
LIQUIDITY AND CAPITAL RESOURCES
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 and from the proceeds of the May 1996 Note
Offering. As of October 31, 1996, the Company had approximately $70.1 million
of cash and short term investments on hand, excluding cash on hand at the
operating companies. Upon completion of the Offering and the UAP Contribution,
the Company believes that it will have sufficient capital to complete
construction of all of its existing systems and to fund anticipated start-up
losses, as well as a limited amount of new capital to fund new opportunities
which the Company is pursuing or which may arise in the future.
The following table sets forth, as of October 31, 1996, (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 and the application of any operating cash flow
sources for such operating companies, (ii) the total amount of capital
invested in each of the operating companies and the portion funded by the
Company, and (iii) the total estimated additional funding required based on
the assumptions stated in clause (i) above and the Company's estimated portion
of such funding. Such amounts are expected to be funded over the next 24 to 36
months. The estimated required additional funding numbers below have not been
reduced to give effect to any surplus cash flow of any one operating company
which might be available to fund the requirements of another operating
company. 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. The Company's portion of
estimated additional funding would be increased proportionately to the extent
cash flow from the operating companies and other sources of financing are not
sufficient to meet project funding requirements. To the extent that the other
shareholders of 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.
29
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF OCTOBER 31, 1996(1) ADDITIONAL FUNDING
------------------ -------------------------------- ------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY(2) TOTAL(2) THE COMPANY TOTAL
- ----------------- ----------- ------ --------------- ------------ ----------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Austar.................. $366.4 $366.4 $ 149.5(3) $ 149.5(3) $216.9 $216.9
Saturn.................. 95.7 95.7 21.6(4) 21.6(4) 74.1 74.1
XYZ..................... 14.4 57.6 10.6 42.4 3.8 15.2
Telefenua............... 17.4 17.4 16.1 16.1 1.3 1.3
United Wireless......... 8.2 8.2 4.3 4.3 3.9 3.9
------ ------ ------------ ------------ ------ ------
Total................. $502.1 $545.3 $ 202.1 $ 233.9 $300.0 $311.4
====== ====== ============ ============ ====== ======
</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) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million) by shareholders other than the Issuer,
which amounts were contributed by such shareholders prior to the
acquisition of their respective interests by the Issuer.
(3) Does not include the $58.6 million used by the Issuer to increase its
economic interest in Austar to approximately 100%.
(4) Does not include the value of shares of common stock used by the Issuer to
increase its interest in Saturn to 100%. See "Corporate Organizational
Structure--Saturn."
The net proceeds to be received by the Issuer from the Offering, are
estimated to be approximately $144.1 million after deduction of underwriting
discounts and commissions and offering expenses. At October 31, 1996, the
Company had approximately $70.1 million of cash and short term investments on
hand, excluding cash on hand at the operating companies. On a pro forma basis
for the Offering and the $70.0 million UAP Contribution, the Company would
have had a total of approximately $284.2 million of cash and short-term
investments as of October 31, 1996. The Company currently intends to use this
cash, as well as anticipated cash flow from operations, to fund the currently
planned build-out and marketing of its existing systems. The Company may also
use a portion of the net proceeds to pursue new opportunities in the regions.
The Indentures and the UIH Indenture place restrictions on the Company and
its Restricted Subsidiaries with respect to incurring additional debt. The
Issuer and all of the operating companies are currently "Restricted" under the
UIH Indenture and the Issuer , Austar and Telefenua are currently "Restricted"
under the Indentures. The restrictions imposed by the UIH Indenture and the
Indentures will be eliminated upon the retirement of UIH's Notes at their
maturity in November 1999, and the retirement of the Existing Notes and the
Notes at their maturity in May 2006 and , 2007 respectively. See
"Description of Certain Indebtedness."
Prior to the Offering. Prior to the close of the May 1996 Note Offering, the
Company was financed solely by capital contributed by UIH. During the year
ended December 31, 1994, UIH contributed $25.3 million cash to the Company,
$22.8 million of which was used to finance the Company's investments in
Austar, 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.
During the year ended December 31, 1995, UIH contributed capital of $68.4
million, consisting of $29.8 million of UIH's preferred stock, to the Company
and made bridge loans of $9.9 million to Austar and indirectly to Telefenua
through its parent, Societe Francaise des Communications et du Cable S.A.
("SFCC"). The Company used approximately $45.1 million of the contributed
capital, including the UIH preferred stock, to acquire an additional 40%
economic interest in Austar in December 1995. The Company used $6.1 million in
cash to fund the operations of Telefenua and made an additional $22.5 million
in capital contributions to the operating companies.
During the period from January 1, 1996 to May 13, 1996, the closing date of
the May 1996 Note Offering, UIH contributed capital of $10.7 million to the
Company and made additional bridge loans of $15.1 million to Austar. On May
13, 1996, the Issuer sold the Existing Notes in a private placement with net
proceeds to the Issuer from such sale totalling $215.5 million. At that time,
the Issuer acquired $25.0 million of the Austar bridge loans from UIH with
proceeds from the May 1996 Note Offering and converted those loans (plus
accrued interest
30
<PAGE>
of $0.6 million) to equity of Austar and then an additional $25.0 million in
Austar capital calls were funded, thereby increasing the Company's interest in
Austar to 96%. Prior to the closing of the May 1996 Note Offering,
approximately $5.0 million of the SFCC bridge loans was converted into
preferred stock and convertible debentures of SFCC, which are convertible into
preferred stock of SFCC. The remaining SFCC bridge loans totaling $2.8 million
(including accrued interest) will be either (i) repaid by SFCC after which
time the Issuer would invest the proceeds of such repayment as permitted under
the Indenture and the Indenture governing the Existing Notes (the "Existing
Indenture") and together with the Indenture (the "Indenture") or (ii)
converted by the Issuer into equity of SFCC.
During the nine months ended September 30, 1996, the Company purchased
$105.9 million of property and equipment, the majority of which was purchased
by Austar and Saturn for construction of their systems. The Company made $10.7
million in capital contributions to Saturn and XYZ during this period. The
remainder of the capital contributions from UIH was used in operations.
In October 1996, the Company acquired from Australis for $7.9 million the
approximately remaining 4% economic interest in Austar and purchased ordinary
shares and convertible notes of Australis for $4.0 million, issued upon
exercise of warrants and other rights granted to the Company.
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 the
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 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."
31
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of multi-channel television services in
Australasia and the Asia/Pacific region. Through its Australian operating
company Austar, the Company is the largest provider of multi-channel
television services in regional Australia, where it operates MMDS systems and
is marketing a DTH service in franchise areas encompassing approximately 1.5
million television homes, or 25% of the total Australian market. In addition,
the Company, through its New Zealand operating company Saturn, is constructing
a wireline cable and telephony system in Wellington, New Zealand, a market
representing approximately 135,000 television homes. The Company's other
assets include a 25% interest in XYZ, a programming company that provides four
channels to the Australian multi-channel television market as part of the
Galaxy package, the most widely distributed programming package in Australia
and the core component of Austar's programming offering, and a 90% economic
interest in Telefenua, the only provider of multi-channel television services
in Tahiti, with an MMDS system in a market with 31,000 television homes.
The Company believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australasia and the Asia/Pacific region. As of October 31, 1996, the Company
had invested approximately $200 million in its networks and operating
infrastructure and had launched service in each of its markets. The Company
has experienced rapid growth in its network coverage and subscriber base
during 1996. As of October 31, 1996 the Company's multi-channel television
operating systems had an aggregate of approximately 1.5 million television
homes serviceable and approximately 81,500 subscribers, as compared with
approximately 233,000 television homes serviceable and 10,200 subscribers as
of December 31, 1995 (with a substantial majority of such growth resulting
from Austar's expansion). During this same ten-month period, programming
subscribers of XYZ increased from approximately 65,000 to approximately
269,000. While the Company expects that a substantial portion of its growth
will come from the continued development of Austar, the Company is also
anticipating significant growth by its other operating companies, each of
which the Company believes has attractive growth prospects.
AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). Austar
initiated widespread deployment of its services in early 1996 and as of
October 31, 1996, had launched MMDS service in 27 metropolitan markets
containing approximately 700,000 homes and had initiated the marketing of DTH
services in non-metropolitan markets containing approximately 740,000 homes.
These markets represent over 93% of Austar's 1.5 million franchise television
homes, the remaining 100,000 of which will be serviceable by early 1997.
Austar's marketing efforts have kept pace with the rapid roll-out of its
network services during 1996. As of October 31, 1996, Austar had 75,300
subscribers with a backlog of 13,900 customers scheduled for installation. In
addition, subscriber growth has accelerated in recent periods, as demonstrated
by October's results in which Austar generated 23,800 subscription sales
orders and had a net gain of over 15,000 subscribers, with the difference
primarily attributable to installation backlog. Austar is continuing to market
its services aggressively and expects to continue rapidly building its
subscriber base. Austar is benefitting from several characteristics which are
supporting its marketing success and which management believes give it a
competitive advantage in its markets:
. OPERATIONAL INFRASTRUCTURE IN PLACE. In addition to having launched
service to over 93% of its franchise areas, Austar has also developed the
operational infrastructure necessary to continue its rapid growth.
Austar's early investment of approximately $149 million in operating and
capital expenditures from inception through October 31, 1996 has
established it currently as the only multi-channel television provider in
substantially all its franchise areas. Austar has developed a
comprehensive marketing organization consisting of a 200 person direct
salesforce and over 200 national customer service and telemarketing
personnel. The direct salesforce, which operates out of local offices in
the majority of Austar's metropolitan markets, is currently generating
sales of approximately 2,250 subscriptions per week. The salesforce at
Austar's state-of-the-art NCOC is currently generating sales of
approximately 3,000 additional subscriptions per week from inbound and
outbound calls. The salesforce is supported by
32
<PAGE>
an integrated marketing program of television, radio and print
advertising. The NCOC is also the center of Austar's customer service
organization, processing all incoming information, installation and
service requests. The NCOC has sufficient capacity to service Austar's
customer service needs for the forseeable future.
Austar has a total of approximately 600 employees, most of whom are
located in local offices and regional operating centers, and has
contracted with a number of local service companies which employ an
aggregate of approximately 400 technicians to install and maintain
subscriber equipment in each of its markets. Management believes that this
infrastructure positions Austar to service its markets efficiently and
provides it with significant competitive advantages.
. REGIONAL FOCUS; CLASSIC MARKETS. Austar has strategically focused on the
currently less competitive regional markets located outside of
Australia's largest cities and encompass approximately 25% of the total
Australian television market. These areas are "classic" multi-channel
television markets with attractive demographics and limited television
and alternative entertainment options. Approximately one-half of its
service area (approximately 800,000 television homes) are in metropolitan
markets with sufficient housing densities to support the construction of
MMDS systems. Austar owns virtually all of the available MMDS licenses in
each of these markets. The Company believes these markets generally do
not have the size and/or densities to support the construction of a
competitive wireline cable system. In the remainder of its service region
in Austar's non-metropolitan markets (approximately 740,000 serviceable
television homes), where management believes household densities do not
support the deployment of MMDS networks, Austar is marketing a DTH
service on an exclusive basis. Austar is currently the only provider of
multi-channel television services in substantially all of its service
area. See "Risk Factors--Competitive Industry."
. APPROPRIATE TECHNOLOGY. Austar believes that its utilization of wireless
technologies in the build-out of its franchise area has afforded it with
several economic and strategic advantages. The rapid deployment of MMDS
networks in its metropolitan markets and a DTH service in its non-
metropolitan markets has allowed Austar to reach the vast majority of the
homes in these markets in just over one year. Austar's status as the
initial operator in all of its markets has allowed it to establish a
significant subscriber base and strong brand awareness, factors that
management believes will give it a competitive advantage. Management
believes the combination of MMDS and DTH has allowed Austar to reach
virtually all of the 1.5 million serviceable television homes in its
service areas on the most cost effective basis. Austar estimates its
total fixed capital cost to build out initially its entire franchise area
will be approximately $43 million, or approximately $29 per serviceable
home, over 75% of which had been expended as of October 31, 1996.
Accordingly, Austar has been able to devote a significant amount of its
financial resources to completing operational infrastructure and
installing its "in-home" subscriber equipment, over which Austar retains
ownership. Austar has spent in excess of $80 million on these items and
expects that the substantial majority of its future incremental capital
expenditures will be incurred only as additional subscribers are
installed (currently approximately $460 and $945 per MMDS and DTH
subscriber, respectively, which amounts are partially offset by
installation charges). While Austar is currently employing analog
technology in its MMDS systems, it is testing digital technology (which
would increase its existing 19 channel capacity) in one market and
intends to offer digital service in its metropolitan markets if and when
competitive factors dictate. The DTH service marketed by Austar uses
state-of-the-art MPEG II digital technology.
. ATTRACTIVE PROGRAMMING AGREEMENTS. Austar has entered into franchise
agreements with Australis that grant it the right to provide the Galaxy
programming package within its franchise areas through 2009 (extendible
at Austar's option through 2019). The Galaxy programming package, the
most widely distributed programming package in Australia, was created by
many of the world's leading programming suppliers and features brand name
channels including Showtime, Encore, Fox Sports, The Discovery Channel,
Nickelodeon/Nick at Nite, Red and two general entertainment channels.
Management believes that Austar's franchise agreements have favorable
pricing. Austar's programming costs are based on a percentage of its
service revenue and provide for an offset of those costs with the
depreciation of its
33
<PAGE>
subscriber equipment. Austar's franchise agreements provide exclusivity
over wireless technologies (MMDS and DTH). While Austar's franchise
agreements were formerly exclusive for cable television, the Company,
pursuant to the Australis Arrangement, recently agreed to allow Foxtel to
carry the Galaxy package on Foxtel's wireline cable systems throughout
Australia.The Australis Arrangement provides that Austar will be
compensated for any Foxtel subscriber in its franchise areas in an amount
approximately equal to the profit margin that Austar would have received
had it sublicensed such programming to Foxtel (which currently would be
approximately $8 per Foxtel subscriber per month). Foxtel is currently
operating in only one of Austar's markets and the Company believes that
the small size of and/or low household densities in the majority of its
markets do not justify the construction of competitive wireline cable
systems. Austar does not currently have any subscription television
competitors in the remainder of its franchise areas. Austar's franchise
agreements continue to provide exclusivity over all wireline cable
operators other than Foxtel. In addition, as part of the Australis
Arrangement, Austar was granted the right to acquire any additional
channels distributed by Galaxy on no less favorable terms than offered to
any other person and in any event at no more than Australis' cost, plus
10%. See "Business--Austar (Australia)--Franchise Agreements." Austar has
also secured several additional satellite-delivered programming services
to supplement the Galaxy channels.
. ATTRACTIVE DEMOGRAPHICS. Australia has demographic and other
characteristics that management believes are favorable to multi-channel
television operators, including high per capita income and high
television and VCR penetration rates. Television viewers in Australia
have limited over-the-air television options with a maximum of five free-
to-air channels, which is generally lower in regional Australia. The
Australian subscription television industry has grown rapidly since its
inception in early 1995, reaching a combined 6% penetration rate. In
addition, management believes Australian consumers are generally
receptive to new technologies, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of Australia compared to comparable
statistics for the more mature multi-channel television markets of the
United States and the United Kingdom:
<TABLE>
<CAPTION>
GDP PER HOMES YEARS OF TELEVISION CELLULAR SUBSCRIPTION
CAPITA IN WITH SUBSCRIPTION HOMES WITH TELEPHONE TELEVISION
1995(1) TELEVISION(2) TELEVISION VCR(3) PENETRATION(4) PENETRATION(5)
--------- ------------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Australia............... $19,271 99% 2 81% 19% 6%
United States........... 27,581 99 40+ 80 15 66
United Kingdom.......... 18,881 97 12 81 10 23
</TABLE>
--------------------
(1)U.S. Department of Commerce; Bank of America World Forecasts; UN
National Accounts Statistics; Zenith Media Worldwide 1996; European
World Year Book 1996.
(2)Zenithmedia Television in Asia Pacific; Zenith European Market 1995.
(3)Worldwide Video.
(4)International Cellular, October 4, 1996.
(5)Cable Television Advertising Bureau; New Media Markets; Company
estimates for Australia.
Operating and Growth Strategy. Due to the relatively small market size and
low housing densities which characterize the markets in its franchise areas,
Austar is primarily utilizing MMDS and DTH wireless technologies to deliver
its service. In its metropolitan markets, Austar constructs and owns the
transmission facilities and installs and retains ownership of the in-home
subscriber equipment. In its non-metropolitan markets, Austar is marketing a
DTH service (consisting primarily of the Galaxy programming package) and
installs and retains ownership of the in-home subscriber equipment. As a
result, Austar did not incur the costs necessary to own the facilities
required to offer a DTH service and only incurs capital costs when a DTH
subscriber is installed. Approximately 800,000 of the television homes in
Austar's service area are in metropolitan markets with sufficient size and
densities to justify the construction of MMDS networks. Austar owns virtually
all of the MMDS spectrum currently available in these markets for the
provision of MMDS services. Because MMDS service is less expensive to install
than DTH, Austar services customers in these metropolitan markets with its
MMDS service whenever possible. A small number (approximately 20%) of homes in
these metropolitan markets, however, are out of the line of sight of Austar's
MMDS networks. Austar services
34
<PAGE>
these homes with its DTH service. Austar markets its programming services via
DTH in its non-metropolitan franchise areas representing 740,000 television
homes. These are less densely populated areas outside its metropolitan markets
that are more effectively serviced by DTH technology. In addition, Austar
recently began construction of a wireline cable network in Darwin, a market
containing approximately 26,200 serviceable homes where dense vegetation make
an MMDS system impractical.
The deployment of MMDS networks in combination with DTH has allowed Austar
to roll out its service quickly and achieve rapid subscriber growth in its
franchise areas. Austar believes that the ability to be the first provider of
multi-channel television services in each of its markets has allowed Austar to
establish a significant market presence and strong brand awareness, factors
which management believes provide it with a competitive advantage. Austar is
currently the only provider of multi-channel television services in
substantially all of its franchise areas.
As of October 31, 1996, Austar had launched service in 27 of its
metropolitan markets representing 700,000 out of its 800,000 potential
serviceable homes. Austar currently anticipates launching service in seven of
its eight remaining metropolitan markets by the end of 1996 and in the last
metropolitan market in early 1997. The following table sets forth the summary
operating statistics in Austar's launched metropolitan markets, which are
served primarily by MMDS, as well as its non-metropolitan markets served by
DTH:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------
MAY 31 JUNE 30 JULY 31 AUG. 31 SEPT. 30 OCT. 31
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative metropolitan
markets launched....... 11 13 19 20 23 27
Metropolitan homes
serviceable............ 430,000 476,000 604,000 626,000 655,000 700,000
Non-metropolitan homes
serviceable............ 740,000 740,000 740,000 740,000 740,000 740,000
--------- --------- --------- --------- --------- ---------
Total homes
serviceable............ 1,170,000 1,216,000 1,344,000 1,366,000 1,395,000 1,440,000
========= ========= ========= ========= ========= =========
Sales orders............ 7,955 9,461 15,665 12,535(1) 13,063(1) 23,799
Net gain in
subscribers............ 5,644 5,656 9,521 10,452 11,021 15,024
Total subscribers....... 23,626 29,282 38,803 49,255 60,276 75,300
World Movies
subscribers............ 4,140 5,237 6,959 8,655 10,111 11,698
Installation
backlog(2)............. 4,300 6,500 10,000 9,200 8,200 13,860
</TABLE>
---------------------
(1) Sales figures in August and September reflect a planned slow down in
sales and marketing activities in anticipation of the relaunch of
services under the new brand name of "Austar" which occurred in late
September 1996.
(2) Estimated for periods prior to October.
To facilitate the rapid roll-out of its service, Austar has established
local offices in the majority of its metropolitan markets. These local offices
coordinate marketing, installation and customer service in Austar's
metropolitan markets and surrounding non-metropolitan areas. The local offices
are supported by five regional offices. Each regional office typically serves
three to twelve metropolitan markets. Austar estimates that approximately 70%
of its potential non-metropolitan customers are within fifty kilometers of its
metropolitan service areas. This proximity enables Austar to reduce
installation and service costs associated with DTH service to non-metropolitan
subscribers and to focus subscription sales through the use of marketing,
promotional and sales tactics.
Austar has entered into contracts with a number of service companies to
install MMDS receivers, DTH satellite dishes and set-top decoders. Installers
collect the installation fee, install subscriber equipment and test reception
quality. Austar has trained and established certain guidelines for third party
service company employees who install Austar reception equipment. Austar has
an extensive quality assurance program and expends a significant amount of
effort to follow-up on installations to ensure customer satisfaction and, in
the case of DTH equipment installed within its metropolitan markets, verify
that more economical MMDS technology could not be used. Austar believes its
efforts to resolve service problems quickly has helped establish customer
loyalty.
35
<PAGE>
As of October 31, 1996, Austar has spent $32.8 million and anticipates
spending an additional $10.0 million through the end of 1996 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 approximately $460 and $945 per subscriber, respectively. These
subscriber costs are partially offset by the Company's metropolitan and non-
metropolitan installation charges of $31 to $75 and $150, respectively. Austar
retains ownership of all MMDS and DTH customer premise equipment.
Pricing. Austar is currently providing the eight channel Galaxy programming
package plus three to five additional channels of programming as its basic
package at a monthly rate of approximately $31, with a one-time installation
charge ranging from approximately $31 to $75 for metropolitan subscribers and
$150 for non-metropolitan DTH subscribers. Austar also integrates all
available off-air channels into its basic channel line up at no additional
charge. In March 1996, Austar began offering its first premium channel, World
Movies, which consists primarily of foreign movies and art films and features.
Austar is charging approximately $5.30 per month for World Movies. As of
October 31, 1996, Austar had 11,698 subscribers for its World Movies premium
channel.
Marketing; Customer Support. Austar has focused its marketing and sales
efforts to support its strategy of rapid system roll-out which management
believes will provide it with a competitive advantage in each of its markets.
Austar has developed a comprehensive marketing and sales organization
consisting of a 200 person direct salesforce and over 200 national customer
service and telemarketing personnel. The direct salesforce, which operates out
of local offices in each of Austar's metropolitan markets, is currently
generating sales of approximately 2,250 subscriptions per week. The salesforce
at Austar's NCOC is currently generating sales of approximately 3,000
additional subscriptions per week from inbound and outbound calls. This sales
organization is supported by an integrated marketing program of television,
radio and print advertising.
The NCOC is a state-of-the-art fully integrated subscriber management system
featuring a sophisticated digital wide-area network, Cable Data's Intelecable
platform, an automated response unit and predictive dialer technology. The
NCOC currently services all of Austar's MMDS and DTH subscribers and has the
capacity to service all future customers in its existing markets. 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. Incoming calls from all of Austar's markets are directed to the
NCOC where customer service representatives are available to provide sales and
service information. The NCOC currently handles approximately 3,000 calls per
day but has scaleable capacity to handle at least 5,000 calls per day. The
NCOC facility currently employs 200 customer service professionals, which
Austar intends to increase as its subscriber base grows in its franchise
areas. In addition, Austar is exploring the possibility of using the NCOC to
outsource customer service to third parties in similar lines of business where
appropriate.
Austar's monthly "churn" (calculated as total disconnects as a percent of
average subscribers) has averaged 6.1% during 1996 and has declined each of
the last four months ended October 31, 1996, during which month it was 4.3%.
Austar believes that this ratio is likely to continue to decline in the future
due to several factors, although there can be no such assurances. First, over
37% of the total disconnects in 1996 have resulted from subscribers in the
Gold Coast (which represents only 16% of Austar's total subscribers as of
October 31, 1996), the only market in which Austar currently faces
competition. As a result of this competitive environment, Austar's
installation fee in the Gold Coast is only $15 as compared to $31 to $75 in
other metropolitan markets and $150 in non-metropolitan markets. A higher
installation charge results in a larger financial commitment to the service by
the subscribers and therefore reduces the probability of churn. Pursuant to
the Australis Arrangement, Austar will be compensated by Australis for any
Foxtel subscribers in the Gold Coast. Second, due to the significantly higher
installation charges in its non-metropolitan markets summarized above, Austar
believes that this ratio will decline as its percentage of non-metropolitan
subscribers to total subscribers increases (because Austar only launched its
rural DTH service in May 1996, its percentage of non-metropolitan subscribers
to total subscribers has increased from 0% on May 1, 1996 to approximately 24%
at October 31, 1996). Approximately 48% of Austar's total serviceable homes
are in its non-metropolitan franchise area. Austar's
36
<PAGE>
average monthly churn in its non-metropolitan markets has been approximately
2% during 1996. Finally, Austar expects its churn to decline as it continues
to implement its customer assurance and retention program and the breadth and
quality of its programming package improves.
Programming. The Company believes that programming is an important component
in building successful multi-channel television systems. Accordingly, Austar
has secured the right to distribute the Galaxy package of programming in its
service areas pursuant to franchise agreements with Australis with initial
terms through 2009 (extendable at the option of Austar through 2019). Austar
believes that the terms of its franchise agreements with Australis are
favorable to Austar and that these terms provide Austar with a programming
cost advantage over potential competitors. See "-- Franchise Agreements."
The Galaxy package is the most widely distributed programming package in
Australia and is the core programming offering of Austar, ECT, Australis and
Foxtel. Management believes that approximately 75% of Australia's multi-
channel television subscribers subscribe to the Galaxy package. 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>
In addition to the right to distribute the Galaxy package, Austar has the
right to distribute any additional channels offered by Galaxy and will pay
Australis for such channels a fee no greater than that charged to any other
person and in no case greater than Australis' cost (as charged by third
parties with respect to programming delivered by such party to Australis or
the lowest price at which Australis agrees to distribute Australis produced or
compiled programming), plus 10%. See "--Franchise Agreements."
Austar has also secured additional programming on a non-exclusive basis,
which it is distributing to its customers as part of its basic programming
package, and Austar integrates all available off-air channels into its basic
channel line up at no additional charge. Austar's other "cable" channels
include:
<TABLE>
<CAPTION>
OTHER CHANNELS PROGRAMMING GENRE
-------------- -----------------
<S> <C>
CMT.............................................. country music videos
BBC World(1)..................................... world news
CNBC(1).......................................... business news
Asia Business News (2)........................... regional business news
TNT(2)(3)........................................ library movies
Cartoon Network(2)(3)............................ cartoons
CNN International(2)............................. world news
The Value Channel(4)............................. shopping
Preview(4)....................................... programming guide
</TABLE>
---------------------
(1)All markets except the Gold Coast.
(2)The Gold Coast (MMDS) only.
(3)TNT and Cartoon Network share one channel.
(4)DTH only.
37
<PAGE>
In March 1996, Austar began offering its first premium channel, World
Movies, which consists primarily of foreign movies and art films and features.
Austar is charging approximately $5.30 per month for World Movies. Initial
demand for this service has been strong with approximately 11,700 customers as
of October 31, 1996, approximately 16% of Austar's basic subscribers.
Austar intends to expand further the number of programming services
available on its MMDS systems and expects that, upon deregulation of the DTH
business in July 1997, it will be marketing additional channels of programming
via DTH. Austar's MMDS systems have the capacity to transmit up to 19 analog
channels (of which Austar currently uses 11 to 12 in its markets) in addition
to free-to-air channels, which are integrated into the programming line-up at
the rooftop. Austar is currently testing digital technology in one market and
intends to offer digital service in certain metropolitan markets if and when
competitive factors dictate. The DTH service marketed by Austar utilizes MPEG
II digital technology which has over 100 channels of capacity. In addition to
any additions to the Galaxy package, Austar has also secured a 54 mhz
transponder capable of broadcasting between 10 and 15 digital channels on the
satellite that currently transmits the Galaxy package, and pursuant to the
Australis Arrangement has the right to deliver such programming to its
customers through the Galaxy system.
Franchise Agreements. Austar has entered into franchise agreements with
Australis. Each franchise agreement is for a term of 15 years commencing in
October 1994, and Austar has the option to renew the franchise agreements on
identical terms for another ten years. Under the franchise agreements,
Australis granted Austar the license and right to distribute the Galaxy
programming package in its franchise areas. These franchise agreements provide
exclusivity over wireless technologies and provide that Australis will not
grant rights to any other person to use Australis' satellite infrastructure or
system to transmit Galaxy in Austar's franchise areas. The Company
understands, however, that Australis and Optus Vision plan to form a joint
venture whereby Australis will contribute to the venture its satellite
infrastructure allowing for DTH transmission of Optus Vision's programming
services. The Company believes that the use of the infrastructure by any
entity other than Austar for the provision of DTH services within Austar's
franchise areas would be in violation of its franchise agreements with
Australis and has recently commenced proceedings seeking injunctive relief
preventing such use of infrastructure. See "--Legal Proceedings" and "--
Competition."
Pursuant to the terms of its franchise agreements, Austar 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 Austar'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 in only one of Austar's markets, the Gold Coast, which
contains approximately 116,000 serviceable homes. On June 19, 1996, pursuant
to the Australis Arrangement, Austar and the Company agreed to settle their
dispute with Australis with respect to this matter. As part of the Australis
Arrangement, 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 Austar's consent. Australis
agreed to pay to Austar 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 Austar's
franchise areas during such period. In addition, from June 30, 1996 though the
term of the franchise agreements, Austar has the right in its sole discretion,
either to: (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
38
<PAGE>
Foxtel subscribers located in Austar's franchise areas and (b) an additional
amount (if any) to put Austar in the position that it would have been in had
it sublicensed the services provided to it by Australis directly to Foxtel
(which would be currently approximately $8 per Foxtel subscriber per month).
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 aspect of the Australis Arrangement will be
substantial over the years. As part of the Australis Arrangement, Australis
agreed to extend the term of the franchise agreements by five years to an
initial 15-year term and amended certain financial and strategic terms of the
franchise agreements. Australis also granted to Austar the right to use
Australis' satellite infrastructure to provide additional DTH services within
Austar's franchise areas. In addition, Australis agreed to provide all future
Galaxy channels to Austar at a price no less favorable than that charged other
persons and in any event at no more than Australis' cost (as charged by third
parties with respect to programming delivered by such party to Australis or
the lowest price of which Australis agrees to distribute Australis produced or
compiled programming), plus 10%. In return, the Company agreed (i) to waive
and release any claim arising out of or in connection with Australis'
execution and performance of its license agreement with Foxtel, and (ii) not
to make any objection or claim against Australis or Foxtel in connection with
such license agreement. Management believes the Australis Arrangement is
favorable to Austar. See "--Competition" and "Risk Factors--Ability to Procure
Additional Programming Services."
Competition. The substantial majority of Austar's metropolitan markets are
either small (i.e., approximately 20,000 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, Austar believes that its metropolitan markets generally
do not have sufficient density to justify the construction of competitive
wireline cable systems. While the Company believes household densities could
potentially support wireline cable construction in areas representing
approximately 20% of Austar's total franchise homes, the relatively small size
of these markets reduces the attractiveness of constructing a competitive
cable network. In addition, Austar, as a licensed subscription television
provider, is authorized to build wireline cable systems in its markets and
where appropriate could construct wireline cable systems. With the exception
of the Foxtel cable television system currently extending into Austar's
116,000-home Gold Coast metropolitan market, Austar does not currently have
any subscription television competitors in its franchise areas. In the Gold
Coast, Austar is currently providing 13 channels of programming as its basic
package which includes the eight channel Galaxy programming package as well as
five additional channels, at a monthly rate of approximately $23 with a one-
time installation charge of approximately $15. Foxtel offers the Galaxy
package of eight channels as well as its ten other satellite or locally
originated channels for a monthly fee of $31 and an installation charge of
$16. At October 31, 1996, Austar had 12,330 subscribers in the Gold Coast and
estimates that Foxtel has 5,000 subscribers in this market. In addition,
Austar is currently testing digital MMDS technology in the Gold Coast and
expects to implement digital service in those metropolitan markets where
competitive conditions dictate.
Approximately 740,000 of Austar's 1.5 million franchise homes are in non-
metropolitan markets which generally have densities of fewer than 25
households per square kilometer. As a result, the Company believes that these
markets can only be served economically with DTH technology. Existing
regulations prohibit any DTH service other than the Galaxy programming package
from being offered in Australia prior to July 1997. Austar has the exclusive
right to market the Galaxy DTH service in its franchise area. Although
regulations will no longer prohibit additional DTH services after June 1997,
Austar will retain its exclusive right to market the Galaxy package in its
franchise areas through 2009 (extendable to 2019 at Austar's option). In
addition, Austar believes it has an additional competitive advantage in
offering DTH service in these markets because over 70% of its serviceable
homes are within a 50km radius of its metropolitan markets, in most of which
it has sales personnel and installation technicians. Accordingly, Austar
believes its cost to market and install subscribers in these areas should be
below that of any potential competitor without similar infrastructure in
place.
Management believes that Austar has established a significant subscriber
base, strong brand awareness and substantial operational and marketing
infrastructure, factors that provide it with a competitive advantage. Optus
39
<PAGE>
Vision has publicly announced that it plans to offer subscription television
services by DTH throughout Australia. In addition, the Company understands
that Australis and Optus Vision plan to form a joint venture whereby Australis
will contribute to the venture its satellite infrastructure allowing for DTH
transmission of Optus Vision's programming services. The Company believes that
using the infrastructure by any entity other than Austar for the provision of
DTH services within Austar's franchise area would be in violation of its
franchise agreements with Australis and has recently commenced proceedings
seeking injunctive relief preventing the use of Australis' infrastructure by
Optus Vision in Austar's franchise area. There can be no assurance that Austar
will prevail in its lawsuit or that, even if it is successful in obtaining an
injunction to prevent the consummation of the joint venture, Optus Vision or
others will not compete in Austar's franchise area. See "Business--Legal
Proceedings."
Properties. Austar leases office space in Sydney for its administrative
offices and has established five regional offices in leased space in certain
areas where it has launched service. Austar also leases locations for smaller
local offices in most of its markets to handle local customer maintenance,
marketing and installation. In addition, Austar leases facilities to house the
head-end facility and transmitter tower in each of its markets. The NCOC is
located in leased facilities in the Gold Coast. Generally, these Austar
facilities are leased with terms of three to six years, with renewal options
in many instances. Austar 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. Austar's senior management includes 10 UAPC
employees appointed to Austar that collectively have 130 years experience in
the construction, marketing and operation of multi-channel television systems.
See "Management." Austar and UAPC are parties to a 10-year Technical
Assistance Agreement, renewable for an additional 15 years, pursuant to which
Austar pays UAPC a fee equal to 4% of its gross revenues through October 2002,
3% through 2004 and 2% through the remaining term of the agreement, for the
provision of various management and technical services, and reimburses UAPC
for certain direct costs incurred by UAPC, including the salaries and benefits
relating to the senior management team.
As of September 30, 1996, Austar had a total of 611 employees. Substantially
all of Austar'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.
SATURN (NEW ZEALAND)
The Company owns 100% of Saturn, which recently launched service on the
initial portions of its HFC network that will allow it to provide multi-
channel television services as well as business and residential
telecommunications services in the Wellington area, encompassing 135,000
homes. Wellington is New Zealand's capital and second largest city. The
Company launched service in portions of this system in September 1996 and
expects construction to be completed by mid-1998. Saturn also operates an
existing cable system, which passes approximately 6,000 homes, on the Kapiti
Coast north of Wellington. As of October 31, 1996, Saturn's activated networks
passed approximately 12,600 homes and serviced approximately 1,300
subscribers. The Company expects to use a portion of the proceeds of the
Offerings to accelerate Saturn's build-out and marketing programs during 1997.
See "Use of Proceeds." In addition, Saturn has secured additional rights to
use existing poles to attach is network cable in markets representing 200,000
homes, subject to local planning approval, and is exploring the possibility of
expanding its networks and services to these markets.
Market Overview. The Company believes that New Zealand, a market of 1.2
million television homes, is attractive for multi-channel television
providers. New Zealand has a demographic profile similar to Australia,
including high per capita income and strong television, VCR and cellular
telephone penetration rates. In addition, New Zealand imposes virtually no
pricing regulation and only limited program content regulation and permits
operators to offer combined multi-channel television and telephony services
over one network. There is currently only one significant multi-channel
television provider that currently offers a five-channel UHF-delivered
subscription service.
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Operating and Growth Strategy. Saturn is constructing a 750 mhz HFC network
designed to 500 homes per node with each home drop overlaid with copper
telephony plant. This architecture will allow the integrated delivery of pay
TV, telephony, internet access, high speed data and future interactive
services. The majority of Saturn's approximately 1,600 km of plant will be
constructed on aerial utility poles which will allow for quicker and more
cost-effective network construction than underground wireline. In addition,
because Wellington zoning generally permits only a single additional
communications cable on its aerial utility poles, Saturn's status as first
operator on such poles may limit use of these poles by other communications
providers. Because the only significant multi-channel television competitor in
the Wellington market offers a UHF-delivered service that is limited to only
five channels, management believes it will be able to build a significant
customer base by offering an attractive basic programming line-up of over 30
channels at competitive prices, as well as pay-per-view, data and telephony
services. Saturn is currently negotiating for an interconnect agreement that
will allow it to provide local residential and business telephone services. By
bundling both subscription television and telephony services, Saturn will be
able to offer pricing discounts across both services, which management
believes will provide an 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 conclude successfully any such
arrangements.
Programming. Saturn's programming strategy is to offer a wide variety of
high-quality channels at competitive prices. Saturn is currently offering a
single tier of service consisting of 21 channels and is currently negotiating
with a number of programming services to expand its channel offering. The
following is a list of the programming currently offered by Saturn in its
basic package:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
TV 1............................. general entertainment
TV 2............................. general entertainment
TV 3............................. general entertainment
Capital TV....................... general entertainment
Community Channel................ local news, events
CNN International ............... world news
Asia Business News............... Asian business news
Discovery........................ science and nature
NBC Superchannel................. general entertainment
TNT.............................. classic movies
Cartoon Network.................. children's cartoon programming
Trackside........................ TAB racing
Kidzone.......................... children's programming
Weather Channel.................. live weather from NZ MetService
Program Guide.................... programming line-up
TVSN............................. shopping
CMTV............................. country music video
RFO.............................. French general entertainment
NHK.............................. Japanese general entertainment
Elijah Television................ non-denominational religious programming
Worldnet......................... U.S. information service news and science
</TABLE>
In addition, in October 1996 Saturn entered into its first pay-per-view
licensing agreement with Columbia TriStar and expects to have agreements with
several other studios and to launch its pay-per-view services in the first
quarter of 1997.
Pricing. Saturn currently offers a single basic service package with 21
channels in Wellington at a monthly subscription rate of $23 with a one time
installation fee of $30 per subscriber. Sky TV ("Sky"), Saturn's primary
competitor, charges subscribers a monthly rate of approximately $36 for five
channels of programming with a
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<PAGE>
one time installation fee of $35 per subscriber. Saturn is currently offering
new subscribers a promotional monthly basic rate of $17 for the months from
November 1996 to March 1997.
Marketing; Customer Support. Saturn's marketing strategy uses 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 a mass media brand
awareness program. 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.
Homes are released for marketing on a node by node basis as construction is
completed which allows a very targeted marketing program tailored to the
unique demographic profile of the territory and enables Saturn to capitalize
on the product awareness resulting from its construction efforts. Saturn's
sales strategy is designed to include an emphasis on telephony services (once
these can be offered) and to capitalize on the value, quality and customer
service advantages associated with bundled services. Saturn has established a
national customer services center at its corporate headquarters in Wellington.
All call management technology employed by Saturn is scalable and can be
configured to support a national network expansion. In addition, Saturn is
currently developing a sophisticated marketing database to assist the sales
force in a targeted sales approach in future marketing campaigns.
Competition. There are currently three broadcast networks in New Zealand,
with plans for a fourth network announced. 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 currently offer the
programming diversity or television/telephony bundling that Saturn plans to
offer, services Saturn believes will drive its penetration. Sky has recently
announced, however, that for an installation fee of $420 it intends to offer a
satellite service primarily targeted to rural areas of New Zealand that
currently are unable to receive Sky's UHF signal and which may enable it to
provide up to an additional five channels. Independent News Limited, which is
49% owned by News Corp., has recently announced that it is negotiating to
acquire a significant shareholding in Sky. In addition, Telecom New Zealand
("Telecom"), New Zealand's largest telecommunications service provider with
nearly a 100% share of local loop revenues, 75% of national and international
toll revenues and 90% of cellular revenues, has announced its intention to
rebuild certain of its existing networks using HFC technology, which will
allow it to offer video and data services to a total of approximately 70,000
homes in various parts of New Zealand, and that further expansion of its
network will depend on results of the initial roll-out. Telecom recently
activated the initial portion of its network in the Wellington area, which
passes approximately 2,000 homes. Telecom is also expected to be the primary
competition to Saturn's planned local loop telephony service.
Properties. Saturn has constructed a head-end facility on leased property in
Paraparaumu. Saturn leases office and warehouse facilities for its
headquarters in Petone, located north of Wellington, and additional office and
warehouse space on the Kapiti Coast. These leases have six and three year
terms, respectively, with six- and three-year renewal options, respectively.
Saturn also has a two-year lease for additional warehouse space in Petone.
Saturn has an option to acquire the Kapiti office premises.
Management and Employees. UAP has appointed three of its employees to senior
management positions at Saturn, including Saturn's chief executive officer,
technical director and customer operations director. See "Management." UAP
also provides technical, administrative and operational assistance to Saturn.
Saturn reimburses UAP for all direct and indirect costs associated with these
services, including employee costs, as well as 5% of Saturn's gross revenue
through 1999.
As of September 30, 1996, Saturn had 113 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.
42
<PAGE>
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four channels (the
"XYZ Channels") of the eight channels which are distributed as the Galaxy
package, the most widely distributed programming package in Australia. 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 Continental Century Pay Television Pty Ltd.
(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 is 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 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 provides 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 October 31, 1996, the XYZ channels were distributed to
approximately 269,000 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. The Company and Century jointly
manage Arena; the Company, Century and Foxtel manage Red; and the Company 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 the Company, 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 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.
XYZ and Nickelodeon, a division of Viacom, are jointly producing and
distributing an Australian version of Nickelodeon/Nick at Nite, which XYZ
began distributing in October 1995. XYZ pays a monthly per subscriber license
distribution fee that is shared equally by Nickelodeon and XYZ.
XYZ acquires programming and 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
43
<PAGE>
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 September 30, 1996, XYZ had 57 employees and the
Nickelodeon joint venture had 20 employees. The programming joint venture
between the Company and Century had 13 employees that provide management
services to XYZ.
TELEFENUA (TAHITI)
The Company has a 90% economic interest in Telefenua which operates a 15
channel MMDS service in a service area that, as of October 31, 1996, included
approximately 18,700 television homes. Telefenua is currently expanding its
network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 serviceable
homes in its franchise areas. Telefenua had 4,902 subscribers as of October
31, 1996, representing a 26% penetration rate. The Company is in the early
stages of negotiating the sale of all or a portion of Telefenua to a local
strategic investor, although there can be no assurance that the Company will
conclude such a transaction.
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 rates, 99% and 66%, respectively, and average per capita
television viewing of nearly four hours per day. Prior to late 1994,
television choice was limited to two government broadcast channels.
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. Telefenua is also expanding its network by adding additional
beam benders and repeaters. The Company anticipates this expansion will be
completed over the next 12 to 24 months.
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. Telefenua also charges a one-time installation rate of
approximately $109.
Programming. Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 15 channels
segregated into two tiers of service--a basic service with 12 channels and an
expanded tier with an additional three channels. Telefenua's basic tier offers
the two local broadcast channels as well as French language childrens',
sports, general entertainment and music channels and 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, a documentary channel and ESPN
International.
44
<PAGE>
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
RTL.......................... general entertainment
Eurosport.................... sports
Canal J/Canal Jimmy.......... adult and childrens'
Serie Club................... general entertainment
Paris Premiere............... arts, life
MCM.......................... music video
M6........................... general entertainment
CMT.......................... country music video
Program Guide................ program guide service
Planete...................... documentary (expanded basic tier)
Cine Cinemas................. movies (expanded basic tier)
ESPN International........... sports (expanded basic tier)
</TABLE>
Marketing; Customer Support. 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 and Moorea. Marketing campaigns consist
of selected promotions targeting specific demographic groups throughout the
year and new markets as they are activated. Telefenua's customer service
center is located at its corporate headquarters. The center handles all
customer inquiries, coordinates installations and manages all maintenance
activities.
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
that Canal Plus had 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
15-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.
Properties. Telefenua owns office space in Punaania, Tahiti. This facility
also contains the customer service center and the head-end 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 15-channel service at this facility and then transmits from its
MMDS broadcast tower located on the island of Moorea.
Management and Employees. UAP and SFCC are parties to a Technical Assistance
Agreement, whereby UAP has agreed to provide technical, administrative and
operational assistance to SFCC. SFCC has a similar technical assistance
agreement with Telefenua under which it makes available to Telefenua UAP'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 the end of 1996, 3.5% of gross revenue for the following
12 months, and 2.5% thereafter. The fees payable to UAP under its Technical
Assistance Agreement with SFCC are 5%, 3% and 2% of Telefenua's gross revenues
over the same periods. UAP is also reimbursed for all direct and indirect
costs associated with the services it provides. UAP has appointed two of its
employees to serve as managing director and technical director of Telefenua.
See "Management." UAP pays these employees' salaries and benefits and charges
Telefenua for these amounts.
45
<PAGE>
As of September 30, 1996, Telefenua had 41 employees.
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
The Company owns a 100% economic interest in United Wireless, a provider of
two-way wireless mobile data services in Australia. 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.
Background. In September 1995, the Company acquired a 100% interest in
BellSouth Mobile Data Australia Pty Limited 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.
Market Overview. 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 United Wireless' predecessor. Today, there are two
public wireless data carriers in Australia with a total estimated installed
base of 6,000 customer terminals.
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 $3.7 million for network construction and
working capital needs through 1998.
Marketing and Customers. United Wireless' target market includes large
companies with significant potential installed bases, such as utilities,
security alarm firms, 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 United Wireless plans to target include: remote order entry
(e.g., sales persons and couriers), credit and debit card validation, remote
meter reading for utilities, security monitoring and vending machine inventory
monitoring.
Revenue and 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.
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.
Properties. United Wireless leases corporate office space in Sydney and has
a leased regional sales office in Melbourne.
46
<PAGE>
Employees. As of September 30, 1996, United Wireless had 12 employees.
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) 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
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 wireline 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 Austar'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 digital 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. Austar
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, although Sky has recently announced plans to start
delivering services to New Zealand by satellite.
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 HFC network, as the Company plans to do in New
Zealand, the system's infrastructure can be used to deliver telephony and data
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
wireline cable systems in New Zealand and, due to topography and housing
densities, is constructing a wireline cable system in one market in Australia.
EMPLOYEES
The Issuer has no employees. Administrative and other services for the
Company are currently provided by UAP. UAP and the Issuer are parties to the
UAP Management Agreement pursuant to which UAP provides all management and
administrative services necessary for the Issuer. UAP supplies in certain
employees to Austar, Saturn, Sun Cable and Telefenua pursuant to Technical
Assistance Agreements with such operating companies. See "Relationship with
UAP and Related Transactions."
47
<PAGE>
LEGAL PROCEEDINGS
Other than as described below, 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 qCSA 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."
An individual who claimed to have worked with UIH in connection with the
acquisition by Austar of certain of its licenses has claimed that UIH owes him
a 12.5% equity interest in unspecified subsidiaries of UIH in consideration of
services purportedly provided. This complaint, which was filed on April 24,
1996, served on UIH in October 1996 and is pending in a civil court in
Melbourne, Australia, seeks an unspecified amount of damages. UIH intends
vigorously to defend these claims, which the Company believes are without
merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision
from using such infrastructure to deliver DTH services in Austar's franchise
area. Austar believes that the use of the infrastructure by any entity other
than Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which
granted Austar an exclusive license and franchise to use the infrastructure
within its franchise areas. Austar is seeking injuctive relief or, in the
alternative, damages associated with this violation of its franchise
agreements. See "Business--Austar (Australia)--Franchise Agreements, --
Competition."
48
<PAGE>
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 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. Narrowcasting services are services
available to special interest groups or which target particular audiences and
are provided pursuant to class licences. Subscription broadcasting services
provide programmes of appeal to the general public (as opposed to those which
target particular audiences) and require an individual licence for each
service.
The transmission facilities used to provide these services are principally
regulated by the Radiocommunications Act and the Telecommunications Act. The
Radiocommunications Act commenced on 1 July 1993 and regulates the use of MMDS
transmission, the radio frequency spectrum and the spectrum used by satellite
operations. The Telecommunications Act commenced on 1 July 1991 and regulates
the provision of telephony services, and the use of DTH and cable services.
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.
The Australian Broadcasting Authority ("ABA") may at any time alter the
criteria for the categories of broadcast services; however, an operator
wishing to determine the appropriate category for a service may obtain an
opinion from the ABA. For a period of five years after the date of such an
opinion, neither the ABA nor any other Australian government agency may take
any action against the provider of the service alleging that such service
falls into a category other than the category referred to in the opinion;
provided that the circumstances relating to the broadcasting service remain
substantially the same as those specified in the application for the opinion.
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 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. The ACCC's
report must set out its opinion regarding whether the granting of the
Broadcast License to the applicant (i) would constitute a contravention of
Section 50 of the Trade Practices Act ("TPA") if the allocation of the license
were the acquisition by the applicant of an asset of a body corporate or (ii)
would not be authorised under Section 88 of the TPA if the applicant had
applied for such an authorisation.
Section 50 of the TPA prohibits acquisitions of the shares or assets of a
corporation which would have the effect or would be likely to have the effect
of substantially lessening competition in a relevant market. Section 88
relates to the procedure whereby such acquisitions can be authorised by the
ACCC if they result in, or are likely to result in, such a benefit to the
public that the acquisition should be allowed to take place.
49
<PAGE>
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. An applicant will be deemed a "suitable"
Subscription Broadcast licensee unless the ABA determines that granting such a
license to the applicant would lead to a significant risk of the contravention
of the BSA or breach of the license conditions. Section 98(3) of the BSA sets
out factors which the ABA is required to take into account in assessing such
risk. Austar 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
Austar's MMDS licenses, enable Austar 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
must have the ability to terminate the rental agreement on one month's written
notice to the licensee; 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 issuance of three satellite licenses for DTH
service and prohibits the ABA from issuing before July 1997 any other license
for delivery of DTH service. Each DTH Satellite license is subject to certain
additional conditions, including that: (i) the licensee must use the Digital
Transmission Standard (as part of that standard, satellite reception equipment
must be capable of Australian manufacture); (ii) domestic reception equipment
used by the licensee must be accessible by other satellite broadcasting
services at a fair price; (iii) the licensee's subscriber management system
must provide access to that system to other subscription television
broadcasting licenses at a fair price; and (iv) if the ABA is directed by the
Australian Minister for Communications and the Arts (the "Minister") to
include such a condition, Australian industry must be adequately involved in
the provision of services under the license.
While Austar 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 Austar or XYZ. Material non-compliance by a satellite license
holder with conditions of its license, however, could have a material adverse
effect on Austar or XYZ. See "Risk Factors--Ability to Procure Additional
Programming Services."
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 person" means (i) a natural person who is
not an Australian citizen or (ii) a company wherever incorporated, where non-
Australian citizens hold company interests in the company exceeding 50%; or
(iii) a company, wherever incorporated, where (a) a company referred to in
(ii) or (b) natural persons who are not Australian citizens and a company
referred to in (ii), hold company interests in the company exceeding 50%.
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 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--Austar."
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<PAGE>
Cross-Media Ownership. Subject to the following there are no provisions in
the BSA limiting the interest that an existing media owner may have in the
operator of a Narrowcast service, a subscription radio broadcast service or a
non-satellite Subscription Broadcast service. In relation to the last category
of service, however, the ABA is obliged to monitor the cross-media ownership.
The BSA restricts the level of cross-media ownership and control of
Satellite Licensee A. Under applicable rules, a defined media owner may not
hold more than 2% of the company interests of, or control or be in a position
to control, Satellite Licensee A prior to 1 July 1997. Defined media owners
include persons who control large circulation newspapers, telecommunications
carriers and commercial television licensees. Further, Satellite Licensee A
and Satellite Licensee B cannot hold more than 2% of total company interests
in each other or control, or be in a position to control, each other prior to
1 July 1997.
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 that 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 Austar or XYZ. A change from the current prohibition on R-
rated material may enable subscription television service providers, such as
Austar, 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, Austar 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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<PAGE>
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 Austar authorize
the operation of radiocommunications transmitters at each of Austar's MMDS
systems and permit the transmission of signals over specified frequencies to
Austar'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 Austar 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 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
52
<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.
Non-carriers must comply, however, 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 Austar, 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. Such direction provides, however, 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. The new Government's policy
principles issued in January 1996, however, indicate that they will not grant
this extension.
The Australian government has publicly stated its intention to increase
deregulation and competition in the telecommunications industry. The Company
understands that Telecommunications Act will be amended so that additional
carrier licenses can be issued from 1 July 1997.
FOREIGN ACQUISITIONS AND TAKEOVERS ACT
The FATA requires (i) any natural person not ordinarily resident in
Australia, or (ii) any corporation or trustee of a trust estate in which a
natural person not ordinarily resident in Australia or a foreign corporation
(being a corporation organised outside Australia) holds a substantial interest
(defined below) or in which two or more such persons or foreign corporations
hold an aggregate substantial interest (defined below), who proposes entering
into an agreement by virtue of which the person, corporation or trustee will
acquire or increase a substantial interest in an Australian corporation to
notify the Treasurer of its intention to do so. The person, corporation or
trustee may then only enter the proposed transaction if (a) the Treasurer
advises that the Commonwealth Government has no objection to the transaction;
or (b) the Treasurer has made no order prohibiting the transaction and the
person, corporation or trustee has received no advice referred to above after
40 days have elapsed following the giving of the notice to the Treasurer.
53
<PAGE>
The Treasurer may make an order prohibiting the transaction if he or she is
satisfied it would result in foreign persons or different foreign persons
controlling the corporation and that result would be contrary to the national
interest. Alternatively, the Treasurer may advise that the Commonwealth
Government has no objection to the transaction, provided that the person,
corporation or trustee complies with specified conditions. If the Treasurer
specified conditions in connection with the non objection, the person,
corporation or trustee entering into the transaction, must comply with such
conditions.
A person is taken to hold a "substantial interest:" (a) in a corporation, if
the person, alone or together with any associates (as defined, in the FATA),
is in a position to control not less than 15% of the voting power in the
corporation or holds interest in not less than 15% of the issued shares in the
corporation; or (b) in a trust estate, if the person alone or together with
any associates (as defined), holds a beneficial interest in not less than 15%
of the corpus or income of the trust estate. Two or more persons are taken to
hold an "aggregate substantial interest;" (c) in a corporation, if they,
together with any associates (as defined), are in a position to control not
less than 40% of the voting power in the corporation or hold not less than 40%
of the issued shares in the corporation; or (d) in a trust estate, if they
together with any associates hold in the aggregate beneficial interests in not
less than 40% of the corpus or income of the trust estate. Where a trustee has
power or discretion under the terms of a trust as to the distribution of
income or corpus of the trust estate to beneficiaries, each beneficiary is
taken for the purpose of paragraphs (b) and (d) above to hold a beneficial
interest in the maximum percentage of income or corpus of the trust estate
that the trustee is empowered to distribute to that beneficiary.
The circumstances in which a person is taken to hold an interest in a share
are widely described in the FATA and, without limitation, include having 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 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 Organisational
Structure--Australia--Austar." Such Act also provides that, for the purposes
of such Act, a holder of a substantial interest or holders of an aggregate
substantial interest (including any such interest held by other applications
of the relevant provision) in the corporation or a trust estate which is in a
position to control any voting power in another corporation or holds interests
in shares in another corporation or in another trust estate shall be taken to
be in the position to control such voting power in the other corporation or to
hold such interests in the other corporation or in the other trust estate, as
the case may be.
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--
Austar."
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. The FATA does not require,
however, 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.
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<PAGE>
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 Austar Transaction and certain recent amendments to the articles of
association and securityholder agreements of Austar affected the number of
Austar 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 Austar to be
restored to its previous position. Prior to any change, UAP was entitled to
appoint directly three of six directors of Austar. While the Company believes
that it is unlikely that the Treasurer would reach such a conclusion if it
decided to review the Austar Transaction, there can be no such assurances. If
the Treasurer were to require control of Austar to be restored to the maximum
extent permitted by the FATA, UAP could appoint only one-half of the directors
of Austar and it might no longer affirmatively control Austar. While the
Company believes a determination under the FATA would not affect the Company's
100% economic interest in Austar, there can be no assurances that such would
be the case. If the Treasurer were to review matters, UAP would seek to
minimize the effect of any required change on its relationship with Austar
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--Austar."
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.
Substantial pecuniary penalties may be imposed for contraventions of the
TPA. The Minister, the ACCC or any other person may bring an action to
restrain contraventions of the TPA by injunction against any person who has
contravened or is proposing to contravene the TPA. A person who has suffered
loss as a result of another person contravening the TPA may bring an action to
recover damages against any person involved in the contravention.
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 current 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 Austar.
Local Regulation. When Austar 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.
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Austar works with the local government primarily on issues concerning
construction standards. Austar has established construction standards that
Austar 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. Pricing may be subject,
however, to New Zealand's competition legislation, the Commerce Act 1986 (the
"Commerce Act"), 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 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 Tahitian territorial
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<PAGE>
government'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 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)
%
UIH Asia/Pacific
Communications, Inc.
(Delaware
corporation)
100%
UIH
AUSTRALIA/PACIFIC,
INC.
(COLORADO
CORPORATION)
"THE ISSUER"
--------------------------------------------------------------------
96.3% (1) (1) 99.3% (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
3.7% (1)0.7% (1) (3) 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)
- -- -- -- -- -- -- -- -- --
- -- -- -- --
Austar (3)
Telefenua
S.A.
(French Polynesian
corporation)
- ---------------------
(1) The Company holds, directly and indirectly, a combined greater than 99.99%
economic interest in each of STV and CTV. The Company holds ordinary
shares and convertible debentures of STV and CTV which account for
approximately 0.6% and 95.7%, respectively, of the total economic
interests of STV and account for approximately 0.1% and 99.2%,
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 3.7% and 0.7%, respectively, economic interest in STV and CTV.
The Company has the right to designate all directors of these companies.
See "--Austar."
(2) The Company's interests in Saturn, Century United Programming Ventures Pty
Limited ("CUPV") and United Wireless are 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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AUSTAR
The Issuer holds a combined 100% economic interest in CTV and STV, which
operate together under the name Austar, through direct and indirect holdings
of convertible debentures and ordinary shares. The Company holds approximately
15% of the ordinary shares of CTV and STV, which accounts for an approximately
0.3% economic interest in Austar. The Company holds all of CTV's and STV's
convertible debentures, which accounts for an approximately 97.8% economic
interest in Austar. In addition, through the Company'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, UAP has an additional effective 1.9% economic interest in Austar.
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.
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 Austar
Transaction in December 1995, the Company acquired an additional 40% economic
interest in each of 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 Austar 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. Throughout
1996 the Company increased its economic interest in Austar to 96% as a result
of capital contributions, including the conversion of bridge loans and accrued
interest, totalling $50.6 million made by the Company to Austar as to which
the other principal holder of economic interests in Austar did not contribute
its pro rata share. In October 1996, the Company acquired the remaining 4%
economic interest in Austar from Australis for approximately $7.9 million in a
transaction agreed to by Australis as part of the Australis Arrangement.
The Company, CTV, STV, SMI and SMH 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 Austar 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 Austar
Transaction to restore the control of CTV and STV to the position it was in
before the Austar Transaction. Before the Austar 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, among other things, 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 14.9% 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
securityholder. If the other securityholder does 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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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 UIH.
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
Century United Programming Ventures Pty Limited ("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 such 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 such 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 association of any company in which XYZ holds an
interest; admitting new shareholders 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
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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. In July 1996, the Company acquired the remaining 50% interest in
Saturn from Kiwi Cable Company B.V.I., Inc. ("Kiwi"), a company that also owns
and operates cable television systems in the Caribbean. The Company acquired
Kiwi's 50% interest in Saturn in exchange for a 2.6% common equity interest in
the Issuer.
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 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 September
30, 1996, UIH-SFCC has also advanced $7.0 million as a bridge loan to SFCC,
approximately $5.0 million of which was converted into 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.
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. If any such sale occurs before
June 1, 1999, however, 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 Company.
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MANAGEMENT
The directors and executive officers of the Issuer and the key employees of
the operating companies and their ages and positions with the respective
company are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
THE ISSUER:
Gene W. Schneider.............. 70 Chairman of the Board
Michael T. Fries............... 33 Chief Executive Officer and Director
Bernard G. Dvorak.............. 36 Chief Financial Officer and Director
John C. Porter................. 39 Chief Operating Officer
Donald F. Hagans............... 50 Vice President--Australia
Kevin Ong...................... 40 Vice President--Finance
Mark L. Schneider.............. 41 Director
OPERATING COMPANIES:
Robert G. McRann............... 62 Managing Director, Austar
Bruce Mann..................... 41 Director of Sales and Marketing, Austar
Robert J. Birrell.............. 34 Finance Director, Austar
Jack B. Matthews............... 44 Chief Executive Officer, Saturn
Michel Laurent................. 44 Managing Director, Telefenua
Joseph P. Gatto, Jr. .......... 49 Chief Executive Officer, United Wireless
</TABLE>
Senior management of the Company, initially Messrs. Porter and Hagans, will
participate in a non-voting, advisory role to the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
GENE W. SCHNEIDER has served as Chairman of the Board of Directors of the
Issuer and UAP since their respective formations. 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 Entertainment
Company ("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 Chief Executive Officer of the Issuer and UAP
since November 1996, as President of the Issuer and UAP since their respective
formations and is also a Director of the Issuer since April 1996. Following
the Offering, Mr. Fries will continue his position as a member of UIH's
Investment Committee. Mr. Fries was President of UIH Asia/Pacific, Inc., the
predecessor to the Company previously responsible for all operating and
development activities of the Company in the Asia/Pacific region. Prior to
assuming that position in 1995, 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 March
1990, including UIH's expansion into the Asia/Pacific market. From 1985 to
1990, Mr. Fries was employed by PaineWebber Incorporated (New York) where he
spent approximately one year in the firm's venture capital group and four
years in the investment banking division, specializing in domestic and
international transactions for companies in the media and telecommunications
industry.
BERNARD G. DVORAK is the Chief Financial Officer and a Director of both the
Issuer and UAP and has served as Vice President and Treasurer of the Issuer
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 Issuer'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
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accounting, financial reporting and financial planning functions as well as
acting as business manager overseeing international investments.
JOHN C. PORTER has served as Chief Operating Officer of the Issuer since
November 1996 and Chief Operating Officer of Austar since April 1995, where he
directly managed the technical, operating and administrative aspects of
Austar's multi-channel systems and was the principal executive in the field
responsible for the launch of MMDS and cable systems, as well as Austar's DTH
business. As Chief Operating Officer of the Issuer, Mr. Porter will continue
to participate in the management and operations of Austar, along with the
Company's other operating companies. Mr. Porter is also the Chief Operating
Officer and a Director of UAP. Prior to joining Austar, 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, a 170,000 subscriber, 400 employee division.
Mr. Porter has over 16 years of management experience in the U.S. multi-
channel television industry.
DONALD F. HAGANS has served as Vice President--Australia of the Issuer and
UAP since their respective formations and was a Regional Vice President of UIH
Asia/Pacific Inc., from January 1994 to November, 1996. Mr. Hagans serves as
chairman of Austar and oversees UIH's interests in XYZ and United Wireless.
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.
KEVIN ONG has served as Vice-President--Finance of the Issuer since May
1996. Prior to joining UIH, Mr. Ong has served in various financial and senior
management positions with U.S. and international cable television operators.
From 1988 to 1994, Mr. Ong served as Director with Jones Intercable, Inc. and
Treasurer of Jones International, Ltd., where he was responsible for financial
operations and various accounting functions. From 1977 to 1988, Mr. Ong was
employed at KPMG Peat Marwick, attaining an audit senior manager position.
MARK L. SCHNEIDER has been a Director of the Issuer since May 1996. Mr.
Schneider is also a Director of UIH and UAP. 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. During these periods Mr. Schneider 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 operating companies include the following
individuals:
ROBERT G. MCRANN has served as Managing Director of Austar since joining
that company in March 1995. Mr. McRann is responsible for the management of
all aspects of Austar's MMDS, DTH and cable television operations including
engineering, customer service, marketing and administrative functions. For the
twelve years prior to joining Austar, 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 18 years of management experience in the U.S. multi-channel
television industry.
BRUCE MANN has served as Sales and Marketing Director of Austar since
joining that company in April 1995. Mr. Mann is responsible for the
development of Austar's marketing and sales techniques and has played a
critical role in the successful implementation of these plans throughout
Austar's franchise area. Mr. Mann has
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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 Austar, 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.
ROBERT J. BIRRELL has served as Finance Director of Austar since January
1996 and has been involved with the development aspects of the Austar business
since April 1994. Mr. Birrell is responsible for the accounting, finance,
inventory control, investor relations and legal aspects of Austar's business.
Prior to joining Austar, Mr. Birrell has been involved with various activities
in large scale retailing in the Australian marketplace. From 1985 to 1993, Mr.
Birrell served as Treasurer of Industrial Equity Limited, an Australian based
investment company, and prior to that as Manager Arbitrage of Macquarie Bank
Limited. Mr. Birrell has over 14 years experience in the banking and business
environment in Australia.
JACK B. MATTHEWS has served as Chief Executive Officer of Saturn since
joining that company in January 1995. Mr. Matthews is responsible for
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 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 14 years of U.S. multi-channel television industry experience.
MICHEL 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 technical, operating and marketing aspects of
the business. Mr. Laurent is fluent in French and English.
JOSEPH P. GATTO, JR. has been the Chief Executive Officer of United Wireless
since May 1996. Mr. Gatto was the Vice President, Development of UIH A/P
focusing on telecommunications business development within the Asia/Pacific
region. Prior to joining UIH, Mr. Gatto was the Director of Sales of Plexsys
International Corp., a cellular system network manufacturer, where he was
responsible for worldwide sales. Mr. Gatto has also served in various sales
and marketing capacities for US and Asian telecommunications and technology
companies.
EXECUTIVE COMPENSATION
All of the officers of the Issuer are employed by UIH or UAP, the majority
direct and indirect stockholders of the Issuer. The Issuer pays no separate
compensation to these officers, however, the Company and UAP are parties to
the UAP Management Agreement, pursuant to which the Company pays UAP a
management fee for certain services provided to the Company. See "Certain
Transactions."
Most of the members of senior management of Austar, Saturn and Telefenua are
U.S. or Canadian expatriates who are employed by UAP and have been seconded to
the respective operating companies. The respective operating companies
reimburse UAP for compensation paid to these employees pursuant to Technical
Assistance Agreements between UAP and each of Austar, Saturn and Telefenua.
Gene W. Schneider, the Company's Chairman, 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 Chief Executive Officer of
the Company, Michael T. Fries, is also an officer and employee of UAP and
spends approximately 75% of his time on matters pertaining to
65
<PAGE>
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.
The services of Messers. Schneider, Fries and Dvorak will be provided to the
Company pursuant to the UAP Management Agreement. While the Company and its
operating companies do not reimburse UAP directly for a specified portion of
the compensation UIH pays to Messrs. Schneider or Dvorak and UAP pays to Mr.
Fries, the Company pays a management fee to UAP under the UAP 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(#) COMPENSATION(2)
- --------------------------- ---- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider(3).... 1995 $ 324,577 $ -- 40,000 $4,620
Chairman
Michael T. Fries(3)..... 1995 212,769 -- 35,000 4,620
Chief Executive Officer
Bernard G. Dvorak(3).... 1995 192,769 -- 35,000 4,620
Chief Financial Officer
Donald F. Hagans........ 1995 175,000 -- 12,000 --
Vice President--Austra-
lia
Robert G. McRann(4)..... 1995 161,538 24,279(5) -- 3,836
Managing Director,
Austar
</TABLE>
- ---------------------
(1) Options with respect to shares of Class A Common Stock of UIH granted to
such executives as officers and employees of UIH.
(2) Consists of matching employer contributions made by UIH under UIH's
Employee 401(k) Plan.
(3) Total compensation paid by UIH for duties performed with respect to the
Company and other operations of UIH.
(4) Mr. McRann started employment with Austar in March 1995.
(5) Consists of additional cash compensation relating to the overseas
assignment of Mr. McRann.
66
<PAGE>
Messrs. Schneider, Fries, Dvorak and Hagans, as employees and officers of
UIH, have been granted options to acquire stock of UIH. Mr. McRann has not
been granted any options by UIH. The following tables set forth information
concerning options to purchase shares of UIH Class A Common Stock granted to
these executives in the last fiscal year as well as the value of unexercised
options held by such executives as of December 31, 1995. No such executive has
exercised any options during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
----------------------------------------- ---------------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/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 UIH as defined in UIH's stock
option plan.
(2) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts
shown are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Common Stock, continued employment of the
optionee through the term of the options, and other factors.
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>
AGREEMENTS WITH EMPLOYEES
UAP and many of its employees serving as senior management in the Company's
operating companies are parties to agreements typically with terms of three to
five years. The agreements generally provide for a specified base salary as
well as a bonus set at a specified percentage of the base salary, which bonus
is based on the performance of the respective company and employee. The
agreements often provide for the grant of an incentive interest equal to a
percentage of the residual equity value of the respective company which is
typically defined as the fair market value of the business less net
liabilities and a reasonable return on shareholders' investment. The
employment agreements generally also provide for cost of living differentials,
relocation and moving expenses, automobile allowances and income tax
equalization payments, if necessary, to keep the employee's tax liability the
same as it would be in the United States.
Of the persons identified in the Summary Compensation Table, Mr. McRann has
such an employment agreement with UAP. This five-year employment agreement
provides for an annual base salary of $225,000
67
<PAGE>
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 Austar as well as Mr.
McRann's individual performance. Mr. McRann was also granted an incentive
interest, that vests over a four year period, equal to .75% of the "residual
equity value" of Austar, calculated as (i) ten times EBITDA from the prior 12
months, less (ii) the sum of Austar's net liabilities and an amount equal to
the total shareholder investment in Austar, plus a 12% compounded annual
return on such investment. In the event of a change of control of Austar, the
residual equity value will be the greater of (x) the amount calculated above
or (y) 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 Austar, plus a 12% compounded annual return on such investment.
Austar reimbursed UIH and will continue to reimburse UAP under the Technical
Assistance Agreement for employment costs associated with Mr. McRann.
COMPENSATION OF DIRECTORS
All of the directors of the Issuer are also directors or officers of UIH or
UAP, the direct and indirect majority stockholders of the Issuer. They receive
no separate compensation for serving as directors of the Issuer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Issuer's Board of Directors has no separate Compensation Committee as
the Issuer currently does not have any employees. UIH's and UAP's respective
compensation committees, none of the members of which are employees or
executive officers of the Issuer, determine the compensation of the Issuer's
executive officers in their capacity as employees of UIH or UAP. Directors or
executive officers of the Issuer may serve on the boards of directors of
Austar, 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 Issuer.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Issuer's Articles of Incorporation eliminates the personal liability of
its directors to the Issuer and its stockholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. The
Issuer's Articles of Incorporation and Bylaws provide that the Issuer shall
indemnify its officers and directors to the fullest extent permitted by law.
The Issuer believes that such indemnification covers at least negligence and
gross negligence on the part of indemnified parties.
The Issuer has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Issuer's
Articles of Incorporation and Bylaws. These agreements require the Issuer,
among other things, to indemnify the Issuer'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 Issuer, arising out
of such person's services as a director or officer of the Issuer, any
subsidiary of the Issuer or any other company or enterprise to which the
person provides services at the request of the Issuer. The Issuer believes
that these agreements are necessary to attract and retain qualified persons as
directors and officers.
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<PAGE>
RELATIONSHIP WITH UAP AND RELATED TRANSACTIONS
The Issuer is currently an indirect, majority owned subsidiary of UAP and
prior to the May 1996 Offering, its operations were funded by UIH, UAP's
parent corporation. Immediately prior to the May 1996 Offering, UIH Australia,
Inc., UIH Australia II, 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 Austar, 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
Austar; (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 Austar; (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 May 1996 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 UAP and issued to the other
shareholder of Saturn, Kiwi, 13 shares of common stock, which represented 2.6%
of its issued and outstanding common stock. UAP and Kiwi are negotiating for
Kiwi to exchange its 2.6% interest in the Issuer for shares of Class A Common
Stock of UAP prior to the UAP Stock Offering.
The Issuer and UAP are parties to the 10-year UAP Management Agreement,
pursuant to which UAP performs certain management, technical, administrative,
accounting, financial reporting, tax, legal and other services for the Issuer,
which has no separate employees of its own. Pursuant to the UAP Management
Agreement, UAP 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
UAP Management Agreement and each anniversary date thereafter by 8% per year.
In addition, the Issuer shall reimburse UAP for any out-of-pocket expenses
incurred by UAP in performance of its duties under the UAP Management
Agreement, including travel, lodging and entertainment expenses. UAP
calculated the management fee for the first year of the UAP 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 UAP Management Agreement. UAP 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 UAP. The Company believes the fee payable under the UAP
Management Agreement to be comparable for the costs for such services if
obtained from a non-affiliate of UAP.
69
<PAGE>
UAP and each of Austar, Saturn and Telefenua are parties to Technical
Assistance Agreements, pursuant to which UAP 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 Austar, Saturn and Telefenua are employees of UAP that
have been seconded to the respective operating companies. Fees paid under
these Technical Assistance 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, Austar, Saturn and
Telefenua had accrued fees to UAP under their respective Technical Assistance
Agreements of approximately $89,000, $3,000 and $0, respectively. For the year
ended December 31, 1995, Austar, Saturn and Telefenua had accrued fees to UAP
under their respective Technical Assistance Agreements of approximately $1.5
million, $574,000 and $1.2 million respectively. The fees payable to UAP under
each of the Technical Assistance Agreements were negotiated between UAP and
the respective companies and their other shareholders at such time as UAP did
not hold the majority interest in such Operating Companies. See "Business--
Austar (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, UAP 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.
SECURITY OWNERSHIP
UAP 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. UAP and Kiwi are negotiating for Kiwi to exchange its 2.6% interest in
the Issuer for shares of Class A Common Stock of UAP prior to the UAP Stock
Offering.
70
<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture to be dated as of , 199
between the Issuer and , as trustee (the "Trustee"). A copy of the form of
the Indenture is available from the underwriters upon request. Upon the
issuance of the Exchange Notes, 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."
GENERAL
The Notes will be general unsecured senior obligations of the Issuer,
limited to $ aggregate principal amount at maturity (subject to certain
exceptions), and will mature on , 2007. Cash interest will not accrue on
the Notes prior to , 2002. Thereafter, cash interest on the Notes will be
payable, at the Interest Rate then in effect, semi-annually in arrears on each
and (each, an "Interest Payment Date"), commencing , 2002, to the
holders of record of Notes at the close of business on the and
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
, 2002. Cash interest will be computed on the basis of a 360-day year of
twelve 30-day months. If, prior to , 2002 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 , 2002, 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."
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 the date of purchase), if such purchase is prior
to , 2002, 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 , 2002), 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 , 2002 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 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2002.......................................... %
2003.......................................... %
2004.......................................... %
2005 and thereafter........................... 100.00%
</TABLE>
71
<PAGE>
Notwithstanding the foregoing, on or prior to 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 % 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, including the Existing
Notes. 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."
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.
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<PAGE>
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.
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
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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)
[intentionally omitted]; (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)
[intentionally omitted]; (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 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.
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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 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
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arrangements, consulting fees, employee salaries and bonuses (or other
incentive compensation) or legal fees in the ordinary course of business, (iv)
[intentionally omitted], (v) [intentionally omitted], (vi) transactions
pursuant to the UAP Management Agreement and the Technical Assistance
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 UAP Management Agreement and the Technical
Assistance Agreements shall not exceed reimbursement of the reasonable
expenses (including reasonable allocations of salary and overhead) of UAP
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 , 2002 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 , 2002.
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 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,
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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 , 2002 or 100% of the outstanding
principal amount at maturity thereof plus accrued and unpaid interest, if any,
to any purchase date on or after , 2002. 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 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.
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
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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 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.
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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.
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 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
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(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 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) [intentionally omitted]
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.
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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 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
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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 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
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.
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.
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"Accreted Value" means, as of any date of determination prior to , 2002,
the sum (rounded to the nearest whole dollar) of (a) $ for each $1,000
principal amount at maturity of Notes and (b) the portion of the excess of the
principal amount of Notes over $ 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 and
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 , 2002 and that the principal amount
at maturity will exceed $1,000.
"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
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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 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.
"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 credit of the Australian Federal Government or
the United States Government, respectively, in each case maturing within one
year from the date of acquisition.
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"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 in respect of any Asset Sales (on an after-tax basis and net
of fees and expenses relating to the transaction giving
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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 , 2002, the Accreted
Value of the Notes (plus any applicable premium thereon) as of such date and
(ii) as of any date on or after , 2002, 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.
"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 , 2007.
"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 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
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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, % 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
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
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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 UIH Asia/Pacific Communications, Inc.,
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 Maturity
Date, (ii) shall not provide for any required payment of interest prior to
, 2002 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;
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(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 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
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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) [Intentionally Omitted].
"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
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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.
"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
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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).
"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 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.
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"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.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes 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").
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<PAGE>
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, 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 rules
applicable to DTC and its Participants are on file with the SEC.
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 Underwriters 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.
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 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 nor the Trustee 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, the
Issuer and the Trustee 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, as applicable, exchange such beneficial interest for such
Securities in the form of registered definitive certificates (the
"Certificated Securities"). Upon any such issuance, the Issuer or Trustee, 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). In addition, if (i) the Issuer notifies the Trustee
in writing that the Depositary is no longer willing or able to act as a
depositary and the Issuer
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is unable to locate a qualified successor within 90 days or (ii) the Issuer,
at its option, notifies the Trustee 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 nor the Trustee will be liable for any delay by the
Global Security Holder or the Depositary in identifying the beneficial owners
of Securities, and the Issuer and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Security Holder
or the Depositary for all purposes. The information in this section concerning
the Depositary and the Depositary's book-entry system has been obtained from
sources that the Issuer believes to be reliable. The Issuer will have no
responsibility for the performance by the Depositary or its Participants of
their respective obligations as described hereunder or under the rules and
procedures governing their respective operations.
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.
CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following is a general discussion of certain of the expected federal
income tax consequences applicable to holders of the Notes who purchase the
Notes pursuant to this Offering. The Company has received an opinion from its
counsel, Holme Roberts & Owen LLP, that the following describes the material
federal income tax consequences expected to result to those Noteholders,
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 and the underwriter 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 hold the Notes
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 purchase, ownership or disposition of Notes or that
the Service's position would not be sustained by a court.
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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.
The Notes will have substantial original issue discount for federal income
tax purposes. As a result, a holder who purchases a 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 Notes. See "Taxation
of Original Issue Discount" below.
THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS EXPECTED
AND URGED TO CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
TO HIM OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND POSSIBLE
CHANGES IN FEDERAL INCOME TAX LAW SINCE THE DATE OF THIS REGISTRATION
STATEMENT.
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 its
"issue price." The "stated redemption price at maturity" of each Note will
include all payments, whether denominated as principal or interest, required
to be made thereunder through and including maturity. The "issue price" of a
Note will be equal to the first price at which a substantial amount of the
Notes are sold to the public for money (excluding sales to underwriters,
placement agents or wholesalers, etc., acting in an underwriting capacity).
Each Note will be issued subject to a very substantial amount of original
issue discount. Consequently, holders of the Notes will be required to include
original issue discount in gross income as it accrues in accordance with the
original issue discount rules discussed herein. In general, under the original
issue discount rules and based on the expected issue price of the Notes,
holders of the Notes will be required to include original issue discount in
gross income during the initial five year period during which the Notes are
outstanding in advance of the receipt of cash attributable to such income.
Thereafter, the amount of original issue discount required to be included by
holders of the Notes should be equal to the amount of scheduled interest
payments received.
Each holder of a Note 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 are determined by allocating to
each day during an accrual period (generally, a six month period or shorter
period from the date of original issuance) 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 adjusted issue price of a
Note at the beginning of an accrual period is 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 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.
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SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
In general, the holder of a 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.
A holder's initial tax basis in a Note purchased by him will be equal to the
price paid by such holder for such Note. The holder's initial tax basis in a
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 received from the
Company on the Note.
Any gain or loss on the sale, retirement or other taxable disposition of a
Note, measured as described above, will generally be capital gain or loss
(except as discussed in "Market Discount," below), provided the 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."
MARKET DISCOUNT
Under the market discount rules of the Code, a holder who purchased a Note
at a "market discount" generally will be required to treat any gain recognized
on the disposition of the Note as ordinary income to the extent of the lesser
of such gain or the portion of the market discount that accrue during the
period that the holder held such Note. Market discount is generally defined as
the amount by which a holder's purchase price for a Note is less than the
revised issue price of the Note on the date of purchase, subject to a
statutory de minimis exception. A holder who acquires a Note at a market
discount may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or continued to
purchase or carry such Note until the holder disposes of such Note in a
taxable transaction. A holder who has elected under applicable Code provisions
to include market discount in income annually as such discount accrues will
not, however, be required to treat any gain recognized as ordinary income or
to defer any deductions for interest expense under these rules. Holders should
consult their tax advisors as to the portion of any gain that would be taxable
as ordinary income under these provisions and any other consequences of the
market discount rules that may apply to them in particular.
ACQUISITION PREMIUM
A holder of a Note who acquires such Note at a cost in excess of the
adjusted issue price will be considered to have purchased such note at
acquisition premium. Under the acquisition premium rules, generally, such
holder will be permitted to offset a portion of the acquisition premium
against the amount of the original issue discount otherwise includible in
income with respect to that Note. The information reported by the Company to
the Noteholders on an annual basis will not account for an offset against
original issue discount for any portion of the acquisition premium.
Accordingly, each holder should consult his own tax advisor as to the
determination of the acquisition premium amount and the resulting adjustments
to the amount of reportable original issue discount.
LIMITATION ON THE COMPANY'S INTEREST DEDUCTIONS
The Notes probably will be subject to the "applicable high yield discount
obligation" provisions of the Code. If the yield to maturity on the Notes is
at least five percentage points above the applicable Federal rate, the Company
will not be able to deduct any original issue discount that accrues with
respect to such Notes until the amount attributable to such original issue
discount is actually paid. In addition, if the yield to maturity on the 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 under
certain circumstances, to treat the portion of the interest that is not
deductible by the Company as a dividend, which may then
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qualify for the dividends received deduction provided for by the Code. In such
event, corporate Holders of Notes should consult with their own tax advisors
as to the applicability of the dividends received deduction. Except as
described above, treatment of the Notes as "applicable high yield discount
obligations" will not affect the reporting of the original issue discount as
income by the noteholders.
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 purchasing 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
prudence 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.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the Underwriters named below has severally
agreed to purchase from the Company the principal amount of Notes set forth
opposite its name below, at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discount:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER MATURITY
- ----------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................... $
Smith Barney Inc. ....................................................
-----
Total............................................................... $
=====
</TABLE>
The Underwriters have advised the Company that the Underwriters propose to
offer the Notes to the public initially at the price set forth on the cover
page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price, less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers
may re-allow, discounts not in excess of % of the principal amount of the
Notes to any other Underwriters and certain other dealers. After the Offering,
the offering price and other selling terms may be changed by the Underwriters.
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by counsel and
to certain other conditions precedent. The nature of the Underwriters'
obligations under the Underwriting Agreement are such that the Underwriters
are required to purchase all of the Notes if the Underwriters purchase any of
the Notes.
The Underwriters do not intend to confirm sales to any accounts over which
it exercises discretionary authority.
There is currently no public market for the Notes offered hereby. The
Company has no present plan to list the Notes on a national securities
exchange or to seek the admission thereof to trading on the Nasdaq Stock
Market. The Underwriters have advised the Company that, following the
completion of the Offering, the Underwriters currently intend to make a market
in the Notes. The Underwriters, however, are not obligated to do so and any
such market making may be discontinued at any time without notice at the
Underwriters' sole discretion. Accordingly, there can be no assurance that an
active trading market will develop for or as to the liquidity of the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities and expenses, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
The Underwriters and their respective affiliates have engaged, and may in
the future engage, in transactions with and perform services for the Company
or one or more of its affiliates in the ordinary course of business. The
Underwriters are also serving as two of the underwriters in the UAP Stock
Offering.
LEGAL MATTERS
Certain legal matters regarding the securities offered hereby will be passed
upon for the Company by Holme Roberts & Owen LLP, Denver, Colorado, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
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EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report. 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 reports referred to above have been included herein in reliance upon the
authority of those firms as experts in giving said reports.
The consolidated financial statements of CTV Pty Ltd. included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen, independent public accountants, as indicated in their report
with respect thereto, and is included herein in reliance upon the authority of
said firm as experts in giving said report.
The consolidated financial statements of STV Pty Ltd. included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen, independent public accountants, as indicated in their report
with respect thereto, and is included herein in reliance 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 and elsewhere in the
Registration Statement have been audited by Arthur Andersen, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance 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 and
elsewhere in the Registration Statement 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 in
reliance upon the authority of said firm as experts in giving said report.
101
<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
Independent Auditors' Report............................................. F- 5
Consolidated Balance Sheets as of December 31, 1994 and 1995 and Septem-
ber 30, 1996 (unaudited)................................................ F- 6
Consolidated Statements of Operations for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(unaudited)............................................................. F- 7
Consolidated Statements of Stockholders' Equity for the Years Ended De-
cember 31, 1994 and 1995 and for the Nine Months Ended September 30,
1996 (unaudited)........................................................ F- 8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(unaudited)............................................................. F- 9
Notes to Consolidated Financial Statements............................... F-10
CTV PTY LIMITED
Independent Audit Report................................................. F-26
Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996
(unaudited)............................................................. F-27
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-28
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-29
Notes to the Financial Statements........................................ F-30
STV PTY LIMITED
Independent Audit Report................................................. F-40
Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996
(unaudited)............................................................. F-41
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-43
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-44
Notes to the Financial Statements........................................ F-45
SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE COMPANY
LIMITED)
Auditor's Report......................................................... F-55
Statement of Financial Performance for the Years Ended December 31, 1994
and 1995 and March 31, 1996 (unaudited)................................. F-56
Statement of Movements in Equity for the Years Ended December 31, 1994
and 1995 and the Three Months Ended March 31, 1996 (unaudited).......... F-57
Statement of Financial Position as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited).............................................. F-58
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-60
Notes to and Forming Part of the Financial Statements.................... F-61
XYZ ENTERTAINMENT PTY LIMITED
Independent Auditors' Report............................................. F-67
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 nine months ended September 30, 1995 and 1996
(unaudited)............................................................. F-68
Consolidated Balance Sheets as of December 31, 1994 and 1995 and Septem-
ber 30, 1996 (unaudited)................................................ F-69
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 nine months ended September 30, 1995
and 1996 (unaudited).................................................... F-70
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 nine months ended September 30, 1995 and 1996
(unaudited)............................................................. F-71
Notes to the Consolidated Financial Statements........................... F-72
</TABLE>
F-1
<PAGE>
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F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Australia/Pacific, 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 Communications, Inc.) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' 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 consolidated 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 consolidated 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
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated 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
November 18, 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, SEPTEMBER 30,
---------------- ---------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ -- $ 8,730 $ 69,228
Restricted cash.......................... -- -- 10,000
Short-term investments................... -- -- 27,630
Receivables, including related party re-
ceivables of $0, $1,623 and $4,627, re-
spectively.............................. -- 2,045 5,635
Investments in and advances to affiliated
companies, accounted for under the eq-
uity method............................. 22,296 2,829 --
Property, plant and equipment, net of ac-
cumulated depreciation of $0, $1,217 and
$13,185, respectively................... 1 27,125 130,435
License fees, net of accumulated
amortization of $0, $442 and $1,890,
respectively ........................... -- 10,693 11,173
Goodwill, net of accumulated amortization
of $0, $38 and $2,557, respectively..... -- 45,324 52,171
Other assets, net........................ 1,787 2,549 18,890
------- ------- --------
Total assets........................... $24,084 $99,295 $325,162
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabili-
ties.................................... $ 11 $ 6,407 $ 29,123
Accrued funding obligation............... -- 1,834 1,173
Due to parent............................ -- 12,583 5,902
Senior discount notes and other debt..... -- 890 241,039
------- ------- --------
Total liabilities...................... 11 21,714 277,237
------- ------- --------
Minority interest in subsidiaries.......... -- 2,515 578
Commitments (Note 7)
Stockholders' Equity:
Common stock, $.01 par value, 1,000
shares authorized, 487, 487 and 500 is-
sued, respectively...................... -- -- --
Additional paid-in capital............... 25,342 93,782 112,246
Unrealized loss on investment............ -- -- (784)
Cumulative translation adjustments....... 405 191 2,121
Accumulated deficit...................... (1,674) (18,907) (66,236)
------- ------- --------
Total stockholders' equity............. 24,073 75,066 47,347
------- ------- --------
Total liabilities and stockholders' eq-
uity.................................. $24,084 $99,295 $325,162
======= ======= ========
</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, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------
(UNAUDITED)
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service and other revenue........... $ -- $ 1,883 $ 1,152 $ 13,262
System operating expense, including
none, $85, none and $320, respec-
tively, of related party expenses.. -- (3,230) (1,870) (18,914)
System selling, general and adminis-
trative expense.................... -- (2,482) (1,636) (13,987)
Corporate general and administrative
expense............................ (659) (920) (688) (746)
Depreciation and amortization....... -- (1,003) (639) (15,935)
--------- ---------- -------- --------
Net operating loss................ (659) (5,752) (3,681) (36,320)
Equity in losses of affiliated com-
panies............................. (1,015) (16,379) (12,518) (4,501)
Gain on sale of investment in affil-
iated company...................... -- 4,132 4,132 --
Interest income..................... -- 157 -- 3,284
Interest expense.................... -- (30) -- (12,855)
Other income (expense).............. -- 219 (33) 1,001
--------- ---------- -------- --------
Net loss before minority inter-
est.............................. (1,674) (17,653) (12,100) (49,391)
Minority interest in subsidiary..... -- 420 309 2,062
--------- ---------- -------- --------
Net loss.......................... $ (1,674) $ (17,233) $(11,791) $(47,329)
========= ========== ======== ========
Net loss per common share........... $ (3,437) $ (35,386) $(24,211) $(96,393)
========= ========== ======== ========
Weighted average number of common
shares outstanding................. 487 487 487 491
========= ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE
------------- PAID IN LOSS ON TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENT ADJUSTMENT DEFICIT TOTAL
------ ------ ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1994................... -- $-- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 487 -- -- -- -- -- --
Capital contributions
from parent............ -- -- 25,342 -- -- -- 25,342
Cumulative translation
adjustment............. -- -- -- -- 405 -- 405
Net loss................ -- -- -- -- -- (1,674) (1,674)
--- ---- -------- ----- ------ -------- --------
Balances, December 31,
1994................... 487 -- 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................... 487 -- 93,782 -- 191 (18,907) 75,066
Capital contributions
from parent
(unaudited)............ -- -- 10,664 -- -- -- 10,664
Acquisition of remaining
50% interest in Saturn
(unaudited)............ 13 -- 7,800 -- -- -- 7,800
Unrealized loss on
investment............. -- -- -- (784) -- -- (784)
Cumulative translation
adjustment
(unaudited)............ -- -- -- -- 1,930 -- 1,930
Net loss (unaudited).... -- -- -- -- -- (47,329) (47,329)
--- ---- -------- ----- ------ -------- --------
Balances, September 30,
1996 (unaudited)....... 500 $-- $112,246 $(784) $2,121 $(66,236) $ 47,347
=== ==== ======== ===== ====== ======== ========
</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 NINE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................ $ (1,674) $ (17,233) $ (11,791) $ (47,329)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Depreciation and amortization..... -- 1,003 639 15,935
Equity in losses of affiliate com-
panies, net...................... 1,015 16,379 12,518 4,501
Gain on sale of investment in af-
filiated company................. -- (4,132) (4,132) --
Minority interest share of loss-
es............................... -- (420) (309) (2,062)
Accretion of interest on senior
discount notes................... -- -- -- 12,028
Increase in receivables........... -- -- (290) (3,580)
Increase in other assets.......... (1,852) (1,992) (34) (6,855)
Increase in accounts payable, ac-
crued liabilities and other...... 11 238 773 5,086
--------- --------- --------- ----------
Net cash flows from operating activ-
ities.............................. (2,500) (6,157) (2,626) (22,276)
--------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments.. -- -- -- (132,887)
Sale of short-term investments...... -- -- -- 105,257
Restricted cash..................... -- -- -- (10,000)
Investments in and advances to
affiliated companies and other
investments........................ (22,841) (22,472) (22,607) (10,651)
Purchase of additional 40% interest
in Austar, net of cash acquired.... -- (8,017) -- --
Proceeds from sale of investment in
affiliated company................. -- 4,132 4,132 --
Purchase of property and equipment.. (1) (7,143) (6,970) (105,899)
Increase in accounts payable for
capital expenditures............... -- -- -- 19,795
--------- --------- --------- ----------
Net cash flows from investing activ-
ities.............................. (22,842) (33,500) (25,445) (134,385)
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent... 25,342 38,600 27,514 10,664
Proceeds from offering of senior
discount notes..................... -- -- -- 225,115
Borrowings on bridge loan payable to
parent............................. -- 9,927 5,400 15,073
Payment of bridge loan payable to
parent............................. -- -- -- (25,000)
Deferred debt offering costs........ -- -- -- (9,624)
Borrowing on other debt............. -- -- -- 13
--------- --------- --------- ----------
Net cash flows from financing activ-
ities.............................. 25,342 48,527 32,914 216,241
--------- --------- --------- ----------
EFFECT OF EXCHANGE RATES ON CASH.... -- (140) 166 918
--------- --------- --------- ----------
INCREASE IN CASH AND CASH EQUIVA-
LENTS.............................. -- 8,730 5,009 60,498
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- -- -- 8,730
--------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ -- $ 8,730 $ 5,009 $ 69,228
========= ========= ========= ==========
NON-CASH INVESTING AND FINANCING AC-
TIVITIES
Non-cash capital contribution of
preferred stock from parent
utilized in purchase of
additional 40% interest in
Austar........................... $ -- $ 29,840 $ -- $ --
========= ========= ========= ==========
Non-cash stock issuance utilized
in purchase of 50% interest in
Saturn........................... $ -- $ -- $ -- $ 7,800
========= ========= ========= ==========
</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 majority-owned subsidiary of
UIH Asia/Pacific Communications, Inc. ("UAPC") as of September 30, 1996, which
is in turn a wholly-owned subsidiary of United International Holdings, Inc.
("UIHI"), was formed on October 14, 1994. In connection with an offering (the
"Offering") of 14% Senior Discount Notes due 2006 (see Note 11), 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 reorganized Company commenced operations
in January 1994 when UIHI began its development related activities in the
Asia/Pacific region. The Company has reflected all of the transfers from UIHI
as an equity contribution 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 Austar in
1994. In December 1995, the Company increased its effective economic
interest in Austar (formerly CEtv) to 90.0%. In May 1996, the Company
increased its economic interest in Austar to 94% which was subsequently
increased to 96% and in October 1996, acquired the remaining 4% economic
interest in Austar for $7,900. The companies that comprise Austar (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 Austar.
. 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. In July 1996, the Company acquired the remaining 50%
interest in Saturn in exchange for a 2.6% interest in the Company which
was valued at approximately $7,800. The holder of this interest was
granted a one-time conversion right to exchange such interest for an
equivalent interest in the common stock of UAPC in connection with UAPC's
planned initial public offering (Note 11). Management believes the holder
intends to convert their interest in the Company into common stock of
UAPC.
. 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%.
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)
. 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.
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.
Effective July 5, 1996, the Company effected a 4.87 for 1 stock split. All
share amounts have been restated for all periods presented to reflect this
event.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control and owns
a majority economic interest. 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 CTV and STV 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.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months. The portion of short-term investments
and the Company's investment in Australis Media Limited (see Note 11) which
are classified as available for sale in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") are accounted for at
fair market value. As of September 30, 1996 (unaudited), the Company held
approximately $27,630 of short-term investments classified as held to maturity
securities which are stated at amortized cost under the provisions of SFAS
115.
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 (Austar)...... $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 SEPTEMBER 30, 1996
(UNAUDITED)
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATED COMPANIES AFFILIATE COMPANIES(3) ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
XYZ Entertainment....... $15,289(4) $(15,399) $110 $ --
======= ======== ==== =======
</TABLE>
- ---------------------
(1) Does not include cumulative equity in losses for Austar of $3,763, as
Austar's balance sheet is consolidated as of December 31, 1995.
(2) Includes $4,132 of investment prior to the receipt of $4,132 of proceeds
received from 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.
(3) Does not include cumulative equity in losses for Saturn of $2,733, as
Saturn's balance sheet is consolidated as of September 30, 1996.
(4) Includes an accrued funding obligation of $1,173 at September 30, 1996.
The Company recognized $3,571 and $11,729 of equity losses from XYZ
Entertainment for the nine months ended September 30, 1996 and the year ended
December 31, 1995, including $1,173 and $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 all of its accrued funding obligation.
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.
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. The Company's acquisition in July 1996 of the
additional 50% interest in Saturn in exchange for 2.6% of the Company's common
stock resulted in an additional $9,178 of goodwill being recorded which is
being amortized over 15 years.
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.
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
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)
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 stockholders' 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 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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified for comparability with the
current presentation.
INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and
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)
for the nine months ended September 30, 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 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 Austar 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.......................... $ 18,267
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)
--------
290
Goodwill................................. 44,790
--------
Total consideration.................... $ 45,080
========
</TABLE>
The Company's cumulative investment as of December 31, 1995 in Austar
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 $45,080. The Company's equity in losses
from Austar 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 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 (see Note 1).
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 NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- --------------------
1994(1) 1995 1995
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................... $ -- $ 433 $ 103
Operating, selling, general and
administrative expenses.......... (243) (4,804) (2,446)
Depreciation and amortization..... (3) (1,113) (322)
-------- ---------- -------
Net operating loss.............. (246) (5,484) (2,665)
Interest, net..................... 246 914 869
Other............................. -- 245 248
-------- ---------- -------
Net loss........................ $ -- $(4,325) $(1,548)
======== ========== =======
</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. 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 (see Note 1).
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 NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- -------------------
1994(1) 1995 1995
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED INCOME STATEMENT DATA
Revenue............................ $ -- $ 10 $ --
Operating, selling, general and ad-
ministrative expenses............. (197) (2,670) (1,652)
Depreciation and amortization...... (3) (158) (72)
-------- ---------- -------
Net operating loss............... (200) (2,818) (1,724)
Interest, net...................... 107 315 313
-------- ---------- -------
Net loss......................... $ (93) $(2,503) $(1,411)
======== ========== =======
</TABLE>
- ---------------------
(1) STV began operations during 1994.
Condensed combined financial information for CTV and STV, stated in U.S.
dollars, is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996
(UNAUDITED)
<S> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
Revenue.................................................... $ 10,544
Operating, selling, general and administrative expenses.... (26,415)
Depreciation and amortization.............................. (12,269)
--------
Net operating loss....................................... (28,140)
Interest, net.............................................. (700)
Other...................................................... 347
--------
Net loss................................................. $(28,493)
========
</TABLE>
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.
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)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- --------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue......................... $ -- $ 1,266 $ 271 $ 5,667
Operating, selling, general and
administrative expenses........ (183) (27,511) (22,077) (13,746)
Depreciation and amortization... -- (2,662) (1,848) (2,425)
-------- ----------- --------- ---------
Net operating loss............ (183) (28,907) (23,654) (10,504)
Interest, net................... 2 145 147 134
Other........................... -- -- -- (3,462)
-------- ----------- --------- ---------
Net loss...................... $(181) $(28,762) $(23,507) $(13,832)
======== =========== ========= =========
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
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 NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------- --------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................... $ 43 $ 148 $ 95 $ 148
Operating, selling, general and
administrative expenses.......... (976) (2,365) (1,242) (3,016)
Depreciation and amortization..... (351) (385) (327) (281)
--------- --------- --------- ---------
Net operating loss.............. (1,284) (2,602) (1,474) (3,149)
Other............................. 69 (55) (6) (449)
--------- --------- --------- ---------
Net loss........................ $(1,215) $(2,657) $(1,480) $(3,598)
========= ========= ========= =========
</TABLE>
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)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................. $-- $ 1,582 $ 3,220
Plant and equipment................................ -- 22,683 136,394
Capitalized network construction expenditures...... -- 2,776 507
Other.............................................. 1 1,301 3,499
--- ------- --------
1 28,342 143,620
Accumulated depreciation and amortization.......... -- (1,217) (13,185)
--- ------- --------
Net property, plant and equipment.................. $ 1 $27,125 $130,435
=== ======= ========
</TABLE>
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 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, remained a member of the UIHI consolidated group.
Following consummation of UAPC's planned initial public offering (see Note
11), the Company may no longer be included in the UIHI consolidated group for
federal income tax purposes. 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 $250 and $6,000 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
$3,000 at December 31, 1995, expires beginning in 2009 through 2011.
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)
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 Austar 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.... $ (653) $(6,721)
Tax effect of permanent and other differences:
Book/tax basis differences associated with foreign equity
investments.............................................. 396 6,388
Other..................................................... -- 39
Amortization of licenses.................................. -- 157
Non-deductible Entertainment.............................. -- 222
Effect of net operating losses not recognized or (recog-
nized)................................................... 257 (85)
------- -------
Total income tax expense (benefit).......................... $ -- $ --
======= =======
7. COMMITMENTS
Austar has license fees payable annually as follows:
1996.................................................... $ 3,194
1997.................................................... 3,194
1998.................................................... 3,194
1999.................................................... 1,868
2000.................................................... --
-------
$11,450
=======
Austar has capital lease obligations as follows:
1996.................................................... $ 235
1997.................................................... 261
1998.................................................... 575
1999.................................................... 17
2000.................................................... --
-------
1,088
Future finance charges.................................. (198)
-------
$ 890
=======
</TABLE>
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)
Austar has operating lease obligations as follows:
<TABLE>
<S> <C>
1996................................................................ $ 474
1997................................................................ 474
1998................................................................ 474
1999................................................................ 475
2000................................................................ 475
After............................................................... 504
------
$2,876
======
</TABLE>
Austar entered into franchise agreements with Australis Media Limited
("Australis"). The franchise agreements provide for Austar 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.
Austar acquires a significant portion of its programming from Australis. (See
Note 11).
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 have executed 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 $920 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 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 Austar. Austar's
managing director, chief operating officer and marketing director are
employees of UIHI that have been seconded to Austar. In addition, UIHI has
appointed five other management personnel and all 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
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)
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
Austar 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 loan was converted into equity of CTV in May 1996.
(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 were used to acquire certain bridge loans made by UIHI to CTV
and Telefenua noted above, including $15,073 advanced to Austar and Telefenua
subsequent to year end.
9. PRO FORMA INFORMATION
The following unaudited pro forma information for the year ended December
31, 1995 and for the nine months ended September 30, 1996 gives effect to the
acquisitions of the additional 50% economic interests in Austar, the
disposition of the 25% interest in XYZ Entertainment, the acquisition of the
additional 50% economic interest in Saturn and the acquisition of United
Wireless 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.
F-23
<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>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
UNITED
AUSTAR XYZ SATURN WIRELESS
ACTUAL TRANSACTION(1) SALE(2) PURCHASE(3) PURCHASE(4) PRO FORMA
-------- -------------- ------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service and other
revenue................ $ 1,883 $ 443 $ -- $ 148 $ 33 $ 2,507
System operating
expense................ (3,230) (793) -- (863) (687) (5,573)
System selling, general
and administrative
expense................ (2,482) (6,681) -- (1,502) (341) (11,006)
Corporate general and
administrative
expense................ (920) -- -- -- -- (920)
Depreciation and
amortization expense... (1,003) (4,259) -- (997) (86) (6,345)
-------- -------- ------- ------- ------- --------
Net operating loss.... (5,752) (11,290) -- (3,214) (1,081) (21,337)
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) $ -- $(1,831) $(1,080) $(26,748)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------
SATURN
ACTUAL AUSTAR(5) PURCHASE(3) PRO FORMA
-------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service and other revenue..... $ 13,262 $ -- $ 104 $ 13,366
System operating expense...... (18,914) -- (619) (19,533)
System selling, general and
administrative expense....... (13,987) -- (1,077) (15,064)
Corporate general and
administrative expense....... (746) -- -- (746)
Depreciation and amortization
expense...................... (15,935) -- (491) (16,426)
-------- -------- ------- --------
Net operating loss.......... (36,320) -- (2,083) (38,403)
Equity in losses of affiliated
companies, net............... (4,501) -- 930 (3,571)
Interest, net................. (9,571) -- (83) (9,654)
Other, net.................... 3,063 (1,911) 136 1,288
-------- -------- ------- --------
Net loss.................... $(47,329) $ (1,911) $(1,100) $(50,340)
======== ======== ======= ========
</TABLE>
- ---------------------
(1) Represents the consolidation of Austar 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 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 $612 and $306 of amortization for the year ended
December 31, 1995 and the nine months ended September 30, 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 pre-acquisition activity of United Wireless.
(5) Represents the elimination of losses allocated to the minority interest
due to the increase in the economic ownership to 100%.
10. STOCKHOLDERS' EQUITY
UIHI and many of its employees serving as senior management in the Company's
operating companies are parties to employment agreements typically with terms
of three to five years. The agreements generally provide for a specified base
salary as well as a bonus set at a specified percentage of the base salary,
which bonus is based on the performance of the respective company and
employee. The agreements often provide for the grant of an incentive interest
equal to a percentage of the residual equity value of the respective company
which is typically defined as the fair market value of the business less net
liabilities and a reasonable return on shareholders' investment. The
employment agreements generally also provide for cost of living differentials,
relocation and moving expenses, automobile allowances and income tax
equalization payments, if necessary, to keep the employee's tax liability the
same as it would be in the United States.
11. SUBSEQUENT EVENTS
On May 14, 1996, the Company raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
14% Senior Discount Notes due 2006. No cash interest
F-24
<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)
payments are required until May 15, 2001, at which time cash interest payments
will be payable semi-annually on each May 15 and November 15. The Senior
Discount Notes are due May 15, 2006. The 14% Senior Discount Notes due 2006
were subsequently exchanged for 14% Senior Discount Notes due 2006, Series B
(the "Senior Discount Notes") in September 1996.
If the Company or UAPC do not consummate an issuance of capital stock
resulting in gross proceeds to the Company of at least $70,000 (an "Equity
Sale") prior to May 16, 1997, then the interest rate on the Senior Discount
Notes will be increased by an additional 0.75% per annum, until such time as
the Equity Sale is effected. In addition, if the Company or UAPC do not
consummate an Equity Sale prior to November 16, 1997, the then holders of the
Senior Discount Notes will be entitled to receive warrants to purchase common
stock of the Company or, in certain circumstances, of UAPC. However, UAPC
intends to file a registration statement in November 1996 for the sale of at
least $70,000 of its common stock in order to avoid such dilution and interest
penalty. There is no assurance that this offering will be successful.
The Company intends to file a registration statement during November 1996
for the sale of up to $150,000 in senior discount notes, the proceeds of which
would be used primarily for funding commitments to its operating companies.
There is no assurance this offering will be successful.
The Company used $10,000 of the proceeds from its offering of Senior
Discount Notes to acquire a UIH subsidiary which guaranteed $10,000 of
Australis' debt and, as consideration for giving the guarantee, received
warrants to acquire 4,171,460 ordinary shares or convertible debentures. On
October 31, 1996, the Company's $10,000 guarantee of Australis' debt expired.
The Company used $3,339 of the related cash to acquire 7,736,171 debentures of
Australis. Further, the Company exercised warrants to acquire Australis common
stock and debentures at A$0.20 per share for 3,016,832 shares of Australis
common stock and 1,154,628 debentures. Each debenture is convertible into one
common share of Australis.
Australis, Austar'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. Australis has recently closed private offerings of
debt and equity securities that Australis announced would enable it to carry
its business through to cash flow positive. If such financing is not
sufficient to satisfy Australis' long-term capital needs, Australis may have
difficulty meeting contractual obligations with respect to the four Galaxy
channels distributed directly by Australis. The Company believes that if
Austar 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
competitive terms. There can be no assurance however, that this would be the
case and the inability of Austar 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.
In October 1996, a complaint was served on UIHI by an individual who claimed
to have worked with UIHI in connection with the acquisition by Austar of
certain of its licenses has claimed that UIHI owes him a 12.5% equity interest
in unspecified subsidiaries of UIHI in consideration of services purportedly
provided. This complaint seeks an unspecified amount of damages. UIHI intends
to vigorously defend these claims, which UIHI believes are without merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision
from using such infrastructure to deliver DTH services in Austar's franchise
area. Austar believes that using the infrastructure by any entity other than
Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which
granted Austar an exclusive license and franchise to use the infrastructure
within its franchise area. Austar is seeking injunctive relief or, in the
alternative, damages associated with this violation of its franchise
agreements.
F-25
<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-26
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------
SEPTEMBER 30,
DECEMBER 31, 1996
--------------------- ----------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets:
Cash........................... 19,371,145 9,712,936 161,294
Receivables.................... 3 718,939 4,538,627 15,022,096
Inventory...................... -- 679,628 2,263,092
Other.......................... 4 25,582 830,133 1,691,204
---------- ---------- -----------
Total current assets......... 20,115,666 15,761,324 19,137,686
---------- ---------- -----------
Non-current assets
Investments.................... 5 2 2 2
Property, plant and equipment.. 6 2,746,809 17,955,579 73,165,057
Intangibles.................... 7 5,021,630 7,906,674 7,892,233
---------- ---------- -----------
Total non-current assets..... 7,768,441 25,862,255 81,057,292
---------- ---------- -----------
Total assets............... 27,884,107 41,623,579 100,194,978
---------- ---------- -----------
Current liabilities
Creditors and borrowings....... 8 2,747,734 15,477,769 31,792,650
Provisions..................... -- -- --
---------- ---------- -----------
Total current liabilities.... 2,747,734 15,477,769 31,792,650
---------- ---------- -----------
Non-current liabilities
Creditors and borrowings....... 9 36,165 684,945 1,904,893
Provisions..................... 10 -- 156,267 387,109
---------- ---------- -----------
Total non-current liabili-
ties........................ 36,165 841,212 2,292,002
---------- ---------- -----------
Total liabilities.......... 2,783,899 16,318,981 34,084,652
---------- ---------- -----------
Net assets....................... 25,100,208 25,304,598 66,110,326
========== ========== ===========
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) (28,843,681)
---------- ---------- -----------
5,159,471 (636,139) (23,684,416)
Convertible debentures......... 12 19,940,737 25,940,737 89,794,742
---------- ---------- -----------
Total shareholders' equi-
ty........................ 25,100,208 25,304,598 66,110,326
========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-27
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------------------
FOR THE NINE MONTHS ENDED
PERIOD ENDED YEAR ENDED SEPTEMBER 30,
31 DECEMBER 31 DECEMBER ---------------------------
1994 1995 1995 1996
(UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C>
Revenue:
Service............... -- 579,690 138,968 8,292,261
-------- ---------- ------------ -------------
-- 579,690 138,968 8,292,261
-------- ---------- ------------ -------------
Expenses:
General and adminis-
tration.............. 321,494 6,406,782 3,301,778 20,288,526
Depreciation and
amortisation......... 4,055 1,491,456 435,253 10,591,840
Management fees....... -- 29,651 -- 132,767
-------- ---------- ------------ -------------
325,549 7,927,889 3,737,031 31,013,133
-------- ---------- ------------ -------------
Operating loss.......... (325,549) (7,348,199) (3,598,063) (22,720,872)
-------- ---------- ------------ -------------
Non-operating income
(expense)
Interest income....... 327,355 1,227,029 1,173,674 184,695
Interest expense and
costs of finance..... (1,600) (2,180) (862) (693,700)
Other, net foreign
exchange gains--non-
speculative trading.. -- 327,740 336,056 181,600
-------- ---------- ------------ -------------
325,755 1,552,589 1,508,868 (327,405)
-------- ---------- ------------ -------------
Net profit (loss) before
tax.................... 206 (5,795,610) (2,089,195) (23,048,277)
Income tax attributable
to net profit/(loss)... -- -- -- --
-------- ---------- ------------ -------------
Net loss................ 206 (5,795,610) (2,089,195) (23,048,277)
-------- ---------- ------------ -------------
Retained
profits/(accumulated
losses) at beginning of
period................. -- 206 206 (5,795,404)
-------- ---------- ------------ -------------
Retained
profits/(accumulated
losses) at end of peri-
od..................... 206 (5,795,404) (2,088,989) (28,843,681)
======== ========== ============ =============
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-28
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------
NINE MONTHS ENDED
PERIOD ENDED YEAR ENDED SEPTEMBER 30,
31 DECEMBER 31 DECEMBER -----------------------
NOTE 1994 1995 1995 1996
(UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities
Receipts from custom-
ers.................. -- 522,211 90,704 7,510,104
Payments to suppliers
and employees........ (297,332) (3,973,333) (4,466,020) (21,163,929)
Interest received..... 327,355 1,227,029 1,173,674 184,697
Interest and other
costs of finance
paid................. (1,600) (2,180) (862) (693,700)
---------- ----------- ---------- -----------
Net operating cash
flows................ 28,423 (2,226,273) (3,202,504) (14,162,878)
---------- ----------- ---------- -----------
Cash flows from invest-
ing activities
Purchase of
subsidiaries, net of
cash acquired........ (12) (10) (10) --
Payments for plant and
equipment............ (55,871) (15,326,279) (5,050,703) (63,828,367)
Payments for MDS and
broadcast licenses... (5,021,630) (3,437,458) (4,079,878) (602,691)
Decrease in inventory
net of payables...... -- -- 67,769 17,021,755
Loans granted......... (718,939) (3,768,962) -- --
Payments for invest-
ments................ -- (2) -- --
---------- ----------- ---------- -----------
Net investing cash
flows................ (5,796,452) (22,532,711) (9,062,822) (47,409,303)
---------- ----------- ---------- -----------
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 6,000,000 63,854,004
Proceeds from
intercompany loans... -- -- 5,798,883 --
Payment on
intercompany loans... -- -- -- (13,550,399)
Proceeds from short
term loans........... 39,781 8,818,202 -- --
Proceeds from lease
financing............ -- -- 158,286 1,535,334
Repayment of finance
lease principal...... (609) (45,167) -- --
---------- ----------- ---------- -----------
Net financing cash
flows................ 25,139,174 14,773,035 11,957,169 51,838,939
---------- ----------- ---------- -----------
Net increase/(decrease)
in cash held........... 19,371,145 (9,985,949) (308,157) (9,733,242)
Cash at beginning of pe-
riod................... -- 19,371,145 19,371,145 9,712,936
Effect of different ex-
change rate............ -- 327,740 336,056 181,600
---------- ----------- ---------- -----------
Cash at the end of the
period................. 8, 16 19,371,145 9,712,936 19,399,044 161,294
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-29
<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-30
<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 September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 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-31
<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 SEPTEMBER 30, 1996
----------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Trade debtors........................... -- 57,479 822,695
Less: provision for doubtful debts...... -- (5,792) (147,727)
------- --------- ----------
-- 51,687 674,968
Related parties:
--United International Holdings Inc... 95,865 140,217 1,187,085
--Other............................... -- 712,554 839,459
--Related body corporate--STV Pty Ltd.. 623,074 3,627,044 12,239,197
Other persons........................... -- 7,125 81,387
------- --------- ----------
718,939 4,538,627 15,022,096
======= ========= ==========
NOTE 4. OTHER ASSETS (CURRENT):
Prepaid expenses........................ 10,465 787,916 122,281
Security deposits....................... 15,117 42,217 1,568,923
------- --------- ----------
Total other assets (current)............ 25,582 830,133 1,691,204
======= ========= ==========
NOTE 5. INVESTMENTS (NON-CURRENT):
Investments in associated companies
(Note 18).............................. 2 2 2
======= ========= ==========
</TABLE>
F-32
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY SEPTEMBER 30, 1996
--------------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.......................... -- 151,200 1,021,106
--Accumulated depreciation......... -- (8,705) (106,281)
--------- ---------- ----------
Total leasehold improvements, net.... -- 142,495 914,825
--------- ---------- ----------
Plant and equipment:
--At cost.......................... 55,881 15,737,143 79,680,492
--Accumulated depreciation......... (4,055) (872,818) (9,872,523)
--------- ---------- ----------
Total plant and equipment, net....... 51,826 14,864,325 69,807,969
--------- ---------- ----------
Plant and equipment under lease:
--At capitalised cost.............. 44,506 912,820 2,336,156
--Accumulated depreciation......... -- (61,563) (285,805)
--------- ---------- ----------
Total leased plant and equipment,
net................................. 44,506 851,257 2,050,351
--------- ---------- ----------
Capitalised network construction ex-
penditures:
--At cost.......................... 2,650,477 2,097,502 391,912
--Accumulated amortisation......... -- -- --
--------- ---------- ----------
Total capitalised development expen-
ditures, net:....................... 2,650,477 2,097,502 391,912
--------- ---------- ----------
Total property, plant and equipment,
net:................................ 2,746,809 17,955,579 73,165,057
========= ========== ==========
NOTE 7. INTANGIBLE ASSETS (NON-CURRENT):
MDS licenses:
--At cost.......................... 5,018,215 8,196,618 9,448,457
--Accumulated amortisation......... -- (544,093) (1,814,405)
--------- ---------- ----------
Total MDS licenses net:.............. 5,018,215 7,652,525 7,634,052
--------- ---------- ----------
Program Rights fees at cost: -- 250,000 251,570
--Accumulated amortisation......... -- (8,333) (8,333)
Other at cost........................ -- -- 14,944
Organisation costs at cost:.......... 3,415 12,482 --
--------- ---------- ----------
Total intangible assets, net......... 5,021,630 7,906,674 7,892,233
========= ========== ==========
NOTE 8. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Overdraft.......................... -- -- --
Trade creditors.................... 1,684 5,727,304 26,414,652
Unearned Income.................... -- 29,062 --
Accrued Expenses................... 2,698,537 728,113 4,212,214
Due to related body corporate--
United International Holdings
Inc............................... 39,781 8,857,983 715,093
Secured:
Finance lease liability (Note 15).. 7,732 135,307 450,691
--------- ---------- ----------
Total current creditors and
borrowings.......................... 2,747,734 15,477,769 31,792,650
========= ========== ==========
</TABLE>
F-33
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY SEPTEMBER 30, 1996
----------------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Secured
Finance lease liability (Note
15)............................. 36,165 684,945 1,904,893
----------- ----------- -----------
Total non-current creditors and
borrowings........................ 36,165 684,945 1,904,893
=========== =========== ===========
NOTE 10. PROVISIONS (NON-CURRENT):
Annual leave....................... -- 156,267 387,109
=========== =========== ===========
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
December 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 ended 31 December 1995, 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-34
<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
-------------------
DECEMBER 31,
-------------------
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-35
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------
DECEMBER 31,
--------------------
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-36
<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>
ECONOMIC ENTITY
---------------------------------------------------
SEPTEMBER 30,
DECEMBER 31, 1996
--------------------------------- -------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash....................... 73,377 (261,963) 161,294
Short term money market de-
posits.................... 19,297,768 9,974,899 --
---------- ---------- -----------
19,371,145 9,712,936 161,294
========== ========== ===========
(b)Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<CAPTION>
SEPTEMBER 30,
ECONOMIC ENTITY 1996
--------------------------------- -------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Operating profit (loss) af-
ter income tax:........... 206 (5,795,610) (23,048,277)
Adjustments for non-cash
income and expense
items:
Depreciation and
amortisation expense.... 4,055 1,491,456 10,591,840
Bad debts expense and
provision for doubtful
debts................... -- 5,792 141,934
Transfers to provisions:
Annual leave............. -- 156,267 --
Unrealised foreign exchange
gain...................... -- (327,740) (181,600)
Increase in other receiv-
ables..................... -- (57,479) 3,640,092
Increase in trade credi-
tors...................... 49,744 3,785,221 (3,792,612)
Increase in inventory...... -- (679,628) --
Increase in other assets... (25,582) (804,552) (1,514,255)
---------- ---------- -----------
Net cash from operating ac-
tivities.................. 28,423 (2,226,273) (14,162,878)
========== ========== ===========
</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-37
<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-38
<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, SEPTEMBER 30,
------------------------ -------------
1994 1995 1996
----------- ----------- -------------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per bal-
ance sheet....................... 25,100,208 25,304,598 66,110,326
Adjustments to reported equity:
Convertible debentures.......... (19,940,737) (25,940,737) (89,794,742)
----------- ----------- -----------
Shareholder's equity in accordance
with
US GAAP.......................... 5,159,471 (636,139) (23,684,416)
=========== =========== ===========
</TABLE>
F-39
<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-40
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
--------------------- ------------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets
Cash............................ 10,078,250 2,236 12,353
Receivables..................... 3 63,934 1,325,563 1,650,882
Prepayments and other........... -- 382,866 122,793
---------- ---------- ----------
Total current assets.............. 10,142,184 1,710,665 1,786,028
---------- ---------- ----------
Non-current assets
Investments..................... 4 2 2 2
Property, plant and equipment... 5 527,373 6,085,042 65,126,160
Intangibles..................... 6 3,562 3,727,654 3,926,529
---------- ---------- ----------
Total non-current assets.......... 530,937 9,812,698 69,052,691
---------- ---------- ----------
Total assets...................... 10,673,121 11,523,363 70,838,719
---------- ---------- ----------
Current liabilities
Creditors and borrowings........ 7 759,411 4,673,587 13,614,374
---------- ---------- ----------
Total current liabilities......... 759,411 4,673,587 13,614,374
---------- ---------- ----------
Non-current liabilities
Creditors and borrowings........ 8 36,165 313,981 2,226,146
Provisions...................... 9 -- 11,495 304,605
---------- ---------- ----------
Total non-current liabilities..... 36,165 325,476 2,530,751
---------- ---------- ----------
Total liabilities................. 795,576 4,999,063 16,145,125
---------- ---------- ----------
Net assets........................ 9,877,545 6,524,300 54,693,594
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-41
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------
DECEMBER 31, SEPTEMBER 30, 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) (16,827,384)
--------- ---------- -----------
1,437,798 (1,915,447) (15,267,129)
Convertible debentures.......... 11 8,439,747 8,439,747 69,960,723
--------- ---------- -----------
Total shareholders' equity...... 9,877,545 6,524,300 54,693,594
========= ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-42
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
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 -- 5,108,291
-------- ---------- ---------- -----------
-- 13,819 -- 5,108,291
-------- ---------- ---------- -----------
Expenses:
General and adminis-
tration.............. 258,991 3,576,688 2,230,397 13,362,078
Depreciation and amor-
tization............. 4,055 212,635 97,124 5,016,715
Management fees....... -- -- -- (48,534)
-------- ---------- ---------- -----------
263,046 3,789,323 2,327,521 18,330,259
-------- ---------- ---------- -----------
Operating loss.......... (263,046) (3,775,504) (2,327,521) (13,221,968)
-------- ---------- ---------- -----------
Non-operating income
(expense)
Interest income....... 142,189 422,563 422,553 53,791
Interest expense and
costs of finance..... (1,600) (304) (304) (433,625)
-------- ---------- ---------- -----------
140,589 422,259 422,249 (379,834)
-------- ---------- ---------- -----------
Other, net foreign
exchange gains
(losses)............... -- -- -- 250,120
Net loss before tax..... (122,457) (3,353,245) (1,905,272) (13,351,682)
Income tax attributable
to net loss............ -- -- -- --
-------- ---------- ---------- -----------
Net loss................ (122,457) (3,353,245) (1,905,272) (13,351,682)
-------- ---------- ---------- -----------
Accumulated losses at
beginning of period.... -- (122,457) (122,457) (3,475,702)
-------- ---------- ---------- -----------
Accumulated losses at
end of period.......... (122,457) (3,475,702) (2,027,729) (16,827,384)
======== ========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-43
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------------------
NINE MONTHS ENDED
PERIOD ENDED YEAR ENDED SEPTEMBER 30,
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 -- 4,663,557
Payments to suppliers
and employees........ (210,202) (3,876,242) (2,045,277) (16,470,963)
Interest received..... 78,255 422,563 422,553 53,791
Interest and other
costs of finance
paid................. (1,600) (304) -- (431,250)
---------- ----------- ---------- -----------
Net operating
cashflows.............. (133,547) (3,379,234) (1,622,724) (12,184,865)
---------- ----------- ---------- -----------
Cashflows from investing
activities:
Purchase of
subsidiaries, net of
cash acquired........ (2) (12) (14) --
Payments for plant,
equipment and
construction in
process.............. (486,922) (5,381,613) (934,485) (63,506,772)
Payments for MDS
licenses............. (3,562) (3,757,962) (3,695,600) (140,733)
Payments for
investments.......... -- (2) -- --
Loans granted......... -- (1,322,587) -- --
---------- ----------- ---------- -----------
Net investing
cashflows.............. (490,486) (10,462,176) (4,630,099) (63,647,505)
---------- ----------- ---------- -----------
Cashflows from financing
activities:
Proceeds from issues
of shares............ 1,560,255 -- -- --
Proceeds from short-
term loans........... 702,890 3,787,493 -- --
Proceeds from
debenture issues..... 8,439,747 -- -- 61,520,977
Proceeds from
intercompany loans... -- -- 2,013,372 11,733,574
Proceeds from lease
financing............ -- -- 89,409 2,337,816
Repayment of finance
lease principal...... (609) (22,097) -- --
---------- ----------- ---------- -----------
Net financing
cashflows.............. 10,702,283 3,765,396 -- --
---------- ----------- ---------- -----------
Net increase (decrease)
in cash held........... 10,078,250 (10,076,014) (4,150,042) (240,003)
Cash at the beginning of
the period............. -- 10,078,250 10,078,250 2,236
Effect of different
exchange rate.......... 15(c) -- -- -- 250,120
---------- ----------- ---------- -----------
Cash at the end of the
period................. 15(a) 10,078,250 2,236 5,928,208 12,353
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-44
<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-45
<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 September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of a normal recurring nature.
F-46
<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>
SEPTEMBER 30,
ECONOMIC ENTITY 1996
---------------- -------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Accounts Receivable Trade.................. -- 3,004 446,599
--Allowance for Bad Debts................. -- (28) (96,543)
Non-trade amounts owing by:
Related parties
--Wholly owned group..................... -- -- --
--Associated companies................... -- 1,322,587 1,299,348
Other persons............................. 63,934 -- 1,478
------ --------- ---------
Total current receivables.................. 63,934 1,325,563 1,650,882
====== ========= =========
NOTE 4. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
17)....................................... 2 2 2
====== ========= =========
</TABLE>
F-47
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY SEPTEMBER 30, 1996
------------------ ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.......................... -- 128,274 847,652
--Accumulated amortization......... -- (7,801) (87,117)
------- --------- ----------
Total leasehold improvements, net... -- 120,473 760,535
------- --------- ----------
Plant and equipment:
--At cost.......................... 55,881 4,093,944 66,214,742
--Accumulated depreciation......... (4,055) (149,677) (4,418,938)
------- --------- ----------
Total plant and equipment, net...... 51,826 3,944,267 61,795,804
------- --------- ----------
Plant and equipment under lease:
--At capitalized cost.............. 44,506 408,832 2,462,622
--Accumulated depreciation......... -- (25,343) (142,418)
------- --------- ----------
Total lease plant and equipment,
net................................ 44,506 383,489 2,320,204
------- --------- ----------
Capitalized network construction
expenditures:
--At cost.......................... 431,041 1,636,813 249,617
--Accumulated amortization......... -- -- --
------- --------- ----------
Total capitalized development
expenditures, net.................. 431,041 1,636,813 249,617
------- --------- ----------
Total property, plant and equipment,
net................................ 527,373 6,085,042 65,126,160
======= ========= ==========
NOTE 6. INTANGIBLE ASSETS (NON-CURRENT):
MDS licences........................ 1,570 3,501,285 4,023,886
--Accumulated Amortization......... -- (25,536) (353,107)
Other licenses...................... -- 251,570 251,570
--Accumulated Amortization......... -- (8,333) (8,333)
Other............................... 1,992 8,668 12,513
------- --------- ----------
Total intangible assets, net........ 3,562 3,727,654 3,926,529
======= ========= ==========
NOTE 7. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Trade creditors.................... 1,689 120,561 92,915
Accrued expenses................... 47,100 -- --
Due to associated company--CTV Pty
Limited........................... 623,074 3,627,044 12,239,197
Due to related body corporate--
United International Holdings
Inc............................... 79,816 863,341 793,969
Secured:
Secured:Finance lease liability
(Note 14)......................... 7,732 62,641 488,293
------- --------- ----------
759,411 4,673,587 13,614,374
======= ========= ==========
</TABLE>
F-48
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY SEPTEMBER 30, 1996
----------------------- ------------------
1994 1995 (UNAUDITED)
----------- ----------- ------------------
$A $A $A
<S> <C> <C> <C>
Secured:
Finance lease liability (Note
14)........................... 36,165 313,981 2,226,146
----------- ----------- -----------
Total non-current creditors and
borrowings..................... 36,165 313,981 2,226,146
=========== =========== ===========
NOTE 9. PROVISIONS (NON-CURRENT):
Annual leave.................... -- 11,495 304,605
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 ended 31 December 1995, 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-49
<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
-------------------
DECEMBER 31,
-------------------
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-50
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
DECEMBER 31,
----------------
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-51
<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
-----------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
---------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash........................................ 5,994 2,236 12,353
Short-term money market deposits............ 10,072,256 -- --
---------- ----- ------
10,078,250 2,236 12,353
========== ===== ======
</TABLE>
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------------------------
SEPTEMBER 30, 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) (13,351,682)
Adjustments for non-cash
income and expense items:
Depreciation and amorti-
zation expense......... 4,055 212,635 4,793,226
Bad debts expense and
provision for doubtful
debts.................. -- 28 96,514
Unrealised foreign
exchange gain.......... -- -- (250,120)
Transfers to provisions:
Annual leave............ -- 11,495 --
Increase in other re-
ceivables.............. (63,934) 60,930 (2,749,285)
Increase (decrease) in
trade creditors........ 48,789 71,789 (597,880)
Increase in other as-
sets................... -- (382,866) (125,638)
-------- ---------- -----------
Net cash from operating
activities............. (133,547) (3,379,234) (12,184,865)
======== ========== ===========
</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-52
<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-53
<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, SEPTEMBER 30,
---------------------- ----------------
1994 1995 1996
---------- ---------- -----------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per bal-
ance sheet...................... 9,877,545 6,524,300 54,693,594
Adjustments to reported equity:
Convertible debentures......... (8,439,747) (8,439,747) (69,960,723)
---------- ---------- -----------
Shareholder's equity in accor-
dance with US GAAP.............. 1,437,798 (1,915,447) (15,267,129)
========== ========== ===========
</TABLE>
F-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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 23,901
====== ======
</TABLE>
F-65
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
10. RECONCILIATION 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-66
<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-67
<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>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
NOTE AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Channel supply........... Nil 1,117,091 366,041 7,166,074
Other.................... Nil 592,149 Nil 744,483
Interest................. 2,829 196,291 198,636 185,739
------- ---------- ---------- ----------
2,829 1,905,531 564,677 8,096,296
------- ---------- ---------- ----------
Operating expenses
Cost of services......... Nil 24,677,575 24,649,484 16,695,213
Selling, general and
administrative.......... 236,703 12,475,597 5,155,124 5,178,357
Depreciation and
amortization............ 2 Nil 3,594,737 2,494,557 3,893,306
------- ---------- ---------- ----------
Cost of operations......... 236,703 40,747,909 32,299,165 25,766,876
------- ---------- ---------- ----------
Net loss before income tax-
es........................ 233,874 38,842,378 31,734,488 17,670,580
------- ---------- ---------- ----------
Income taxes............... 3 Nil Nil Nil Nil
------- ---------- ---------- ----------
Net loss................... 2 233,874 38,842,378 31,734,488 17,670,580
------- ---------- ---------- ----------
Net loss per share......... 116,937 19,421,189 15,867,244 4,417,645
======= ========== ========== ==========
Weighted average number of
ordinary shares outstand-
ing during the period..... 2 2 2 4
======= ========== ========== ==========
</TABLE>
The accompanying notes form part of these financial statements.
F-68
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30,
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 6,509,498
Receivables........................ 33,000 1,006,241 3,496,958
Amounts due from stockholder....... Nil 21,219 Nil
Program material rights (net of ac-
cumulated amortization of A$nil,
A$1,430,000 and A$4,211,367)...... Nil 2,298,935 1,526,412
-------- ----------- -----------
Total current assets............. 703,754 6,432,198 11,532,868
-------- ----------- -----------
Non-current assets
Property, plant and equipment...... 4 57,448 3,361,070 2,837,199
Investment in associated company... 6 Nil 245,518 2
Amounts due from related party..... 8 Nil 1,326,578 Nil
Program material rights (net of ac-
cumulated amortization of A$nil,
$A180,000 and $A750,000).......... Nil 217,916 3,050,000
-------- ----------- -----------
Total non-current assets......... 57,448 5,151,082 5,887,201
-------- ----------- -----------
Total assets................... 761,202 11,583,280 17,420,069
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFI-
CIENCY
Current liabilities
Creditors, trade................... Nil 20,792,868 21,424,967
Other creditors and accruals....... Nil 75,656 109,386
Amounts due to related party....... Nil Nil 94,851
-------- ----------- -----------
Total current liabilities........ Nil 20,868,524 21,629,204
-------- ----------- -----------
Non-current liabilities
Creditors, trade................... Nil 743,086 709,465
Amounts due to stockholders........ 8 995,074 29,047,920 51,828,228
-------- ----------- -----------
Total non-current liabilities.... 995,074 29,791,006 52,537,693
-------- ----------- -----------
Total liabilities.............. 995,074 50,659,530 74,166,897
-------- ----------- -----------
Commitments and Contingencies (See
Notes)
Stockholders' deficiency
Redeemable preferences shares, par
value A $1.00 per share:
Authorised 100,000 shares, none
issued and outstanding............ Nil Nil Nil
Ordinary shares, par value A$1.00
per share:
Authorised 900,000 shares, 2 is-
sued and outstanding.............. 9 2 2 4
Accumulated deficit................ (233,874) (39,076,252) (56,746,832)
-------- ----------- -----------
Total stockholders' deficien-
cy............................ (233,872) (39,076,250) (56,746,828)
-------- ----------- -----------
Total liabilities and stock-
holders' deficiency........... 761,202 11,583,280 17,420,069
======== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-69
<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)
--- ----------- -----------
Issue of ordinary shares.................... 2 2
Net loss (unaudited)........................ (17,670,580) (17,670,580)
--- ----------- -----------
Balance at September 30, 1996 (unaudited)... 4 (56,746,832) (56,746,828)
=== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-70
<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>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Cash receipts in the
course of operations..... Nil 370,348 133,302 5,419,840
Cash payments in the
course of operations..... (269,703) (17,351,047) (11,985,999) (19,714,865)
Interest received......... 2,829 196,291 198,636 185,739
-------- ----------- ----------- -----------
Net cash used in operating
activities............... (266,874) (16,784,408) (11,654,061) (14,109,286)
-------- ----------- ----------- -----------
Cash flows from investing
activities
Payments for property,
plant and equipment...... (57,448) (4,999,012) (4,291,014) (48,333)
Proceeds from sale of pro-
gram material rights..... Nil 2,304,795 Nil Nil
Payment for investment.... Nil (1) Nil Nil
Payments for program mate-
rial rights.............. Nil (7,164,583) (4,964,902) (5,218,996)
-------- ----------- ----------- -----------
Net cash used in investing
activities............... (57,448) (9,858,801) (9,255,916) (5,267,329)
-------- ----------- ----------- -----------
Cash flows from financing
activities
Proceeds from issues of
shares................... 2 Nil Nil 2
Proceeds from stockholder
loans.................... 995,074 29,078,258 23,838,260 22,780,308
-------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities....... 995,076 29,078,258 23,838,260 22,780,310
-------- ----------- ----------- -----------
Net increase in cash and
cash equivalents held...... 670,754 2,435,049 2,928,283 3,403,695
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 3,599,037 6,509,498
======== =========== =========== ===========
Reconciliation of Net Loss
to Net Cash Used in
Operating Activities
Net loss.................. (233,874) (38,842,378) (31,734,488) (17,670,580)
Add non-cash items:
Amounts set aside to
provisions............. Nil 1,771,817 68,531 33,730
Depreciation and amorti-
zation................. Nil 3,594,737 2,494,557 3,893,306
Gain on disposal of pro-
gram material rights... Nil (189,213) Nil Nil
Loss on disposal of pro-
gram material rights... Nil 1,511,315 Nil Nil
Gain on disposal of
fixed assets........... Nil (168,358) Nil (161,667)
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) (29,171,400) (13,905,211)
Change in assets and lia-
bilities:
Increase in trade re-
ceivables.............. (33,000) (994,460) (231,699) (2,490,717)
(Increase) decrease in
other receivables...... Nil (1,518,255) (1,040) 1,593,313
Increase in creditors... Nil 18,040,697 17,750,078 693,329
-------- ----------- ----------- -----------
Net cash used in oper-
ating activities..... (266,874) (16,784,408) (11,654,061) (14,109,286)
======== =========== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-71
<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-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
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-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
(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-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,
1994AND 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 September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of normal recurring nature.
NOTE 2--EXPENDITURES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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 828,647 576,080 733,871
--program material rights...... Nil 2,766,090 1,918,477 3,159,435
--- --------- --------- ---------
Total depreciation and
amortization................ Nil 3,594,737 2,494,557 3,893,306
=== ========= ========= =========
Amounts set Aside to Provision:
--employee entitlements--annual
leave......................... Nil 75,656 68,531 33,730
--provision for doubtful
debts......................... Nil 1,696,160 -- --
--- --------- --------- ---------
Nil 1,771,816 68,531 33,730
=== ========= ========= =========
Exchange (gain) loss, net, on
foreign currency transactions:
Exchange gain on foreign
currency transactions......... Nil (368,670) 640,564 (631,844)
--- --------- --------- ---------
Exchange (gain) loss, net...... Nil (368,670) 640,564 (631,844)
=== ========= ========= =========
</TABLE>
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
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>
SEPTEMBER 30,
1994 1995 1996
AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C>
Plant and equipment--at cost.................... 57,448 4,026,837 4,214,890
Less: accumulated depreciation.................. Nil (665,767) (1,377,691)
------ --------- ----------
Total property, plant and equipment........... 57,448 3,361,070 2,837,199
====== ========= ==========
</TABLE>
There have been no current valuations included in the above amounts.
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
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-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, 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 SEPTEMBER 30, SEPTEMBER 30,
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 17,670,580
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 17,670,580
======= ========== ==========
</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-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
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>
SEPTEMBER 30,
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 25,914,114
Loans advanced from
stockholder............ Non-interest Foxtel Management R Freudenstein
bearing, no set Pty Limited and M Booth
terms of repayment 14,523,960 25,914,114
---------- ----------
29,047,920 51,828,228
========== ==========
</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-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,
1994AND THE YEAR ENDED DECEMBER 31, 1995
LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
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 --
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>
SEPTEMBER 30,
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 1,849,499
Channel supply licence
fee revenue............ Normal commercial Continental Century
terms and Pay Television Pty
conditions Limited A Tow 943,358 4,412,318
Channel supply licence
fee revenue............ Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions 330,753 3,938,757
Transponder Costs.......
Normal commercial Continental Century
terms and Pay Televsion Pty
conditions Limited A Tow -- 8,756,000
Rent and Facility costs
paid................... Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions -- 1,854,033
</TABLE>
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
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
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>
Rent received for
equipment usage........ Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions -- 1,304,050
</TABLE>
There were no other transactions with Director Related Parties at December
31, 1994.
LOANS TO OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
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.
OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
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 --
</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.
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
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.
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>
F-82
<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
NOTE12--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 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.
F-83
<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
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.
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-84
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SECU-
RITIES 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................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 19
Exchange Rate Data....................................................... 20
Capitalization........................................................... 21
Pro Forma Consolidated Condensed Statement
of Operations Data...................................................... 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 32
Regulation............................................................... 49
Corporate Organizational Structure....................................... 58
Management............................................................... 63
Relationship with UAP and Related Transactions........................... 69
Security Ownership....................................................... 70
Description of the Notes................................................. 71
Certain U.S. Income Tax Considerations................................... 96
Underwriting............................................................. 100
Legal Matters............................................................ 100
Experts.................................................................. 101
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1997 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THE DISTRIBUTION, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
AUSTRALIA/
PACIFIC, INC.
[LOGO OF AUSTRALIA/PACIFIC, INC. APPEARS HERE]
% SENIOR DISCOUNT NOTES
DUE 2007
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee and the National
Association Securities Dealers, Inc. and Nasdaq application fees, are
estimated:
<TABLE>
<S> <C>
Commission registration fee....................................... $45,455
National Association of Securities Dealers, Inc. filing fees...... 15,500
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Directors and officers liability insurance........................ *
Transfer agent fees............................................... *
Miscellaneous..................................................... *
-------
Total........................................................... *
=======
</TABLE>
- ---------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Issuer's Articles of Incorporation and Article VI of the
Issuer's Bylaws require the Issuer to indemnify, to the fullest extent
authorized by applicable law, any person who is or is threatened to be made a
party to any civil, criminal, administrative, investigative, or other action
or proceeding instituted or threatened by reason of the fact that he is or was
a director of the Issuer or is or was serving at the request of the Issuer as
a director of another corporation, partnership, joint venture, trust or other
enterprise.
Article V of the Issuer's Articles of Incorporation provides that, to the
fullest extent permitted by the Colorado Business Corporation Act, directors
of the Issuer shall not be liable to the Issuer or any of its stockholders for
damages caused by a breach of a fiduciary duty by such director.
Section 7-109-102 of the Colorado Business Corporation Act authorizes the
indemnification of directors against liability incurred by reason of being a
director and against reasonable expenses (including attorney's fees) in
connection with defending any action seeking to establish such liability if
the director acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation. Directors may not
be indemnified under Section 7-109-102 of the Colorado Business Corporation
Act in connection with (a) a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or (b) any other
proceeding charging that the director denied an improper personal benefit,
whether or not involving action in an official capacity, in which proceeding
the director was adjudged liable on the basis that he derived an improper
personal benefit. Indemnification is also authorized with respect to any
criminal action or proceeding where the officer or director had no reasonable
cause to believe his conduct was unlawful.
The above discussion of the Issuer's Articles of Incorporation and Bylaws
and Section 7-109-102 of the Colorado Business Corporation Act is intended to
be only a summary and is qualified in its entirety by the full text of each of
the foregoing.
II-1
<PAGE>
Reference is made to the Form of Note Purchase Agreement which is filed as
Exhibit 1.1, in which each Underwriter agrees, under certain circumstances, to
indemnify the directors and officers of the Issuer and certain other persons
against certain civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Issuer was incorporated in 1994, at which time it issued 100 shares of
common stock to its parent corporation in exchange for $100 in cash, and the
contribution of the capital stock of the wholly owned subsidiaries through
which its parent had been conducting its Australian operations. In connection
with the Saturn Purchase, the Issuer declared and paid a cash dividend of 387
shares of common stock to its parent corporation and issued to the other
shareholder of Saturn 13 shares of common stock in exchange for such
shareholder's 50% interest in Saturn. In each case, the Issuer claimed an
exemption from the registration requirements of the Securities Act under
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1+ Form of Note Purchase Agreement.
3.1 Articles of Incorporation of the Issuer, as amended.(1)
3.2 By-laws of the Issuer.(1)
4.1+ Form of Indenture (the "Indenture").
4.2 The form of Note is included as an Exhibit 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 dated as of May 14, 1996, between the Issuer and
American Bank National Association.(1)
10.2 Purchase Agreement dated May 8, 1996, among the Issuer, Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch").(1)
10.3 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").(1)
10.4 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").(1)
10.5 Memorandum of Variation dated April 4, 1996 to the CTV Securityholders
Agreement, among UIHI, UIHA, Australis, SMH and CTV.(1)
10.6 Memorandum of Variation dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II, Australis, SMI and STV.(1)
10.7 Security Purchase Agreement dated December 21, 1995, between Media
International Holdings Limited ("MHL") and UIHA.(1)
10.8 Security Purchase Agreement dated December 21, 1995, between MIHL and
UIHA II.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Agreement dated December 21, 1995, among UIHI, UIHA and SMH.(1)
10.10 Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIHI, UIHA and SMH.(1)
10.11 Agreement dated December 21, 1995, among UIHI, UIHA II and SMI.(1)
10.12 Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II and SMI.(1)
10.13 Share Acquisition Agreement dated September 9, 1995, between Australia
New System L.P. and United Wireless, Inc. ("UWI").(1)
10.14 Option Agreement dated September 5, 1995, between UWI and Prodelin
Corporation (Australia) Pty Limited.(1)
10.15 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.(1)
10.16 Shareholders Deed dated June 30, 1995, among Century Communications
Corp., CPVC, UIHI, the Issuer and CUPV.(1)
10.17 Subscription and Investment Agreement dated July 8, 1994, among UIH
New Zealand, Inc. ("UIHNZ"), Todd International Ltd. ("Todd") and Kiwi
Cable Co. Ltd. ("Kiwi").(1)
10.18 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.(1)
10.19 Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and
Societe Francaise des Communications et du Cable S.A. ("Societe").(1)
10.20 Shareholders' Agreement dated January 11, 1995, among UIH-SFCC, L.P.
and the shareholders named therein.(1)
10.21 Franchise Agreement dated October 12, 1994, between Australis and
CTV.(1)
10.22 Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy Communications Pty Limited ("Galaxy") re: CTV Franchise
Agreement.(1)
10.23 Franchise Agreement dated October 12, 1994, between Australis and
STV.(1)
10.24 Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy re: STV Franchise Agreement.(1)
10.25 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and East
Coast Pay Television Pty Limited ("ECT").(1)
10.26 Technical Assistance Agreement dated October 12, 1994, between CTV and
United International Management, Inc. ("UIMI").(1)
10.27 Technical Assistance Agreement dated October 12, 1994, between STV and
UIMI.(1)
10.28 Stock Purchase Agreement dated July 3, 1996, among Kiwi Cable Company
BVI, Inc., the Issuer and UPI.(1)
10.29 Technical Assistance Agreement dated July 8, 1994, between Kiwi and
UIHI.(1)
10.30 Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe.(1)
10.31 Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIMI.(1)
10.32 Management Agreement dated May 1, 1996, between UIH Management, Inc.
and the Issuer, as assigned to UPI.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.33 Tax Allocation Agreement dated May 8, 1996, among UIHI, UPI, Inc. and
the Issuer.(1)
10.34 Employment Letter Agreement dated February 21, 1995, between UIHI and
Robert G. McRann.(1)
10.35 Securities Purchase Agreement dated June 19, 1996, between Australis
and the Issuer (CTV securities).(1)
10.36 Securities Purchase Agreement dated June 19, 1996, between Australis
and the Issuer (STV securities).(1)
12.1+ Statement re: Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.(1)
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP (UIH
Australia/Pacific, Inc.).
23.2 Consent of Independent Public Accountants--Arthur Andersen (CTV Pty
Ltd).
23.3 Consent of Independent Public Accountants--Arthur Andersen (STV Pty
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).
23.6 Consent of Independent Public Accountants--Coopers & Lybrand
(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>
---------------------
(1) Incorporated by reference from the Issuer's registration statement on
Form S-4 (SEC File No. 333-05017) filed on May 31, 1996.
* Previously filed
+ To be filed by amendment.
(b) Index to Financial Statement Schedules
None.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by a final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON THIS 21ST DAY OF NOVEMBER, 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.
<TABLE>
<CAPTION>
TITLE POSITION HELD
SIGNATURE WITH THE REGISTRANT DATE
--------- ------------------- ----
<S> <C> <C>
* Chairman of the November 21,
- ------------------------------------- Board 1996
GENE W. SCHNEIDER
* Chief Executive November 21,
- ------------------------------------- Officer and 1996
MICHAEL T. FRIES Director
/s/ Bernard G. Dvorak Chief Financial November 21,
- ------------------------------------- Officer and 1996
BERNARD G. DVORAK Director
Director November ,
- ------------------------------------- 1996
MARK L. SCHNEIDER
* Controller November 21,
- ------------------------------------- (Principal 1996
VALERIE L. COVER Accounting Officer
*/s/ Bernard G. Dvorak
- -------------------------------------
BERNARD G. DVORAK
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated November 18, 1996 on the consolidated financial statements of UIH
Australia/Pacific, Inc. included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
November 18, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 29 March 1996 on the consolidated financial statements of CTV Pty
Limited included in or made a part of UIH Australia/Pacific, Inc.'s Form S-1
registration statement.
ARTHUR ANDERSEN
Sydney, Australia
15 November 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 29 March 1996 on the consolidated financial statements of STV Pty
Limited included in or made a part of UIH Australia/Pacific, Inc.'s Form S-1
registration statement.
ARTHUR ANDERSEN
Sydney, Australia,
15 November 1996
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 20 February 1996 on the financial statements of Saturn
Communications Limited included in or made a part of UIH Australia/Pacific,
Inc.'s Form S-1 registration statement.
ARTHUR ANDERSEN
Wellington, New Zealand
15 November 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-1
and in each Prospectus constituting part of this Registration Statement, our
report dated March 15, 1996 on the financial statements 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.
November 15, 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-1
and each Prospectus constituting part of this Registration Statement of our
report dated February 16, 1996, on the financial statements of the TELEFENUA SA,
as of December 31, 1995, 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, November 15, 1996
COOPERS & LYBRAND TAHITI
